SEC Spat Over Rule-Making

A war of words has broken out at the Securities and Exchange Commission over whether the SEC should plod ahead with more rule-making during the Covid-19 crisis — which, really, is the only type of war that happens among SEC commissioners, but it’s still a telling glimpse into regulatory policy fights these days. 

The exchange has unfolded over the last several days in dueling statements from commissioner Allison Lee, a Democratic appointee who wants the agency to pause all rule-making not directly related to Covid-19; and Elad Roisman, a Republican appointee who doesn’t. 

SEC commissioners rarely air disputes like this so publicly, even when their statements are cloaked in flowery praise of SEC staff and diplomatically drab snipes at rivals’ positions. Strip away the bureaucracy-speak, however, and what’s left is a stark scene of power politics while millions of Americans cough their way through economic calamity.


Let’s start with Lee, who released her statement on April 3. Her argument was that the SEC should extend the comment periods for any rule proposals currently open for discussion; and should “proceed with great caution in considering whether to take regulatory action outside of that called for by the current dire and pressing public health crisis.” 

Lee continued:

A careful balancing of interests, including the burdens we all face in coping with the economic and social challenges of protecting ourselves, our families, and our nation, suggests that regulatory action in the near term not related to the exigencies created by COVID-19 would rarely be warranted.

And make no mistake, the SEC has plenty of exigencies created by COVID-19 to keep itself busy. SEC chairman Jay Clayton has issued numerous statements himself about emergency regulatory relief the SEC is giving filers. Other staffers have made yet more statements stressing that companies must pay attention to financial reporting and disclosure of Covid-19 issues even during our turbulent times.

Lee was echoing an emerging Democratic talking point, that the Trump Administration shouldn’t push ahead with its regulatory rollback agena during Covid-19. For example, just yesterday Democrats on the House Financial Services Committee called on banking regulators to pause their ambitions to rewrite rules of the Community Reinvestment Act — revisions that, no surprise, Democrats hate. 

We’ll hear more like that from Democrats as the Covid-19 crisis continues. 

SEC Republicans Ain’t Buying It

Lee’s call for a regulatory pause went nowhere, of course. On Wednesday the SEC voted 3-1 to simplify the registration process for business development companies and other types of investment funds. That has exactly zero to do with the Covid-19 crisis, but it is yet another long-standing item on the Republican agenda that Clayton is paid to advance. 


That specific vote really only matters to compliance officers at registered investment advisers, private equity funds, and other financial firms. For the rest of the compliance world, what’s interesting is the counter-punch that Lee’s fellow commissioner Roisman took at her, plus a few other stiletto comments Clayton himself slid into the conversation.

“To me,” Roisman said in his statement, “this meeting epitomizes this agency’s commitment to our mission: the SEC will not only protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation in good times — but also in unsettling and uncertain times.” 

Also, halting our day-to-day work and abandoning our agenda would do a disservice to our own staff… As emergency projects have subsided, they have lost no time in moving forward with their normal workloads. As long as these staff members and their loved ones are healthy and safe, as long as we have the capability for them to carry on working — why would we prevent them from continuing to serve the public in these roles? 

See, I told you SEC commissioners hide their point in flowery language about SEC staff.

Clayton was more oblique in his delivery

Through these times, the SEC’s work continues… We have 4,500 incredibly talented and dedicated women and men at the SEC, and they have shown without a doubt that they are able to move quickly on COVID-19-related response initiatives while at the same time continuing to execute our mission more broadly.

Then he tried to change the subject by publishing a separate statement about disclosure issues companies need to consider related to Covid-19, hoping everyone will overlook the niche rollback he just executed. We’ll get to those Covid-19 disclosures another day. 

For now, SEC watchers should understand the dynamics here. Clayton was side-tracked by so many surprise issues in the early years of his tenure that he didn’t advance much of the Trump Administration’s anti-regulation agenda. Now President Trump’s first term is nearly done, and there’s real possibility the president will not get a second one. So Clayton is scrambling to push through as many Republican wish-list items as he can before the clock runs out — and if that means doing so while we all suffer through Covid-19, so be it. 

Cynics would even say Covid-19 provides a distraction, while Republican operatives across Washington ram through whatever policy moves they can. But then, why would anyone be cynical about Trump and his motives, right?

Leave a Comment

You must be logged in to post a comment.