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SEC Chairman Gives Speech on Governance & Transparency

Sunday, November 12, 2017

SEC Chairman Jay Clayton recently gave a speech at the PLI 49th Annual Institute on Securities Regulation, at the beginning of this month in New York. Chairman Clayton’s speech focused on governance and transparency at the SEC (the “Commission”) and in the securities markets. Chairman Clayton first discussed the SEC’s agenda. He explained that under the Regulatory Flexibility Act, federal agencies must prepare an agenda of all regulations under development or review. The agenda should include near-term (one-year) and long-term (more than one-year) rulemakings.

Over time, the SEC’s near-term agenda has increased, but this has been problematic, because rulemaking is time consuming and expensive. Consequently, the Commission’s next near-term agenda will be shorter in coming months, than it has been in the past, in an effort to increase transparency and accountability.

The SEC is required to disclose the agency’s strategic plan every four years. The current plan included more than 100 strategic initiatives, performance goals and indicators. Chairman Clayton explained that he predicts the numbers for all three areas will be significantly smaller and that the strategic plan will demonstrate the senior leadership of the Commission’s vision of the SEC’s future and how the agency’s progress will be monitored.

Chairman Clayton went on to discuss ways in which the Commission can deter, mitigate and eliminate misconduct through transparency in the securities markets and other means. He specifically discussed topics that have proven to be key areas in which fraud has been perpetrated on investors. The Chairman began by discussing fee disclosures. The SEC’s Enforcement Division will likely continue to pursue cases involving hidden or inappropriate fees. In addition, the Enforcement Division will determine what else can be done to make fee disclosures more transparent to retail investors, thereby decreasing the chances that investors will be harmed.

Chairman Clayton also discussed penny stocks, many of which tend to be opaque in terms of their financial condition and other key business information. “Investors are often unable to find current, reliable information about penny stock issuers because any OTC companies are not required to provide current audited financials or other key information to investors.” Due to this lack of transparency, investors are at greater risk of exploitation. As a result, the Commission will continue to bring enforcement actions against bad players in the penny stock market, and it will also research ways to shed more light on those areas of the market that are opaque.

Since there are bad actors in the securities industry that do not fear the regulators, Chairman Clayton believes it is worthwhile to educate investors in order to reduce the likelihood that they will become a victim of fraud. To this end, the SEC is creating a website that will allow the public to search a database of individuals who have been barred or suspended due to violations of federal securities laws. Shining a light in this dark area will hopefully further empower and inform investors, and aid them in protecting themselves from the fraudulent behavior of law violators.

Contact us if you have questions regarding required regulatory disclosures for your firm and representatives. We have the experience necessary to help you maintain a compliant and transparent financial services firm.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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