Tuesday, May 18, 2021

Commissioner Crenshaw says accurate data, truth will set the SEC free

By Amy Leisinger, J.D.

In a recent speech, SEC Commissioner Caroline Crenshaw applauded the work of economists and stressed the importance of data in developing effective regulation. More can be done in terms of investor disclosures, but to meet the SEC’s mission, the agency will need more information as well, she explained.

"I am not an economist. But I do have an economist’s love of good data and the data-driven rulemaking that can result," she said.

The importance of stats. Data are central to the Commission’s work, Crenshaw stated. It is crucial to protect and manage it carefully, according the commissioner, but it is also crucial to effectively regulating. There are costs if the agency does not have the information to analyze and understand markets, she explained.

It is like COVID-19, she said. People were disinfecting groceries and packages—we were not sure how to move forward. The world knew little about how the disease spread and lacked information about where true risks existed. In hindsight, it seems silly, Crenshaw opined, but with incomplete information, it seemed reasonable. Scientists needed data to make accurate determinations and direct the public accordingly, the commissioner noted.

"Bad information, or a lack of information, can lead to bad regulation, which can result in both unnecessary burdens and missed opportunities. It can also lead to a failure to regulate where regulation would be appropriate, which can result in a failure to address real problems and mitigate harms," she explained.

Moving forward. The SEC should obtain more information to facilitate data-driven regulation that could yield better results, according to Crenshaw. For example, the agency has adopted new rules and taken other actions relating to the private markets and loosened restrictions with the goal of increasing investor access. However, private markets compared with public markets appear to be less liquid, more opaque, and more prone to fraud, she noted. The Commission lacks clear data on private issuers and offerings despite the market’s increasing growth, Crenshaw stated.

Further, the Commission should engage in additional investor testing of Form CRS and Regulation Best Interest disclosures, she said. It is not appropriate to rely on only disclosure to protect investors; investors must be able to access and understand the information they are given. The same is true of the Consolidated Audit Trail—we need to understand what took place to necessitate changes, much like the GameStop market event, according to Crenshaw.

With better information, we can make more informed regulatory decisions regarding benefits and risks and better assess the functionality of existing rules, she remarked.

"While we have relied on data to the degree we have data, we need to ensure that we have sufficient and accurate information to regulate effectively," she concluded.