The SEC's Priorities in a Tricky Year

Securities and Exchange Commission Chairwoman Mary Jo White said in recent remarks that 2016 should be a “very busy” year for the agency in terms of rulemaking, including forthcoming proposals for a uniform fiduciary rule for brokers and advisors as well as a plan to require advisors to get a third-party audit.

Some industry observers have questioned whether a fiduciary rule proposal would actually come out during White’s time as SEC chair, given that a new administration will come to Washington next year. (Word is that a third-party audit rule proposal will be out this spring.)

White has publicly stated that she supports the agency moving forward on a fiduciary rule for brokers, and former SEC Chairman Harvey Pitt told me recently that he believes the agency is further along in devising such a proposal than many observers think.

Pitt also believes White could likely stay on — and thus continue pushing a fiduciary plan — regardless of which party wins the White House since she’s a “true independent, not a Democrat (or Republican) masquerading as an independent.”

When White was U.S. attorney for the Southern District of New York, from 1993 to 2002, “I believe her tenure was continued for some period of time with the change in administrations,” Pitt said, “and I would not rule that out with White, if she wanted to continue” as head of the SEC.

By the same token, he said, if a Democrat won this year, that wouldn’t “mean that White would necessarily be continued until a successor was selected, or that she would be willing to serve in that capacity.”

There’s still a chance, too, that White could leave right after the election. She complained in a recent Q&A discussion that the constraints put in place by the nearly 40-year-old Sunshine Act (a topic IA examined in its December 2014 cover story, “The SEC Is Broken”), which prohibits a majority of the agency’s commissioners from collaborating on policy issues, has had “more of an impact than I was anticipating.”

White noted that the agency must post the Sunshine Act notices in advance of rulemakings, as the agency is required to discuss them “at an open meeting.” However, “what that actually means in practice, and the SEC really is quite a strict adherent to the requirements, is that neither I, nor any of my fellow commissioners, my other four fellow commissioners, can talk to more than one of each other at a time.”

Added White: “So what you see with envy, frankly, at least I do as chair, is some old photographs with the five commissioners sitting around a table discussing issues, business and policy. We can’t do that anymore. It’s really a lot of shuttle diplomacy, and I think the transparency piece is great and important,” she said, though she also pointed out that “it isn’t built for efficiency and clear communications as I — you’d — like to see.”

As to White’s potential departure, Pitt said the “logical thing to anticipate is that any president should consider himself or herself fortunate to have her stay on, irrespective of that president’s political affiliation,” as “the issues the SEC confronts aren’t ‘Republican’ or ‘Democratic’ issues, but rather issues of investor protection.”

Confirmation Hearings; Third-Party Exams

Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, is expected this month to hold confirmation hearings for the two new SEC commissioners, Hester Peirce (a Republican) and Lisa Fairfax (a Democrat). The death in mid-February of Supreme Court Justice Antonin Scalia, however, could stall such hearings.

While third-party advisor exams will complement SEC exams, the Investment Adviser Association complains such exams will only add to advisors’ compliance costs.

The SEC is hoping that third-party advisor audits will remedy the advisor exam shortfall. That’s the case even though the commission plans to shift about 100 of its examiners from broker-dealer exams to advisor exams, and that the SEC would get a budget increase from President Barack Obama’s last budget request to Congress. Obama’s $4.1 trillion plan for fiscal 2017 would double funding for the SEC by 2021, with the SEC getting an 11% increase to $1.8 billion in 2017.