A new era at the SEC officially began last week when Jay Clayton was sworn in as the 32nd Chairman of the SEC. The Senate’s confirmation of Mr. Clayton on May 2nd by a 61 to 37 vote continued the Trump Administration’s practice of tapping well-known Wall Street professionals to serve in key government positions.
In this case, Mr. Clayton was a partner in the New York office of Sullivan & Cromwell, where according to the SEC’s news release he advised companies on “securities offerings, mergers and acquisitions, corporate governance and regulatory and enforcement proceedings.” These companies notably included Goldman Sachs, which has been a recurring theme with President Trump’s appointees. While his former ties will, no doubt, prevent Mr. Clayton from participating in SEC matters directly related to Goldman Sachs, his Wall Street background could well influence his perspective regarding the SEC’s future regulatory agenda.
That agenda is expected to shift toward re-analyzing the regulations implemented as a result of Dodd-Frank while Congress seeks to roll back many of that act’s statutory imperatives. For example, a bill currently making its way through the House, known as the Financial Choice Act, would among other things and according to its executive summary:
- Provide an “off-ramp” from the post-Dodd-Frank supervisory regime and Basel III capital and liquidity standards for banking organizations that maintain high levels of capital, including easing restrictions on their ability to pay dividends and the maintenance of leverage ratios,
- Repeal the designation of firms as “systematically important financial institutions” and modify the bankruptcy code to accommodate the failure of large, complex financial institutions, thereby eliminating Dodd-Frank’s “orderly liquidation authority,”
- Repeal the Consumer Financial Protection Bureau’s authority to ban bank products or services that it deems “abusive” and to prohibit arbitration,
- Impose enhanced penalties for financial fraud and self-dealing, promote greater transparency and accountability in the civil enforcement process and increase the maximum criminal fines for individuals and firms that engage in insider trading and other corrupt practices,
- Repeal sections of Dodd-Frank, including the Volcker Rule, that limit capital formation,
- Repeal the SEC’s authority to eliminate or restrict securities arbitration,
- Permit all companies to communicate confidentially with the SEC pre-IPO, and
- Prohibit regulation by the SEC of proxy access.
Of course, the Financial Choice Act will go through multiple revisions and may never actually become law, but it provides insight into the types of issues Congress is currently considering.
Given the current political climate, one might also expect the scope of the SEC’s fresh perspective to eventually reach all the way back to the Sarbanes-Oxley Act. For example, it would not be surprising to see reconsideration of requirements related to internal controls over financial reporting, particularly those involving the costly burden of auditor assessments.
One might also expect this to be the last year for mandatory reporting regarding conflict minerals. Although many (most? nearly all?) companies won’t be sorry to see it go, expect some companies to continue to provide voluntary conflict minerals disclosure when they publicly discuss corporate responsibility, sustainability or governance generally. Many stakeholders will continue to deem this to be an important issue, even if disclosures become no longer mandatory. (See this Doug’s Note.)
So while the Trump Administration is clearly emphasizing “deregulation,” implementing that theme will likely produce a spate of new or amended regulations over the coming years as the SEC recalibrates to match its perception of a more business-friendly and capital markets-friendly environment. Stay tuned.