In a speech delivered by video to the Securities Regulation Institute in San Diego, SEC Chair Jay Clayton shed some light (but just a little) on the anticipated completion of the rulemaking mandates under Dodd-Frank.With regard to the outstanding Dodd-Frank executive comp mandate, Clayton indicated that we should expect a “serial” approach to rulemaking here. In particular, he noted that challenge of crafting new comp rules is compounded by the “complexity” of the existing “very colorful canvas” on which the SEC must work and observed that “different constituencies see the rules as serving different, and sometimes inconsistent, goals.” He also noted that “market developments—including developments resulting from shareholder engagement—have, at least in part, mitigated some of the concerns that motivated the statutory requirements. For example, several companies already have made public their policies regarding compensation clawbacks. Some of these policies go beyond what would be required under Dodd-Frank. We have seen a few companies attempt to claw back compensation from their executives under these policies.” These market developments will likely factor into rulemaking priorities. (So, presumably, clawback rules go to the end of the line?) He indicated that he was in discussion with the other commissioners about how best to proceed with regard to executive comp rulemaking.

The other Dodd-Frank mandate relates to the “specialized disclosure” requirements, such as resource extraction disclosure. You may recall that these rules lost in a court challenge, were significantly revised and reissued and then tossed out by action of Congress under the Congressional Review Act. However, in the absence of repeal of the Dodd-Frank mandate itself, the SEC had a year (which is shortly coming to a close) to issue a new rule on the same topic because the regulation was mandated by Congressional statute. (See this PubCo post.) In a deliberate understatement, Clayton observed that “there are many strong and divergent views on how these rules should be approached.” In addition, beyond the statutory mandate, the rules pose additional challenges, including compliance with the CRA and the near certainty of more litigation. Nevertheless, he maintained, the statute makes the SEC responsible for completing the rulemaking, and Clayton has asked the staff to craft new rules “that meet the objectives of Congress, take into account this array of procedural and substantive constraints, and bring finality to these matters.”

SideBar

Although he did not mention it, presumably, the SEC is also looking at rulemaking related to conflict minerals disclosure, as companies subject to the rule are still operating under the staff’s Updated Statement on the Effect of the Court of Appeals Decision on the Conflict Minerals Rule, issued in 2017 following the entry of final judgment by the D.C. District Court in National Association of Manufacturers v. SEC. You may recall that, in that case, the Court held that a part of the conflict minerals rule violated the First Amendment. Corp Fin’s Updated Statement advises that companies would not face enforcement if they performed only a reasonable country-of-origin inquiry, filed only a Form SD, did not conduct detailed supply-chain due diligence or prepare and file a conflict minerals report (Item 1.01(c) of Form SD) or have an audit performed — even if they would otherwise be required to do so under the rule. (See this PubCo post.) Although that Statement provides substantial relief to companies subject to the rule, very few companies took advantage of it last year. (See this PubCo post.) Some further action by the SEC may be in order here as well.