Thursday, June 23, 2022

SEC releases Spring rulemaking agenda, draws criticism from Peirce

By John Filar Atwood

The extent of SEC Chair Gary Gensler’s ambitious agenda came into clear view today as the Commission released its Spring 2022 regulatory flexibility agenda with 27 items in the proposed rule stage and 26 matters in the final rule stage. Gensler emphasized that a dynamic market is not well-served by static rules, and expressed his hope that through the proposed rulemakings the agency will drive efficiency in the capital markets and modernize its rules for today’s economy and technologies.

Commissioner Hester Peirce immediately took issue with the agenda, saying that it has the SEC pursuing flawed goals at a dangerous pace. In her view, the agenda is troubling both for the content of some of the proposals and for the rate at which the SEC plans to address them.

Peirce believes that the Commission’s agenda shuns matters that are core to the agency’s mission in favor of pursuing hot-button issues. Rather than protecting retail investors, she said, the SEC is working to aid professional investors, and instead of helping small companies raise capital it is making their work more costly. She urged the Commission to recalibrate its agenda to focus on core investor protection and market operation issues.

Some appropriate agenda items. Peirce acknowledged that the agenda does include several matters that are in keeping with the agency’s core mission. These include updates to the investment adviser custody rules, data security rules for the Consolidated Audit Trail, updates to the electronic recordkeeping rules for broker-dealers, and rules to shift from paper to electronic filings, she said.

However, in her view other important issues have been dropped or postponed. As examples she cited transfer agent rules, a joint project with the CFTC to develop uncleared swap portfolio margining rules, rules on investment company securities lending arrangements, and rules to reform proxy plumbing infrastructure.

Peirce also decried the use of agency resources to revisit rules that were only recently finished, such as resource extraction, proxy voting, shareholder proposals, and the whistleblower rules. She believes the SEC does not have enough new information on these matters to justify revisions at this time.

Process concerns. Along with concerns about the substance of the agenda items, Peirce is troubled by the speed with which the agency is moving to implement the proposals. The proposed rules contemplate far-reaching changes, she noted, and interested parties must be allowed adequate time to comment.

She believes that even those agenda items that are core to the SEC’s mission are not likely to get comprehensive public feedback. Issuing three to five rule proposals each month is not consistent with affording the public time to thoughtfully consider the impact of such changes, she stated.

Peirce expressed concern that the volume of comment requests will give even greater weight to the views of larger stakeholders since smaller players do not have the resources to give each proposal the attention it deserves. In addition, the comments the SEC does receive are less likely to include key data, in-depth analyses, and the consideration of how the rules will interact with one another, she noted.

She commended Gensler for recently extending the comment periods for some already-issued proposals including the amendments to the fund names rule and the proposed ESG rules pertaining to investment companies and investment advisers. She asked that in the future the Commission provide more reasonable comment periods at the time new rules are proposed. Providing longer comment periods up front would help the public determine how to best spend its time and resources in providing comments to the Commission, she concluded.