SEC Chair Mary Schapiro
reviewed the highlights of the past year along with upcoming
rule initiatives in remarks at the Practising Law Institute’s
conference known as “SEC Speaks.” Schapiro reported that the agency
has brought in new leaders, streamlined its procedures and reformed
the way it operates. In addition to creating more effective
regulation, the SEC has been engaged in the regulatory reform
debate. Schapiro said the SEC has initiated the most significant
investor-focused rulemaking agenda in decades.
Schapiro acknowledged that statistics are not the best
way to measure success, but she believes the past 12 months reflect
a significant output in the SEC’s enforcement activities. The SEC
sought more than twice as many temporary restraining orders and
asset freezes. It issued over two times as many formal orders of
investigation, obtained about $540 million more in disgorgement
orders and more than twice as much in penalty orders. The SEC also
filed about 10% more actions overall.
Schapiro added that the SEC has brought a wide range
of complex actions, including difficult mortgage-related cases. The
pipeline is full, she said, and more cases will be coming, including
cases related to the financial crisis.
The SEC is reforming the Office of Compliance
Inspections and Examinations. The new director is undertaking a
top-to-bottom assessment, according to Schapiro, in order to
identify and improve the program.
The SEC is improving its technology with respect to
the tips and complaints that are received. A new centralized system
should be up and running within weeks. Schapiro said the staff has a
new set of guidelines and protocols for the way tips will be
handled.
The SEC is focusing on promoting a culture of
collaboration. Schapiro has stressed the importance of
information-sharing. The new Division of Risk, Strategy and
Financial Innovation has attracted experts to respond to the latest
Wall Street financial innovations.
Schapiro said the past year includes one of the most
active rulemaking agendas in years. She also previewed some of the
upcoming initiatives which include actions aimed at target date
funds, point of sale disclosure, Rule 12b-1 fees, NRSROs, proxy
access and money market funds. In the area of market structure, the
Commission this year will vote on proposed rules relating to flash
orders, dark pools and market access.
Schapiro said the SEC will also act on a
recommendation by the staff to create a consolidated audit trail to
assist investigators. The self-regulatory organizations have their
own separate audit trail systems, she explained, but it is difficult
to connect the dots where trading activities occur across various
markets. Schapiro expects the staff to consider recommendations this
spring to have the SROs develop and implement a consolidated audit
trail that captures customer and order event information across
markets.
Commissioner Casey’s Remarks
Commissioner Kathleen Casey said that scrutiny of the
SEC is both deserved and expected. She outlined her top 10
regulatory principles, the first of which is that regulators should
act with humility. Sometimes we don’t know what we don’t know, she
said. Regulators must always consider the potential for unintended
consequences, she added.
Market solutions are usually preferable to government
solutions, Casey added. Any new regulations must be clear about
their objectives. Empirical evidence should guide regulatory
decisions. Casey said that benefits must exceed the costs or the
initiative should not go forward. Regulators should provide
certainty to market participants.
The opportunity costs of pursuing a regulatory
initiative should be carefully considered. Casey pointed to the
SEC’s recent issuance of interpretive guidance on climate change,
which she opposed, as an example. Regulators must act in the
interest of all investors in the markets, she said. Finally, Casey
said that regulators must be aware of fighting the last war. They
should gauge whether the markets have self-corrected or are in the
process of self-correcting. The courts have often reminded the SEC
of this point in recent years, she said.