The Securities and Exchange Commission has a new chairman.
After months of debate and hearings, on May 2 the Senate Confirmed President Donald J. Trump’s nomination of Jay Clayton to serve as chairman of te Securities and Exchange Commission, fillinhg the seat vacated by Obama Administration chair Mary Jo White.
The final vote to approve Clayton was 61 to 37.
Clayton was previously a partner with the law firm Sullivan & Cromwell and, by many accounts, is a master of corporate deal making with a long and distinguished career advising on public and private mergers and acquisitions transactions, capital markets offerings, and regulatory and enforcement proceedings.
“Mr. Clayton is a highly regarded and exceptionally qualified candidate to lead the SEC. His comments, experience, and actions provide me with the utmost confidence that he will lead the SEC with the highest integrity and effectiveness, while ensuring the United State’s markets remain the envy of the world,” Sen. Mike Crapo (R-Idaho) said prior to the final vote.
Top Senate Democrats were not among those supporting Clayton’s nomination.
Clayton faces a host of conflicts of interest due to the long list of giant banks and corporations that he has represented as one of Wall Street’s top lawyers, argued U.S. Sen. Sherrod Brown (D-Ohio), ranking member of the Senate Banking, Housing, and Urban Affairs Committee.
“The most basic duty of the chair of the SEC is leading his fellow commissioners through tough issues and policing Wall Street,” Brown said. “Mr. Clayton will fall short. Woefully short.”
“His law firm and former clients will create a steady stream of conflicts for him, forcing him to recuse himself in cases involving former clients for two of the four years he could serve as chairman,” he added. “He will be sitting on the sidelines of potential enforcement actions against some of the biggest Wall Street banks —Goldman Sachs, Deutsche Bank, Royal Bank of Canada, and UBS.”
“This is not a theoretical concern,” Brown added, pointing out that White faced conflicts and recusals in more than four dozen enforcement investigations in her first two years. “In those cases, big corporations, like Bank of America, used those recusals to their advantage when the Commission was deadlocked. This undermines the Commission’s authority.”
Brown also criticized Clayton for failing “to provide clear answers to questions about how he would approach enforcement matters.”
“He gave empty answers about punishing bad actors and individual accountability,” he said. “According to Mr. Clayton, the SEC should proceed with caution even before opening an investigation, because even commencing an investigation ‘can have serious adverse impacts on respondents.’ He has it totally backward. Not investigating companies that may be committing fraud or other abuses because it might create problems for them should not be the policy of the SEC.”
Brown took the opportunity to slam Acting Chairman Michael Piwowar, who now returns to his role as a commissioner with Clayton’s confirmation.
“[He] began undermining the SEC’s enforcement division in his first month on the job,” Brown said. “He reversed steps taken by the two previous chairmen that empowered the SEC’s enforcement staff to open and pursue investigations. If Mr. Clayton is confirmed, he will also have to answer for the unilateral rollback of final Wall Street reform rules that [he] has undertaken.”
During his tenure, Piwowar reopened the comment period on the SEC’s conflict minerals rule and CEO-to-worker pay ratio disclosure.
“Mr. Clayton failed to give an iota of support to anything other than boosting corporate bottom lines,” argued Sen. Bob Menendez (D-N.J.) “He spoke exclusively about reducing compliance and registration costs for companies. That’s all fine, but not at the expense of critical investor protections and of healthy, stable and fair markets for the economy at large. Without strong protections and disclosures, we will sacrifice investor confidence. And when we sacrifice investor confidence, less capital will flow through our markets. “
Following his confirmation, the Financial Services Roundtable—an organization representing the nation’s largest integrated financial services companies—urged Clayton and the SEC “to promote public policies and regulatory reforms that protect investors, promote strong and liquid capital markets, and thereby spur economic growth.”
“The SEC plays an important role in protecting investors while also ensuring inefficient or outdated regulations don’t block economic growth. FSR looks forward to working with the SEC on regulatory initiatives that will have a positive impact on the economy including a ‘best interest standard’ for retail investors, regulatory harmonization, simplified financial disclosures and more to benefit Americans,” CEO Tim Pawlenty said.
As the SEC reexamines the financial regulatory landscape, FSR called upon Clayton to prioritize the following:
Adopting a “Best Interest Standard” for all retail investment accounts, including retirement accounts.
Allowing electronic delivery of investment company reports to shareholders, with an opt-in for paper delivery.
Improvements for market data fees and access and voting representation for buy-side and broker-dealer firms on governance plans.
Coordinating financial regulatory policies—especially SEC and CFTC rules applicable to equities and futures markets—to avoid overlap and conflict.
Harmonizing cyber-security compliance standards with other financial regulatory agencies.
Simplifying investor disclosures to help investors make informed decisions while avoiding information overload that could dissuade recipients from reviewing the information.
The group also urged Clayton to simplify existing derivatives rules for mutual funds and business development companies. Ideally, the SEC will “ensure that any rule for mutual funds is more consistent with global standards,” it said.