By Anne Sherry, J.D.
The ranking minority member of the House Oversight Committee opposes the SEC’s plan to recognize other regulators’ waivers of bad actor disqualifications for security-based swaps. Under a proposed SEC rule, waiver requests granted by the CFTC and self-regulatory organizations would obviate the need to file a separate application with the SEC. In a letter to Chair White, Rep. Elijah Cummings (D-Md) noted that the SEC has never granted executive authority to another entity without a congressional mandate.
Proposal. Under proposed Rule of Practice 194, if the SEC has not barred or suspended an associated person, a separate application would not have to be made if the CFTC, the National Futures Association, or an SEC-regulated self-regulatory organization has made an affirmative finding that association with the security-based-swaps (SBS) dealer is permissible. Commissioner Stein opposed the rule when it was proposed in August, saying that the unconditional recognition of waivers granted by other regulators “undermines the accountability we have to Congress and to the public.”
Statutory framework. Representative Cummings’s letter echoes the commissioner’s concerns. He points out that Dodd-Frank added Section 15F to the Exchange Act to ensure that entities disqualified from participating in the SBS market cannot continue to act on behalf of another SBS dealer or major SBS participant. “Through the Exchange Act, Congress granted to the Commission regulatory, executive, and adjudicatory authority over the whole of the nation’s securities laws … Congress has not granted the CFTC the authority to regulate the SBS market,” he wrote. As to self-regulatory organizations, he said that while they can enforce their own bylaws, “they do not have the impartiality necessary to make decisions regarding the best interests of the public.” Waiver decisions should be reviewed by the SEC and voted on by its commissioners, he concluded.
Other comments. The congressman also said that the Commission should make waiver applications public, unless it makes a good-cause determination to keep an application under seal. The proposed rule contains a confidentiality provision for waiver applications, although orders would be public. Finally, Rep. Cummings noted that the SEC is considering whether a waiver should be made permanent if the agency does not act within 180 days. “I believe no waiver should be granted simply because the Commission is constrained in its resources and cannot make a decision within a limited amount of time,” he wrote.