In what is likely to be her final public remarks as chairman of the Securities and Exchange Commission, Mary Jo White blasted political gamesmanship, ongoing partisan bickering, and current legislative efforts that could erode the agency’s independence and “cripple” both regulatory and enforcement efforts.
White’s speech, “The SEC after the Financial Crisis: Protecting Investors, Preserving Markets,” was delivered at The Economic Club of New York on Jan. 17. Her remarks came just three days away from completing her term as the 31st Chair of the Commission.
“There is a lot of discussion about how the new administration may weaken or even reverse many of the reforms that the Commission and our fellow financial regulators have implemented since the financial crisis,” White said. “While that is a concern that I very much share, my focus today reaches even further down the road to how, as we move beyond the regulatory response to the financial crisis, the SEC should continue to optimally protect investors and preserve our capital markets as fair, orderly, and efficient engines of economic growth.”
White’s bottom line: “For the SEC to be a strong market regulator, wiser from the experience of the financial crisis, we must be ready to use the full array of tools available to us—not relying on disclosure and enforcement alone.”
“We must do so with a fierce independence in applying our expert, best judgment to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate the formation of capital by the companies whose innovation and growth drives the American economy,” she added.
White described her tenure as serving on the first “post-crisis” Commission. “The passage of time has not dissipated the urgency of the question highlighted in the crisis about the Commission’s appropriate role in modern financial market regulation,” she said. “The continuing debate about the appropriate role of the SEC is no doubt partly due to the many statutory mandates given the agency over the last six years—many more than any other financial regulator, and many dealing with highly controversial issues.”
White described the Commission’s independence as something it has fiercely guarded over the years. “Not all of our actions and views have been uniformly praised,” she said. “They never have been. At the core of being a good steward of the mission of the SEC is acting independently from the executive and legislative branches of government, fighting for that independence whenever necessary, and withstanding the inevitable criticism and pressure to change that follows.”
“I strongly believe that the agency’s independence has been critical in allowing it to use its expert
White conceded that her tenure “has certainly been marked by hard decisions that have attracted criticism from both political parties.”
“We have been accused of both gutting regulation and suffocating the market with too much of it,” she said. “A few have attacked us for letting the crooks off with a slap on the wrist, while others say we are too tough or have targeted others simply to pump up our numbers. In short, the environment necessary for independent agencies to be able to do the jobs you all want us to do is not getting better. Indeed, recent trends have even raised the question of whether or not the independence of the SEC can be preserved at all.”
White cited “prominent trends” toward increasingly specific statutory mandates. “It is entirely appropriate for Congress to act to change the mission of the Commission or broadly direct the agency to address a new risk or market condition,” she said. “But the highly prescriptive mandates that we see today, which tell us exactly how we should act, are much different. This prescriptiveness frustrates the agency’s ability to exercise its expert discretion effectively, ultimately undermining the goal of the congressional mandate.”
Another current trend pushing against the independence of the Commission are the legislative proposals from Congress seeking to remake its rulemaking process. “The House passed a bill just last week that would impose conflicting, burdensome, and needlessly detailed requirements regarding economic matters in Commission rulemaking that would provide no benefit to investors beyond the exhaustive economic analysis we already undertake,” White said. These requirements would also prevent the Commission from “responding timely to market developments or risks that could lead to a market crisis.”
Elements of the CHOICE Act, which could be reintroduced in the current Congressional session, would similarly undermine agency rulemaking and “cripple” enforcement capabilities.
“These trends and similar ones create real consequences for the efficacy of the Commission, as well as for other independent regulators,” White said. “Most visibly, they tend to increase polarization within the Commission and make it harder to forge consensus. The strength and utility of the agency’s structure depends on an environment that rewards expertise and frank dialogue, not partisan affiliation and political games. If the ability and resolve of Commissioners to act independently diminishes, so too will the opportunity for solutions that, while politically unpopular, best serve investors and markets.”
“The agency depends on being able to consider all views and facts in making an expert assessment, which can be foreclosed by increasingly detailed statutory requirements or unthinking partisanship, whether by Congress or Commissioners,” she added. “If the SEC’s discretion is not meaningfully preserved, it would be to the significant detriment of both investors and the markets. Even a bipartisan Congress would not be nearly as well equipped to study and conclude the range of technical issues that are inherent in nearly every one of the SEC’s regulatory actions.”
The present moment “is a delicate one” and the Commission “is more susceptible than ever to the erosion of its expertise and authority by the partisan tides,” White said. “It will remain independent—and therefore able to meet its broad range of critical responsibilities—only with Commissioners equipped and motivated to act expertly and with only our mission in mind. It will also be up to others, including Congress, to offer an unwavering defense—not of the SEC’s actions—but of the agency’s independence and the right of the Commission to exercise it to further our critical mission.
I believe today’s SEC is deserving of that defense,” she said, in what may be her final public remarks as chairman. “I believe that Americans across this country are clearly deserving of a Commission that is empowered to independently carry out its unique and critically important obligations to investors and to our capital markets.”