The SEC and Politics

There are times when everything in Washington seems to be in grid-lock. One party wants to advance this bill; the other party does not. Everyone meets to discuss and nothing happens except next item up on the agency and time to move on. Was it always like this or is it worse now? Unfortunately, nobody can agree on that either.

That kind of bickering can also trickle down to independent agencies such as the Commission. Those entities were structured to be independent of the political processes. The Commissioners are drawn from different parties to furnish a variety of views. The Chair is selected by the President. And the Senate has to confirm each Commissioner and the Chair.

The question, however, is if the SEC is becoming more politicized? More importantly, if it does become more politicized will the agency be able to faithfully carry out its investor protection obligations?

To date there is some evidence indicating splintering approaches at the agency. Earlier this year Commissioners seemed to have divergent views, for example, on the role of the agency regarding climate change and ESG. See, e.g., Acting Chair Allison Herren Lee, Statement on the Review of Climate-Related Disclosure (February 24, 2021)(here) and Commissioners Hester Peirce and Elad Roisman, Enhancing Focus on the SEC’s Enhanced Climate Change Efforts (March 4, 2021)(here).

Recently, the splintering approach seems to be continuing. Consider, for example, the recent remarks by Commissioners Hester Peirce and Elad Roisman, titled Moving Forward or Falling Back? Statement on Chair Gensler’s Regulatory Agenda (June 14, 2021)(here). There the two Commissioners cite the Unified Agenda of Regulatory and Deregulatory Action released last Friday as the predicate for their comment. The directive to the staff listed on the Agenda “to consider revisiting recent regulatory actions taken with respect to proxy voting advice businesses” was labeled the “opening salvo in an effort to reverse course on a series of recently completed rulemaking,” according to the Commissioners. This includes a series of rule makings ranging from the proxy rules to accredited investors to resource extraction payments.

Historically the Commission has “embraced a transparent, methodical and rigorous rulemaking process to ensure its rules reflect sound policy . . .” that permit registrants to operate in a consistent manner the two Commissioners noted. Yet the items cited have only been on the books for very brief time periods. The point, apparently, is that the Agenda items are really an effort to undo the work of the prior administration.

Perhaps. At the same time it seems clear that Chair Gensler, and those who want to revisit the recently issued rules, could say that the provisions cited were political. Thus they need to be reconsidered. Perhaps.

Regardless of which side is correct, the key point is that the agency is heading toward the kind of gridlock on Capitol Hill and Congress. If that is the case its independence is being compromised; the losers will be the registrants, markets and the public. Transparency and investor protection will be lost in a cloud of political posturing. In the end, the agency will not be able to fulfill its historic mission. Before that happens perhaps the Chair and the Commissions can take a step back and consider the mission of the agency and their responsibility to help implement it.

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