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Regulation and Compliance > Federal Regulation > SEC

Jay Clayton — Wall Street's Top Cop: The 2017 IA 25

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Incoming Securities and Exchange Commission Chairman Jay Clayton will be stepping into his post just as the Trump administration plans to rein in funding for federal agencies.

While funding cuts will plague the agency during his tenure, Sullivan & Cromwell partner Clayton — who was confirmed by the full Senate on May 2 by a 61-37 vote — has been chided by lawmakers and others for representing Wall Street firms that he now must regulate.

Industry groups were quick to applaud the former Sullivan & Cromwell partner’s appointment, with most expressing their view that Clayton should put adopting a uniform fiduciary rule (also known as a best interest standard) for brokers and advisors at the top of his priorities.

Chief among Clayton’s priorities should be proposing a “harmonized best interest standard” for broker-dealers, Paul Schott Stevens, president and CEO of the Investment Company Institute, said recently at ICI’s Annual Meeting in Washington.

ICI, Stevens said, is “deeply disappointed” that the Labor Department’s fiduciary rule was only delayed by 60 days — with a compliance date of June 9 — “because the rule is already causing great harm.”

ICI members complain that “hundreds of thousands of small retirement accounts have been ‘orphaned’ just since the Department” announced the rule’s 60-day compliance extension, Stevens said.

“Faced with the sizable if uncertain legal and regulatory risks of assuming DOL fiduciary status vis-à-vis these fund shareholders, brokers are simply resigning from small accounts en masse,” he said. “All this carnage is unnecessary because, in the end, we believe the rule must be rescinded or significantly revised.”

Senate Banking Committee Chairman Mike Crapo, R-Idaho, downplayed Clayton’s ties to Wall Street as nothing new for an SEC chief, saying he was confident Clayton will be “vigilant to ensure that he acts appropriately and ethically.”

But the top Democrat on the committee, Sherrod Brown, noted that while Clayton has experience as a corporate lawyer, “his deep ties to Wall Street will leave him hopelessly conflicted in the SEC’s most high-profile” enforcement actions.

Clayton stressed during his testimony that there’s “zero room for bad actors in our capital markets,” and that he’s “100% committed to rooting out bad actors.”

Clayton suggested that the agency look at ways to use technology to find “better and more efficient ways to monitor those individual advisors and brokers” who’ve been repeat offenders.

Division heads and a chief of staff will be top posts Clayton must fill.

“Putting his own people in place in senior positions at the commission will be one of Clayton’s first and most important jobs,” said David Tittsworth, counsel with Ropes & Gray, and former head of the Investment Adviser Association in Washington. “Who he hires will have a major bearing on setting and implementing the SEC’s rulemaking, enforcement and inspection programs.”

Norm Champ, former head of the SEC’s Division of Investment Management, told ThinkAdvisor in a recent interview that a big thrust of Clayton’s agenda will be to reverse the trend of declining IPOs in the U.S.

“It’s important to look at the face value of what the president and Jay Clayton talked about in the statement that nominated him: They both talked about getting on top of the decline in initial public offerings in the United States,” Champ, partner in the Investment Funds Group at Kirkland & Ellis, told ThinkAdvisor. “Long term, we are seeing a decline in IPOs in the U.S. That’s a very bad development.”

Clayton earned his B.S. in English from UPenn, his B.A. from Cambridge and his J.D. from the University of Pennsylvania Law School.

— Read Frontrunners: The 2017 IA 25 on ThinkAdvisor. 


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