Securities and Exchange Commission (SEC or Commission) Chairman Jay Clayton summarized the Commission’s 2018 achievements and outlined the SEC’s top priorities for 2019.
In summarizing 2018 accomplishments, Clayton highlighted that the SEC advanced 23 of the 26 rules on the Commission’s near-term agenda. He specifically discussed Regulation Best Interest, which would require broker-dealers to act in the best interest of their retail customers and clarify the fiduciary duty owed by investment advisers to their clients. With respect to the SEC’s efforts to facilitate capital formation, Clayton cited the Commission’s amendments to the smaller reporting company definition, as well as rules that eliminate disclosure requirements that are outdated, overlapping, or duplicative of other Commission rules or U.S. GAAP.
The 2019 Initiatives
Chairman Clayton’s speech was also forward-looking since he outlined the initiatives the SEC plans to pursue in 2019. The SEC’s regulatory to-do-list includes: finalizing Regulation Best Interest and its mandatory plain language disclosures as well as addressing the regulation of proxy advisory firms.
There should be greater clarity regarding the division of labor, responsibility and authority between proxy advisors and the investment advisers they serve. We also need clarity regarding the analytical and decision-making processes advisers employ, including the extent to which those analytics are company or industry-specific. On this last point, it is clear to me that some matters put to a shareholder vote can only be analyzed effectively on a company-specific basis, as opposed to applying a more general market or industry-wide policy.
Also on the SEC’s rulemaking agenda is the so-called JOBS Act 3.0, which includes provisions to expand ‘testing-the-waters’ and study of the SEC’s quarterly reporting regime. Rulemakings relating to expanding Regulation A for public reporting companies is also coming in 2019.
Concerning capital formation and investment opportunities, Clayton indicated that the Division of Corporation Finance is looking at the private offering framework. According to Clayton, “Our ‘patchwork’ private offering system is complex and it is time to take a critical look to see how it can be improved, harmonized and streamlined.” Specifically, SEC staff is developing a concept release seeking industry input about key topics, including whether the accredited investor definition is “appropriately tailored to address both investment opportunity and investor protection concerns.”
Not surprisingly, distributed ledger technology, digital assets and initial coin offerings (ICOs) continue as a top focus in 2019. “I believe that ICOs can be effective ways for entrepreneurs and others to raise capital,” Clayton said. “However, the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed.”
From an enforcement perspective, Clayton stated that the SEC will continue to prioritize cybersecurity in its examinations of broker-dealers, investment advisers and critical market infrastructure utilities. “In assessing how firms prepare for a cybersecurity threat, safeguard customer information, and detect red flags for potential identity theft, for example, we have focused on areas including risk governance, access controls, data loss prevention, vendor management and training, among others,” Clayton stated. “And given the interconnectedness of our markets, we will continue to work closely with our counterparts at other federal financial regulatory agencies and the international community.”
Finally, Clayton noted that the SEC is monitoring three risk areas: the impact to reporting companies of the United Kingdom’s exit from the European Union (Brexit); the transition away from LIBOR as a reference rate for financial contracts; and cybersecurity.
If you have any questions, please contact us
If you have any questions or would like to discuss the matter further, please contact me, Paul A. Lieberman, at 201-806-3364.