'Bad Actor' Bill Would Limit SEC Waivers for Law-Breaking Firms

Despite recent improvements to the waiver process, Waters said, “more remains to be done to ensure that the SEC does not ‘reflexively’ throw away these disqualification tools or enshrine a policy of ‘too-big-too-bar.’”

Authority to grant waivers remains delegated to SEC staff attorneys, with the commissioners able to conduct a post-approval review and affirm, reverse, modify, set aside or remand for further proceedings.

“There is no opportunity for public notice, comment, or a hearing prior to a waiver determination. Interested parties are thus unable to express their concerns about whether a waiver should be granted or denied in a particular case,” Waters said.

Water’s bill seeks to prevent the SEC from automatically waiving disqualification by requiring:

• The waiver process be conducted and voted on at the commission level, rather than at the staff level; 

• The commission consider whether granting a waiver would be in the public interest, protect investors and promote market integrity;

• The commission publish notice and give the public an opportunity to comment and present their views at a public hearing on whether a particular waiver should be granted or denied;  and

• SEC staff members keep complete, public records of all waiver requests (formal and informal) and create a public database of all disqualified bad actors.

Previously, Waters took steps to rein in the agency’s waiver process. After release of a December 2014 study that found that the SEC disproportionately granted 82% of waivers to large financial firms during the preceding eleven years, she unveiled draft legislation to reform the SEC’s waiver process.

She also sent a letter to the SEC in May 2015 following reports that five of the largest banks intended to plead guilty to criminal antitrust violations and pay several billion dollars for rigging foreign currencies.

In June 2015 and December 2016, Waters and other Democrats called on the Department of Labor to hold public hearings on any waivers requested by banks with a history of misconduct.