The Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, published a new report calling for what it terms “transformational change” at the SEC. It is aptly titled: “U.S. Securities and Exchange Commission: A Roadmap for Transformational Reform”

The Report concludes in its opening paragraphs that while the SEC has for much of its history been “the preeminent financial regulator” that time has passed. It goes on to state that for “more than a decade, the SEC regulatory and enforcement structures have failed to keep pace with rapidly changing markets . . .[now there is a] need for transformational change. . . “ Too this end the Report sets forth four key proposals:

  • A bold clear plan should be developed, “including how to make rulemaking, supervisory inspections, and enforcement more effective.”
  • A person should be put in charge of implementing this plan by increasing the size of the Commission from five to seven members, including a new Deputy Chairman for Management and Operations to take charge of the transformation.
  • Statutory and practical obstacles must be removed to permit the Commission to hire the right people with the appropriate skill set to ensure “that staff are put in positions to succeed – or are removed.”
  • Increases in funding and resources should be tied to the implementation of the transformation process.

The Report includes an evaluation of the Division of Enforcement and its recent reorganization. It concludes that the changes made by the reorganization were “largely positive and should, over time, improve the effectiveness of SEC enforcement [but] it is too soon to conclude that they are already successful.” It goes on to offer nine recommendations (the Report makes 28 overall) to improve the operations of the Division which are largely procedural rather than transformational. The recommendations include:

  • Training: An in-depth training program on investigative techniques should be developed.
  • Reduction in open case inventory: The Division should establish a goal of reducing its open case inventory each year by implementing appropriate procedures. These would include the utilization of a presumption that any inquiry over 18 months old or based on possible violations older than three years should be closed absent a certification to the contrary by the Division Director or Deputy Director.
  • Assignment of investigations: A new process for the assignment of investigations should be developed based on expertise, experience and the availability of resources.
  • Case mix: The Division should assess the case mix to ensure that it is bringing cases that advance the Commission’s entire regulatory agenda.
  • Problems: An internal procedure should be crafted to assess difficulties and incorporate the learning into the training process.
  • New specialty units should be created: These should include one responsible for complex accounting frauds or misstatements and one focused on corporate debt markets. The staffing for all units should be increased to about 40% of the Division.
  • Consistency: Specialty staff should promote consistency throughout the Division by in part having group leaders with broad oversight authority over all investigations relevant to their subject authority.
  • Cooperation: Seaboard should be updated and procedures crafted to implement the principles wherever applicable.
  • Metrics: Consistent metrics should be developed for the Division which focus on the importance and timeliness of the cases rather than statistics. These should include credit for staff that complete and close a through investigation that does not result in an enforcement action.
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