Detail emerges on SEC's new direction

The re-emergence of Hester Peirce, extension of the JOBS act and silence over enforcement division powers all point to a change in direction for the US regulator.

Securities and Exchange Commission chairman Jay Clayton has been tight-lipped on the general policy direction of the regulator under his stewardship, but evidence is mounting that its focus will move towards capital formation and away from enforcement.
Here are four key pointers to an emerging change in direction.

1. Jay Clayton’s first big policy change – extension of the Jumpstart Our Business Startups Act
Earlier this month, a regulation allowing the private filing of initial public offering documents was extended to cover private equity firms with the aim of encouraging more IPOs.

“By expanding a popular JOBS Act benefit to all companies we hope that the next American success story will look to our public markets when they need access to affordable capital,” Clayton said.

Private equity IPO value fell 45 percent year on year in 2016, according to EY, and to its lowest level since 2012.

The SEC has expressed concern about the decline in IPOs, not just from the private equity sector. It argued start-ups going public are more innovative than large companies and “account for a substantial percentage of the jobs created each year.”

2. The re-nomination of Dodd-Frank Act opponent Hester Peirce as commissioner
President Donald Trump has nominated Hester Peirce, a staunch opponent of the Dodd-Frank Act and the Volcker Rule, and a supporter of Clayton’s approach to regulatory reform, to fill a vacancy on the SEC commissioner panel.

Peirce’s name was thrown into the ring during the Obama administration, but her nomination was rejected by Democrats opposed to her Dodd-Frank stance.

Peirce, a research fellow at a conservative think-tank and former SEC attorney, said the Volcker Rule has taken up much regulatory and industry attention and resources “that could have been spent on pressing issues like cybersecurity.”

She has also written positively about Clayton’s overall approach to regulatory reform, saying he is “searching for better ways to ensure that our public securities markets are an efficient and safe place for investors and companies to meet their complementary goals.”

3. Radio silence on enforcement division powers
Clayton is yet to say whether he will allow enforcement division staffers to issue subpoenas on their own authority, as was the practice in recent years. In February, then-acting chairman Michael Piwowar began requiring division directors to approve such requests.

It was previously common practice for officials in the enforcement division to issue subpoenas and negotiate settlements without commissioner participation, except in the biggest and most sensitive cases. The policy was expected to reduce the number of compliance examinations.

The appointment of Steve Peikin, an ex-colleague of Clayton’s at Sullivan and Cromwell, and Stephanie Avakian as co-heads of the enforcement division also cast doubt on the future number of examinations. Democrats fear Peikins relationship with some of Wall Street’s biggest names will make him go easy on financial misconduct, but Republicans argue his past as a prosecutor means he’s unlikely to turn into a light-touch regulator.

4. The mixed message delivered in its annual budget
The agency is on track to deliver a 20 percent increase in the number of examinations in 2017, Clayton told the Senate during his presentation of the agency’s budget. But he has requested a $1.6 billion budget for the forthcoming fiscal year, essentially the same as its 2017 total, and data for the first half show that enforcement actions fell 11 percent year on year.

“It’s going to make it extremely difficult to increase its current examination cycle for investment advisors,” said Duane Thompson, senior policy analyst for a fiduciary training and accreditation firm, adding that the SEC could be hitting a ceiling given its budget request.