SEC Chairman Clayton to Step Down

Securities & Exchange Commission (SEC) Chairman Jay Clayton confirmed early Monday that he is stepping down from his post at year-end. Clayton was sworn in on May 4, 2017, and will leave the SEC as one of its longest-serving chairs.

“Working alongside the incredibly talented and driven women and men of the SEC has been the highlight of my career,”  Clayton said Monday in a statement. “I am proud of our collective efforts to advance each part of the SEC’s tripartite mission, always with an eye on the interests of our Main Street investors. The U.S. capital markets ecosystem is the strongest and most nimble in the world, and thanks to the hard work of the diverse and inclusive SEC team, we have improved investor protections, promoted capital formation for small and larger businesses, and enabled our markets to function more transparently and efficiently.”

Names being floated to replace Clayton under President-elect Joe Biden include Gary Gensler, former chairman of the Commodity Futures Trading Commission (CFTC), and Preet Bharara, the U.S. attorney for the Southern District of New York under former President Barack Obama.

Trump nominated Clayton to take over as the U.S. attorney for the Southern District of New York, replacing Geoffrey Berman, who was fired. James Angel, associate professor of finance at Georgetown University’s McDonough School of Business, told ThinkAdvisor Monday in an email that he doubts “the lame duck Trump administration will try to ram through his [Clayton’s] nomination” to the Southern District of New York post.

“That [nomination] had stalled due to the Senate tradition of deferring to opposition from NY’s senators,” Angel said. “I doubt whether [Senate majority leader] Mitch McConnell would want to spend political capital pushing a lame duck appointment for Clayton through, when the new president would just fire him at 12:01pm on January 20th.”

Clayton’s departure “leaves the SEC rudderless,” Angel added, and “the nice thing about quitting now signals to the incoming administration that they need to fill the job right away.”

Rules Advanced Under Clayton 

Clayton advanced more than 65 final rules to date from the commission’s policy divisions and offices, chief among them Regulation Best Interest and the Customer Relationship Summary form, or Form CRS.

Clayton said on October 19 that he was “cautiously satisfied” with Regulation Best Interest (Reg BI) but noted that three months after its enforcement date he was noticing some troubling trends. Reg BI was “overdue—we needed to do this,” Clayton said during a Q&A at the Securities Industry and Financial Markets Association’s virtual yearly meeting.

Ken Joseph, managing director and head of disputes consulting at Duff & Phelps, told ThinkAdvisor in a Monday email that Clayton “made his mark in the areas of capital formation, protection of retail investors, regulation of fraud in the digital asset space, micro-cap offering fraud, and for expediting investigations through the increased use of data analytics and whistleblowers.”

Clayton also “deserves credit for keeping the agency focused during the ongoing dislocation caused by the pandemic, and for his commitment to improving the agency’s diversity and inclusion practices—especially in light of recent social and racial injustice public concerns,” said Joseph, who served as an inaugural supervisor in the SEC Division of Enforcement specialized asset management unit, and was a senior officer in the commission’s Office of Compliance Inspections and Examinations.

However, “some may criticize his commission for the changes to the proxy rules, the failure to harmonize the duty owed by broker-dealers and investment advisers to retail clients (Reg BI), and for the perceived lack of large-scale enforcement actions involving Wall Street firms,” Joseph said.

Clayton’s successor will likely focus in the short-term on “pressures to deal with ESG [environmental, social, and governance] disclosure and reporting standards, to make further enhancements to Reg BI, to undo what some may view as corporate-friendly rules or policies,” Joseph added.

Any new chair will also be “dealing with the inevitable frauds that typically come to light in asset classes that become exposed by market stress and volatility.”

Under Clayton, the SEC amended its “accredited investor” definition to allow investors to qualify based on defined measures of professional knowledge, experience, or certifications—including holding certain Financial Industry Regulatory Authority (FINRA) licenses—in addition to the existing tests for income or net worth.

Under Clayton’s leadership, the SEC’s Division of Enforcement established a Retail Strategy Task Force, Teachers’ Initiative, and Military Service Members’ Initiative to concentrate efforts to combat fraud and educate investors. According to the agency, since May 2017, the Enforcement Division:

• brought over 2,750 enforcement actions,
• obtained more than $14 billion in financial remedies,
• distributed approximately $3.5 billion to harmed investors, and
• paid awards of approximately $565 million to whistleblowers.

From: ThinkAdvisor