Visions Of What May Come: A Glimpse Of The Future At The SEC

Recent speeches by SEC Chairman Mary Schapiro and Commissioner Luis Aguilar provide glimpses of the future at the SEC. In their remarks, the Commissioner’s commented on three key areas, enforcement approach and internal procedures, rule making initiatives and possible legislative proposals.

Ms. Schapiro, in her remarks to the American Business Editors and Writers on April 27, 2009, discussed the approach to enforcement, emphasizing that there is more than just a new division director. Rather, there is a new approach, a new tone at the top emphasizing speed, coordination and efficiency. That new tone begins with speeding up investigations, ensuring that the various staff divisions work effectively and that they coordinate with criminal authorities and state regulators. As part of this effort, Enforcement is considering unidentified “structural” changes that would make better use of its scarce resources.

Commissioner Aguilar, in his comments before the NASAA Members on April 28, 2009, titled “United in the Public Interest and Making Investors a Priority” added specific suggestions to improve enforcement. These include: 1) delegating authority to the Director of Enforcement and Heads of the Regional Offices to open routine, non-controversial formal investigations; 2) improving the collection processes to facilitate returns to investors; 3) implementing a risk-based data analysis system; and 4) revising the corporate penalty guidelines to focus on deterring misconduct. Commissioner Aguilar, like Chairman Schapiro, emphasized that “to revitalize its enforcement program, we must also continue to effectively coordinate” with others regulators.

Ms. Schapiro also outlined key areas for future rule making. One priority is rating agencies, where the Chairman stated that “the SEC needs to be pushing forward a real agenda of reform.” Next month, a key rule making initiative will be unveiled in the corporate governance area. These proposed rules will “remove the barriers that make it costly and difficult for a company’s owners to nominate directors.”

Another group of proposals will be issued for comment in June when the SEC will propose enhancements to the rules governing credit quality, maturity and liquidity provisions that apply to money market funds. These proposals are part of an overall review of rules applicable to these funds and echo the recent congressional testimony of the Treasury Secretary.

The Commission also intends to propose rules to strengthen the controls over investment advisers who have custody of investor assets. These proposals will include “consideration of ‘surprise’ examinations by a certified public accountant,” according to the Chairman.

Finally, when discussing legislative reform, Commissioner Aguilar focused on two key points. The first is to close the regulatory loopholes. This includes hedge funds and swaps which he termed “policy mistakes.”

The second turns on the question of regulation of systemic risk. Here, “the focus needs to be on ensuring the continuation of systemically important market functions, and on investor protections.” This means identifying systemically important market functions and ensuring that they are backed up properly so that if there is a failure by one entity, another can step in, the Commissioner noted. Accordingly, risk regulation would focus on overarching risk to the financial system. In this context, the SEC would continue to function as a primary regulator.