New Priorities at the SEC

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In some respects, the approach of the Securities and Exchange Commission (SEC) over the last year represents an evolution of its existing policy. That’s most evident in its commitment to transparency, which has only intensified in the last year.

The regulator now publishes not just its exam priorities at the start of each year¹ but also an increasing number of risk alerts and notices on an almost continual basis, as well as seminars, webinars and other initiatives. Its intention is to be as clear as possible with those it regulates about its expectations.

As the director of the Office of Compliance Inspections and Examinations (OCIE), Peter Driscoll, put it in a speech to investment advisers in September: “[E]xaminations are not the only avenue for OCIE to fulfill its mission. As a means of improving and promoting compliance, OCIE has increasingly added outreach events as a way to educate and engage with the industry.”

The hope, he continued, was that increased transparency of OCIE’s priorities would enable firms to focus their internal compliance and “anticipate and pre-emptively solve common compliance issues.”² 

But advisers should take note that greater transparency will require firms to proactively monitor and properly address these issues.

While the commitment to transparency regarding its priorities remains, the nature of the regulator’s priorities has changed. Under new leadership, the SEC has abandoned its “broken windows” policy brought in under former Chair Mary Jo White, which encouraged enforcement action for even fairly trivial compliance failures; “no infraction was too small.”³

In October, Steven Peikin, co-director of the SEC’s enforcement division, suggested the regulator was dropping that approach.⁴ In its place, new Chair Jay Clayton is focusing the agency on investor protection, particularly for retail investors. The new rule from the SEC is first, do no harm.

Combine that with the emphasis on transparency to pre-empt and avoid enforcement action, and this may well mean fewer cases in the future, as some have suggested.⁵ 

But it also means the SEC is, first, clearer than ever with its expectations, and, second, likely to come down hard where it sees real wrongs being done to investors. Firms that willfully or negligently fail to follow its guidance are unlikely to find the new regime has a light touch.

Sources:
¹ https://www.sec.gov/ocie 
² https://www.sec.gov/news/speech/speech-driscoll-2017-09-14 
³ https://www.sec.gov/news/speech/spch100913mjw 
⁴ https://www.wsj.com/articles/sec-signals-pullback-from-prosecutorial-approach-to-enforcement-1509055200 
⁵ https://www.washingtonpost.com/news/business/wp/2017/11/23/wall-streets-watchdog-is-pursuing-fewer-cases-since-trump-took-office/?utm_term=.7211e1807eae