In testimony before the U.S. Senate Banking Committee, SEC Chair Jay Clayton outlined the SEC's broad regulatory agenda. He announced that SEC rulemaking plans for the coming year would be published in a Regulatory Flexibility Act Agenda, noting that the SEC is considering how to advance statutorily mandated items under FAST and Dodd-Frank while also pursuing other central initiatives.

Chair Clayton highlighted the importance of facilitating capital formation, the decline in initial public offerings and the resulting narrowing of investment options for Main Street investors. This decline, he said, has resulted not only in shrinking investment opportunities, but also in less available market data. In order to "restor[e] vibrancy" in public markets, he advocated for multiple measures to further institute a scaled disclosure and a regulatory regime that prioritizes efficiency in the going public process. Chair Clayton also noted other recent efforts, such as allowing for companies to submit voluntary draft registration statements for certain offerings to be confidentially evaluated by Commission staff (see previous coverage).

On implementing standards of conduct for investment advisers and broker-dealers in light of the Department of Labor ("DOL") fiduciary rule, Chair Clayton described broker-dealer and fund responses to the DOL rule partially going into effect, and emphasized the importance of a constructive ongoing engagement between the regulators to implement appropriate standards. He noted that the DOL and the SEC have vastly different mandates, processes and jurisdictions, and that their respective actions will have effects that extend far into the jurisdiction of the other agency. In that light, he stressed the importance of the SEC working "closely" with the DOL to ensure that the agencies implement standards to "best serve the interests of investors." He noted vast marketplace changes since the SEC last solicited information and its June 2, 2017 request for new information and comments on appropriate standards (see previous coverage).

Chair Clayton also addressed a number of other significant areas, as follows:

  • CEO Pay Ratio Disclosures. Chair Clayton noted that the existing SEC rule is required by law and will continue to be implemented, but highlighted efforts to provide useful interpretive guidance (see previous coverage).
  • Market Structure Reforms. Chair Clayton expressed support for current efforts to amend Regulations ATS and NMS to increase market transparency and discussed a number of ongoing initiatives in the space. He also discussed ongoing development of a consolidated audit trail ("CAT") pursuant to the CAT NMS Plan. He acknowledged the sensitivity of the data consolidated by a CAT plan processor and discussed plans for review and oversight to ensure effective security controls. Regarding fixed income markets, Chair Clayton announced that the time had come for the Commission to include these markets in its review of market structure. He also said that he is coordinating with CFTC Commissioner J. Christopher Giancarlo to work on harmonizing rules and regulations for security-based swap regulation.
  • Enforcement Priorities. Chair Clayton said that the SEC Enforcement Division will focus efforts on retail investor fraud, investment professional misconduct, insider trading, market manipulation, accounting and cyber crime.
  • OCIE Examinations. Chair Clayton announced that the SEC has reassigned a significant number of staff members to the Investment Adviser examination unit, has increased the number of examinations and will continue to develop data analysis tools to tailor examination decisions to firms with potentially problematic activities.

Chair Clayton provided an overview of SEC internal operational efforts and budgeting needs. He also outlined the SEC budget request for fiscal year 2019, which he said would help to enhance technological capabilities and facilitate other key initiatives.

Commentary / Jeff Robins

Chairman Clayton's testimony – his first since being confirmed – is quite comprehensive and provides significant guidance on SEC actions to expect over the course of the next year. His discussion of securities offering, disclosure and market structure reforms are particularly worth review, as is his discussion of the state of the public's awareness of cybersecurity risk. In addition, derivatives dealers should take note that Clayton highlighted the need to address statutorily mandated rulemakings under Dodd-Frank in the SEC's upcoming public regulatory agenda.

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