Two of our items today focus on remarks by new SEC Chairman Jay Clayton and, if they are any indication of the direction the new Chairman intends to take the Commission, they could go a long way to assuaging many of the concerns that have been expressed in recent months.
It’s no secret that the appointment of a Chairman who had been a “Wall Street lawyer,” by a President who has expressed skepticism about overregulation, raised fears in some quarters that the protection of investors would be ignored in favor of other constituencies, and that by reducing the number of rules, there would be a return to practices that brought about earlier market disruptions. Yet Chairman Clayton said a number of things in his recent remarks that should provide investors and other market participants with a great deal of comfort that their concerns are unfounded.
For example, Chairman Clayton expressed clear support for promoting transparency for retail investors, pointing specifically to efforts to improve transparency in the fixed-income markets and protecting “Main Street investors – particularly older investors” by providing them with tools to make informed investment decisions. Most importantly, he emphasized that detecting and punishing fraud, particularly fraud on retail investors, “is a high priority for me.” Explaining that “there is simply no room for bad actors in our capital markets” and that “[f]raud hurts innocent investors and undermines confidence in our markets,” he promised that “we will continue to vigorously pursue those that seek to do harm” and to educate investors on how to protect themselves from fraud. In one set of remarks, he noted that in the SEC’s latest budget, more than 50 percent of the resources requested would go to enforcement and examination programs.The goal is to “root out fraud and wrongdoing in our financial system.” He emphasized the SEC Division of Enforcement’s efforts to bring civil charges against violators, stating that successful enforcement with significant sanctions can deter future wrongdoing while returning ill-gotten gains to victimized investors. He also touted the SEC’s national examination program.
If one reflects on the Chairman’s comments in light of the concerns raised at the outset of his tenure, one can begin to see what many of us who live in this space have long argued – that streamlining regulation does not mean deregulation or under-regulation. Quite the contrary, eliminating outdated regulations and avoiding the trap of adopting rules that add cost and effort without any clear benefit, and instead focusing everyone’s efforts and resources on adding efficiency and transparency to the markets, educating investors to make better decisions, and catching and punishing those who engage in fraud and other forms of misconduct, is a more effective and beneficial approach to regulation.
If the new Chairman can succeed in this endeavor, he will indeed have accomplished something noteworthy.