SEC Commissioner Hester Peirce has issued a scathing statement in response to the SEC’s Spring 2022 regulatory agenda, critical of the substance and pace of recent rulemaking.
“Just as certain wave and wind conditions can create dangerous rip currents, the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets,” Commissioner Peirce argued in her June 22 statement.
Earlier the same day, the SEC released its semiannual regulatory agenda, which lists regulatory actions that the Commission plans to take in the short- and long-term. Included among the more that 50 items listed are the SEC’s rulemaking on climate change disclosure, proxy voting advice and corporate board diversity.
Dividing her critique into two sections, Peirce, who remains the lone Republican commissioner until Mark Uyeda is sworn into office, contends that:
- the rulemaking proposals are largely disconnected from the SEC’s core mission; and
- the agenda breaks with the longstanding tradition of deliberative rulemaking that facilitates broad participation by affected market participants.
Among other things, Peirce contends that the agenda continues to shun issues at the core of the SEC’s mission in “favor of shiny objects” outside its jurisdiction. “We used to focus on companies’ disclosure of economically material information; we now focus on disclosure of hot-button matters outside our remit. We once sought to protect retail investors; we now rush to the aid of professional investors. We once worked to help small and emerging companies raise the funds that are their lifeblood; we now work to increase their costs and shrink their investor base,” Peirce argues.
She does acknowledge that the agenda includes some important mission-focused rules, such as updates to the investment adviser custody rules, data security rules for the Consolidated Audit Trail, updates to the electronic recordkeeping rules for broker-dealers, and rules to shift from paper to electronic filings, yet notes that it drops or postpones indefinitely too many others.
Moreover, Peirce notes that although the agenda includes rules that might regulate crypto protocols or platforms through an unmarked backdoor, it does not appear to include any rules primarily intended to grapple with the main regulatory questions that have arisen around these assets.
Process Concerns
And compounding the substance concerns are process concerns, the Republican commissioner further contends. “The Agenda’s timetables reveal that the rush of radical rulemakings remains relentless, despite pleas from almost every type of market participant and other interested party that the Commission slow down so that the public can catch up and provide meaningful input on our outstanding proposals,” she observes.
Peirce emphasizes that issuing three to five proposals per month is not consistent with affording the public time to thoughtfully consider—let alone comment on—how such changes will affect investors, markets or day-to-day business operations of market participants. Moreover, she’s concerned that the volume of comment requests will give even greater weight to the views of bigger players and mute the voices of retail investors, smaller advisers, broker-dealers, mutual funds and companies that lack the resources necessary to address the proposals.
Following are some of the regulatory projects on the SEC’s agenda and their timelines.
- Amendments to the Custody Rules for Investment Advisers (RIN: 3235-AM32): Whether to propose new rules under the Investment Advisers Act to improve and modernize the regulations around the custody of funds or investments of clients by investment advisers (October 2022 target date for release).
- Rules Related to Investment Companies and IAs Addressing ESG Factors (RIN: 3235-AM96): The SEC in May proposed new requirements for investment companies and investment advisers related to environmental, social and governance (ESG) factors, including ESG claims and related disclosures (the agenda shows an October 2022 target date, although a proposal has already been released).
- Fund Fee Disclosure and Reform (RIN: 3235-AN12): Whether to propose changes to regulatory requirements relating to registered investment companies’ fees and fee disclosure (October 2022 target date for release).
- Digital Engagement Practices for Investment Advisers (RIN: 3235-AN14) and Broker Dealers (RIN: 3235-AN00): Whether to propose rules related to the use of predictive data analytics, differential marketing and behavioral prompts (October 2022 target date for release).
- Mandated Electronic Filings (RIN: 3235-AM15): Adopting amendments to Regulation S-T that would update the mandated electronic submissions requirements to include additional filings, including Form 144, Form 11-K and Form 6-K. The Commission has an October 2022 target date for final action.
- Climate Change Disclosure (RIN: 3235-AM87): The Commission issued proposed rules in April to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities and currently has an October 2022 target date for final action.
- Cybersecurity Risk Governance (RIN: 3235-AM89 and RIN: 3235-AN08): The Commission proposed separate rules to enhance and standardize disclosures regarding cybersecurity risk management and incident reporting by public companies and by investment advisers. The SEC currently has an April 2023 target date for final action on both items.
- Proxy Voting Advice (RIN: 3235-AM92): The Commission in November 2021 proposed to rescind two exemptions from the proxy rules’ informational and filing requirements on which proxy voting advice businesses often rely. In addition, the proposed amendments would amend the proxy rules’ antifraud provision to remove examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of the Federal proxy rules’ prohibition on material misstatements or omissions. The Commission has an October 2022 target date for final action.
- Money Market Fund Reforms (RIN: 3235-AM80): The Commission in December 2021 proposed to remove the liquidity fee and redemption gate provisions in the existing rule, and to require certain money market funds to implement swing pricing policies and procedures. The Commission also proposed to increase minimum liquidity requirements for money market funds, as well as proposed amendments to address how MMFs with stable net asset values should handle a negative interest rate environment. The Commission has an October 2022 target date for final action.
