Two members of the Securities and Exchange Commission worry the regulatory agency is making a “regrettable decision” by proposing to revisit rules that recently went into effect.
The Office of Information and Regulatory Affairs at the White House’s Office of Management and Budget released the “Unified Agenda of Regulatory and Deregulatory Actions” on Friday, which included the short- and long-term regulatory actions agencies like the SEC are considering in the coming year (the full list includes rules at several different stages, including “prerule,” “proposed rule” and “final rule”).
“To meet the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, the SEC has a lot of regulatory work ahead of us,” Chair Gary Gensler said about the full list.
The rules listed on the SEC agenda encompass an array of subjects, including a proposed rule on climate risk disclosures (which has been a source of extensive discussion at the SEC in recent months). There are several rules specifically pertaining to the conduct of investment advisors, including one that would “improve and modernize the regulations around the custody of funds or investments of clients” by advisors.
Max Schatzow, an attorney with Stark & Stark who focuses on advisor regulatory compliance, said this custody rule could impact a great number of advisors.
“(The custody rule has) been talked about for a number of years, especially as it pertains to cryptocurrencies and digital assets, but it seems like they’re pretty serious,” he said.
Not all commissioners agree with the priorities. In a statement released Monday, commissioners Hester Peirce and Elad Roisman questioned the agenda and bemoaned the absence of proposals around digital assets and shareholder proxies. The two commissioners, both nominated by President Donald Trump to fill the two Republican slots on the SEC, said their greatest concern was that the agenda looked to reverse course on recently completed rule-makings in the wake of Gensler’s nomination and a 3-2 Democratic majority on the panel. They believed previous commissions had been able to avoid what they worry would become “a game of seesaw” in its regulatory rulebook.
“Reopening large swathes of work that was just completed without new evidence to warrant reopening is not normal practice,” Peirce and Roisman said. “The inclusion of these rules in the agenda undermines the commission’s reputation as a steady regulatory hand.”
Schatzow said he couldn’t recall a time in which commissioners had publicly second-guessed an agenda. But Gensler’s actions were not “entirely unconventional,” in his view.
“Regulation is often viewed as a pendulum, and I would view his agenda as a case where he doesn’t believe the pendulum swung far enough in certain areas,” Schatzow said.
Though the list of potential rules is extensive, the details of what they entail remain to be seen in many instances; in the case of a proposed rule concerning proxy advice, the regulatory agenda states only that the commission is considering proposing an amendment “governing proxy voting advice.” In testimony before the Senate banking committee from March, Gensler highlighted climate-risk disclosure and payment for order flow as two examples of points of focus for the commission in the coming year. The SEC’s Division of Examinations also pledged it would place more emphasis on climate-related risks in a March report highlighting 2021 division priorities.