What’s ahead for the Securities and Exchange Commission in 2015? Speaking at the Practicing Law Foundation’s annual “SEC Speaks” forum in Washington D.C. on Friday and Saturday, various Commissioners detailed their personal priorities for the year ahead.
In what may be music to the ears of many legal departments, Commissioner Michael Piwowar expressed his concern with the SEC’s recent reliance on in-house administrative proceedings, bypassing federal district courts. “This change has the appearance of the Commission looking to improve its chances of success by moving cases to its in-house administrative system,” he said. In fiscal year 2014 the SEC won 61 percent of federal court trials, but was successful in 100 percent of its administrative proceedings
In administrative proceedings, there is no jury and cases are presented to administrative law judges that are employees of the Commission. Also, discovery available to defendants is more limited. Piwowar proposed that the SEC implement guidelines for determining which cases are brought in administrative proceedings and which in federal courts. Two other areas that also would also benefit from the consistent application of publicly stated guidelines are the imposition of corporate penalties and the issuance of waivers, he said.
Piwowar was also critical of the increasing length of the releases that accompany and explain the Commission’s rules. “It is becoming the norm that our adopting rule releases number well over 500 pages,” he said. “While some of this length can be attributed to a more robust economic analysis, a significant portion is simply an attempt to explain the new rules or amendments. Where 500 or 1,000 pages are required to explain the rules we have adopted, the Commission must ask itself whether our rule text is too complex for market participants to reasonably understand and apply.”
Piwowar is also concerned that “rather than merely explaining our rules, these documents now include extensive guidance akin to rulemaking.” The most recent amendments to the SEC’s money market fund rule included key guidance that he says was akin to rulemaking for all mutual funds, not just money market funds, but “was buried in a footnote within an almost 900-page release.”
“Perhaps we can start by breaking rulemakings into smaller pieces contained in multiple releases rather than in one omnibus rulemaking,” he suggested.
Commissioner Kara Stein spoke of the need to rethink the current disclosure regime so that it can “keep pace with a digitized and data-centric market.”
“How will disclosure be used in the year 2020? How will data be used in 2020? I believe that now is the time to consider a fundamental shift in disclosure, a shift that is driven by a commitment to transparency and an enhanced user experience,” she said. “Instead of focusing on pushing data and information to investors, can investors and others access data dynamically or in real-time?”
Stein lamented that, “in the last 20 years, technology has evolved, but EDGAR [the SEC’s electronic filing system] hasn’t changed much. “While our IT staff has made important updates, EDGAR has not kept pace with technological advances,” she said. “We should be thinking broadly about new and creative ways to make the information contained in the filings more accessible to investors… We should be moving to a world in which investors can request and direct the type and the quantity of data they receive: from basic details about a company to more detailed and robust information.”
With the computing and data crunching power available today, “additional layers could provide investors with direct access to raw corporate data,” Stein added.
A goal for 2015 is for the SEC to improve staff diversity, said Commissioner Luis Aguilar. As of January 2015, 33 percent of the SEC’s workforce were persons of color, and just 13 percent were at the senior employee level. “Two of our operating divisions had no minority senior officers—zero,” he said. “Although our lack of diversity is well-known and has been publicly discussed many times, the SEC’s recent hiring activity has not resulted in much improvement in our numbers.”
Aguilar cited a November 2014 report by the SEC’s Office of Inspector General that found made the disturbing finding that, “some minority groups and women…received relatively fewer and smaller cash awards and bonuses; and experienced statistically significant lower performance management and recognition scores.”
As for Chairman Mary Jo White, she reiterated her hope that the Commission will expeditiously complete what remains of the Commission’s Dodd-Frank Act obligations, drafting rules in the area of derivatives and executive compensation.