This week, SEC Chairman Jay Clayton gave the first speech of his tenure at the Economic Club of New York, reaffirming the agency's core goals of investor protection, market oversight, and the facilitation of capital formation while giving more insight into his regulatory and policy priorities, including disclosure reform and review of the cumulative effect of new rules. As is standard in these types of remarks, Mr. Clayton avoided discussing any specific policy initiatives or specific rulemakings, such as pay ratio, and did not directly address several policy oriented questions, including one addressing short-term investing and activism. There are however, several notable takeaways from his remarks including:
- A Departure From Socially-Oriented Rulemaking: In the eight years of the Obama Administration, Republicans often called on the SEC to return to its core mission of investor protection, market oversight, and capital formation, and this theme has been evident in financial reform. In his speech, Mr. Clayton began by laying out eight principles, the first three of which reaffirm the SEC's traditional mission and its approach to regulation, the signature guide posts of his tenure as SEC Chairman. For example, in discussing the SEC’s historic approach to regulation, Chairman Clayton said “Disclosure and materiality have been at the heart of the SEC’s regulatory approach for over eighty years.” In doing so, Mr. Clayton appears to be signifying a stark move away from the socially-oriented rulemaking approach of the SEC under President Obama. Thus, it would appear promulgation of rules pertaining the ESG or political spending is unlikely. It is not yet clear how Mr. Clayton's SEC will address Congressionally-mandated rules like the pay ratio which clearly do not meld with the SEC's mission. However, in discussing another of his principles – “the costs of a rule now often include the costs of demonstrating compliance” he stated that the SEC should have “a realistic vision for how rules will be implemented as well as how we and others intend to examine for compliance.”
- SEC Staff Close to Disclosure Review Proposal: In discussing the 2016 efforts by the SEC Staff to review the current state of corporate disclosures, Mr. Clayton noted that the Staff is making "good progress" on preparing a rulemaking proposal based on a report which recommended changes to modernize and simplify Regulation S-K – which sets out public company disclosure requirements. Beyond this initial proposal (it is uncertain whether this initial proposal will include executive compensation disclosure changes), Mr. Clayton's SEC is likely to continue to evaluate the corporate disclosure regime to find ways to reduce burdens on public companies.
- Foreshadowing the Retrospective Review of Rules: Noting the SEC's rulemaking process "does not end with rule adoption", Mr. Clayton foreshadowed the possibility that the SEC will review rules currently in effect in an effort to be "introspective and self-critical.” During the past eight years, the SEC has been saddled with mandatory rulemakings from Dodd-Frank and the JOBS Act and the review of the financial crisis. Going forward, many of those requirements will be done, giving the agency an opportunity to review and revise current requirements in effort to identify situations "where a rule's effects may not be consistent with expectations."
- Bid to Boost Public Company Numbers: The underlying message of Mr. Clayton's speech was clear, echoing a mainstream GOP theme regarding financial policy - the U.S. needs to boost the number of public companies. The path to accomplishing this goal, according to Mr. Clayton is to reduce excessive burdens and disclosure requirements, which will be a priority for his tenure.