Yesterday, the SEC published for public comment a draft of its strategic plan for fiscal 2022 to 2026. According to SEC Chair Gary Gensler, the SEC “can't take our leadership in capital markets for granted….Technology and business models always are changing, and it is important for our agency to evolve in kind. Through the goals we've laid out in this strategic plan, we will continue to bring a skilled and steady hand to the capital markets of a changing world. We look forward to reviewing public comments.” Here is the press release and the request for public comment. The SEC regularly develops strategic plans, and as is the nature of strategic plans, they tend to be long on gauzy statements of high-minded, ambitious objectives and short on details.
The draft strategic plan establishes three primary goals:
- “Protecting working families against fraud, manipulation, and misconduct;
- Developing and implement a robust regulatory framework that keeps pace with evolving markets, business models, and technologies; and
- Supporting a skilled workforce that is diverse, equitable, inclusive, and is fully equipped to advance agency objectives.”
Each of the three primary goals has several components. For example, the first goal, protecting working families against fraud, involves (1) the pursuit of enforcement and examination initiatives focused on identifying and addressing risks and misconduct that affects individual investors,” e.g., treating “like cases alike” by looking at “the economic realities of a given product or arrangement to determine whether it complies with the securities laws”; (2) enhanced use of data analysis, “market and industry data, particularly to prevent, detect, and enforce against improper behavior”; and (3) modernizing “design, delivery, and content of disclosures so investors, including in particular retail investors, can access consistent, comparable, and material information to make informed investment decisions,” including updating the disclosure framework to address “issuers' climate risks, cybersecurity hygiene policies, and their most important asset: their people.” Of course, climate disclosure, cybersecurity and human capital disclosure are all on the SEC's most recent agenda. (See this PubCo post.)
SideBar
The SEC has used data analysis to great effect. For example, the SEC's Climate and ESG Task Force in the Division of Enforcement uses “sophisticated data analysis to mine and assess information across registrants, to identify potential violations.” (See this PubCo post.) In a 2016 speech, then-SEC Chair Mary Jo White touted the SEC's “vastly increased use of data and data analytics to detect and investigate misconduct” as a “transformative” approach to securities enforcement, leading to charges in over 100 cases and nine insider trading cases. And in a 2019 speech, then-SEC Chair Jay Clayton discussed the importance of the SEC's data analytics effort in several cases, including trading pattern recognition to identify an alleged scheme to misuse confidential information and another insider trading case involving careful analysis of trading in the window between when the material nonpublic information was extracted and when it was disseminated to the public. Enforcement has also used data analytics to identify an alleged failure to disclose perks (see this PubCo post), to detect fraud red flags in loan applications under the PPP program (see this PubCo post), and to uncover improper earnings management (see this PubCo post).
The second goal of keeping pace with evolving markets and technologies as they create new efficiencies and risks, such cybersecurity threats, involves (1) updating “existing SEC rules and approaches to reflect evolving technologies, business models, and capital markets,” including the “ongoing movement of assets into private or unregulated markets, the continual creation of new financial instruments and technologies, and the challenges of increased globalization”; (2) looking at “strategies to address systemic and infrastructure risks faced by our capital markets and our market participants,” such as the risk created by the pandemic; and (3) recognizing “significant developments and trends in our evolving capital markets and adjust our activities accordingly,” such as crypto.
The third goal of supporting a skilled diverse workforce relates to actions at the SEC to increase agency workforce capabilities and promote diversity, promote collaboration across offices, enhance internal control and risk management capabilities and modernize technology.
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