After nearly four years as head of the Securities and Exchange Commission — one of the longest terms served by any SEC chair — outgoing Chairwoman Mary Jo White quips that she's “not tired at all. This is a great job. […] The issues are not only critically important to investors and the markets, but really wonderful challenges to deal with. I like hard challenges.”
No doubt White can show some muscle, but as the women coming in and out of her office at SEC headquarters in Washington on a mid-January morning can attest, she's clearly got a soft side. “She takes care of people,” said one of the SEC employees, as another handed White a card. “She’ll be missed.”
Those accolades came just minutes before I sat down to have a wide-ranging interview with White, covering everything from the fiduciary rule she fought hard to get passed (but didn't), advisor exams and her “broken windows” approach to pursuing violations, to her thoughts on Jay Clayton, President Donald Trump's nominee to take her spot.
Below is an excerpt of the interview with White.
Waddell: Is the fiduciary rulemaking one of your biggest disappointments, not getting it passed?
White: It's a disappointment. I think it's an extraordinarily, in my mind, important rule for the commission to undertake. The commission has been studying whether to do it for decades; we’re not mandated to do it. […] I spent a lot of time studying it myself before I concluded, for myself, that we should advance it. But I made very clear when I said that, that it was very complicated, it would take a long time and I’m only one vote. As you know, undoubtedly, a number of our present and former commissioners have publicly stated their own views. So that's not a rule, with our current commission of three, that could be advanced.
Waddell: Do you think the agency should do one in the next administration?
White: I do. But it will be up to the next chair to make that decision. I’m sure that the chair will want to study it pretty intensively before making that decision.
On DOL Fiduciary, Third-Party Exams
Waddell: How do you feel about the Department of Labor's fiduciary rule? Did Labor Secretary Thomas Perez come to you and say “We’re going to do this because the SEC isn't moving forward?”
White: No. We’re independent agencies. If we proceed, we would do it under Section 913 of the Dodd-Frank Act; that requires certain parameters that don't apply to DOL. Some of those parameters also include being more solicitous of the broker model, in terms of what's allowed to be done. So the ERISA space is a very important space and responsibility of the DOL. I’ve always said, and still think, that we are independent agencies with independent responsibilities. There was no, “I’m going to do this because you aren't. We can't do it because you are.” I think we can both act independently, obviously in coordination.
Waddell: But how do you feel about the DOL's fiduciary rule?
White: I’m not going to comment on the specific rule. I will say this: I think it's very important that there be a uniform fiduciary duty that's applied to both broker-dealers and investment advisors, certainly when giving investment advice to retail investors. I don't necessarily limit it to retail investors. The Department of Labor's rule does cover that in their space.
Waddell: Advisor exams, the third-party audit rule, that didn't advance during your term.
White: There's a completed proposal before my two fellow commissioners. I’ve stated this publicly: I think it's very important to advance it, but in this particular three-person commission, there was not sufficient support to advance it. I certainly hope the next chair and commission do advance it.
Waddell: Your “broken windows” approach — do you think that will survive? How do you think that fared?
White: I think it was an enormously successful approach. I think it's often misinterpreted; […] it's a part of a very strong enforcement program. It's resource efficient, didn't take away resources from all of our other cases, […] the serious frauds, the Ponzi schemes, the financial reporting cases. Why is it important that it be a component of a strong enforcement program? If you have important rules on the books where there is rather widespread noncompliance, you might as well not have the rules on the books. So what you’re trying to do is raise the bar of compliance on important rules. I think it's been quite successful.
Waddell: Do you see the advisory profession, speaking of the broken windows approach, as a troublesome area? Are you concerned about fraud in that area?
White: I think if you look at the cases we’ve brought, certainly since I’ve been chair, I think we’ve brought more cases against investment advisors than in the history of the commission.
Waddell: Any other measures you think should be taken then?
White: Well, our exam program is also very focused, more and more so, on different practices within the advisor space. And we deliberately put out our priorities to also leverage better compliance. We’re not out to play “gotcha,” but we are out to raise the bar of compliance.
On Regulatory Arbitrage
Waddell: Why do you think there's such an influx of RIAs registering with the commission?
White: There are lots of theories about that. I hope it isn't — but it is one of the theories — that [it's] because there's more exam coverage between FINRA and the SEC of brokers than there are of investment advisors. But you worry about that.
Waddell: Do you think that should be a focus for the next chair — to look at this movement?
White: Yes, […] and look at covering those investment advisors in terms of exams. That goes back to the resources just not matching the responsibilities.
Waddell: Do you think the exam priorities will stay intact in the new commission?
White: Yes. The chair is very involved with OCIE, and the other commissioners are also consulted, but I think if you look at what those priorities are, the odds are they will continue as high priorities. They make a lot of sense.
On the Next SEC Chair and SEC-Focused Legislation
Waddell: Do you think Jay Clayton, selected by President Donald Trump to be next SEC chair, is a good choice?
White: I know him some from New York. […] I’ve met with him, I think he's very impressive, he's smart, he's principled, he's a really nice guy. I think he’ll be a really strong leader.
Waddell: People say Clayton will likely focus on a capital formation agenda. Is that good or bad?
White: We don't know what he’ll focus on. I think we’ll see when he's here. Capital formation is part of our tri-part agenda. We certainly focused on capital formation [during my term]. Certain areas can get more attention based on the mandates we have. […] The JOBS Act that we implemented, all of that's certainly directly related to facilitating capital formation. We did discretionary rulemaking to complement those different avenues of raising capital. I think every commission should focus very closely on facilitating capital formation, not to the exclusion of the other parts of our mission.
Waddell: What about the challenges that he faces as chair?
White: I think our biggest challenge is we are under-resourced; that applies in the advisor space but it applies across the board. When I’m asked what my most significant challenge is, that's it. If you look at the wide range of responsibilities the SEC has, it's in so many spaces that are very technical that if you’re not sufficiently resourced, you can't do the job that you’re assigned to do.
Waddell: Rep. Ann Wagner's bill, the SEC Regulatory Accountability Act, H.R. 78, which recently passed the House, you’ve been critical of it.
White: The concern that I have, and there have been similar bills before, is that it would impose additional requirements on our rulemaking that I don't think would improve the process, improve the rules, but could bog us down so that we effectively can't, in any prompt way, adopt rules to protect markets and investors.
Waddell: You’ve also criticized House Financial Services Chairman Rep. Jeb Hensarling's Financial CHOICE Act as dismantling Dodd-Frank.
White: There are hundreds of provisions in the CHOICE Act, and there are a number of them directed to our space; a number of those are quite concerning, both in terms of rolling back core Dodd-Frank reforms but also I think undermining a strong enforcement program. And again, imposing additional requirements on our rulemaking.
Waddell: What's your biggest achievement during your term?
White: I don't really think in those terms. I’m enormously proud and pleased with what the agency has accomplished across the board. I think we’ve strengthened enforcement and the exam program. On the rulemaking side, this has been an unprecedented time of rulemaking — mandates and discretionary rulemakings — in the commission's history. We’ve done over 50 packages of very consequential rules. Highlights include money market reform, Regulation SCI and the modernization of our regulatory regime for the asset management industry.