Regulation Watch: The enforcer is here

Jay Clayton named his ex-Sullivan & Cromwell colleague Steven Peikin as co-head of the US Securities and Exchange Commission enforcement division on 8 June. He will work alongside Stephanie Avakian who has been acting head of the unit since December. He was formerly a managing partner of Sullivan & Cromwell’s defence and investigations group, where his clients included Goldman Sachs and Barclays Bank.

The implications of having the pair at the helm of the division on the level of enforcement action is unclear. Democrats fear Peikin’s relationship with some of Wall Street’s biggest names will make him go easy on financial misconduct, while Republicans argue Peikin’s past as a prosecutor makes him unlikely to turn into a light-touch regulator.

But whether they, and their division, will be able to issue subpoenas to suspected violators of securities law is yet to be established. In February, acting SEC chairman Michael Piwowar began requiring division directors to approve such requests. Clayton, sworn in as chairman in May, has not confirmed whether he will maintain this policy.

The House of Representatives voted in favour of the Financial Choice Act, a piece of legislation that calls for the abolition of the Volcker Rule and the removal of the requirement for private fund firms to register with the SEC.

Following the vote, the Institutional Limited Partners Association reiterated its concerns that the legislation would negatively affect investors. Its then chief executive Peter Freire said the legislation “eliminates a regulatory structure that has been extremely beneficial to fostering transparency, disclosure and sound governance within the private equity industry”.

It follows a letter the association sent to the House of Representatives Financial Services Committee in which it said sections 858 and 859 of the bill, which will remove the registration requirement, will hurt LPs and their beneficiaries by removing regulatory oversight.

In Europe, the Danish parliament approved government proposals for greater oversight of pension fund investments in alternatives after the Danish Financial Supervisory Authority (Finanstilsynet) outlined concerns over the process.

The Parliamentary Finance Committee has granted a total of DKr13 million ($2 million; €1.7 million) to Finanstilsynet to help strengthen the controls of the body, with part of the added responsibility also allocated to strengthening cybersecurity efforts in the financial services sector.

The New Jersey State Investment Council will be legally required to disclose the fee and carried interest it pays to private fund managers if a state bill is approved.
The Council would have to report its external fund managers’ fee and carried interest data on its website, and to the boards of trustees of each state-administered retirement system in New Jersey.

The NJSIC supervises the New Jersey Division of Investment, which manages the seven state pension funds, totalling $72.9 billion. It began reporting the data in 2015, following stakeholder pressure, but is not legally obliged to do so.