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June 22, 2020 at 02:05 PM
After an unusual weekend for SEC Chairman Jay Clayton, a big question emerged: Will he stay or will he go? Clayton was thrown into a political firestorm this past weekend over President Donald Trump’s surprise nomination of him to take over as the U.S. Attorney for the Southern District of New York, replacing Geoffrey Berman, who was fired.
So will Clayton stay on as Wall Street’s regulator until his term expires in 2021 or will he take the helm of the court that cracks down on Wall Street despite a lack of experience as a prosecutor?
The issue at the SEC surrounding Clayton if he were to depart, is that the agency’s Regulation Best Interest takes effect on June 30, and enforcement of the rule takes center stage.
“What a mess,” Bob Plaze, former co-director of the SEC’s Division of Investment Management who’s now a partner at Proskauer Rose in Washington, told Human Capital in a Monday email message. “Whatever you think about the regulatory policies the SEC has pursued under Chairman Clayton, everyone I know believes that he has led the SEC ably and with a great deal of integrity. I know the staff thinks highly of him. It’s a shame that he has gotten caught up in this debacle.”
Phyllis Borzi, the former assistant secretary of the Labor Department’s Employee Benefits Security Administration during the Obama administration, told Human Capital in a separate interview Monday that she was “just as surprised as anyone else” about Trump’s nomination of Clayton to head the Manhattan court and Clayton’s “interest” in taking on such a roll.
As to what Clayton’s potential departure means for enforcing Reg BI, Borzi said, “It matters in the sense that this [Reg BI] was his baby, he was determined to push it through; I give him great credit, even though I disagree with a number of things they did in Reg BI and the rest of the reg package. I know, I have the scars on my back to show it, how hard it is to get anything through in this area.”
The “effectiveness” of Reg BI, Borzi said, “will rise and fall on how well it’s enforced because the rule itself leaves a lot of ambiguity, so it will be critical how it’s implemented.”
The key to enforcing Reg BI, Borzi said during a Thursday Zoom meeting, is that the “SEC needs to ramp up its efforts to understand and regulate revenue sharing conflicts.” (Listen to ThinkAdvisor’s Human Capital podcast on Friday as Borzi details more on this enforcement approach and the pending Labor fiduciary rule reboot to align with Reg BI).
Former SEC Chairman Harvey Pitt told Human Capital in a late Monday email message that in preparation for Reg BI, “most firms have developed significant guidance on how their financial advisors are to treat the rule, and satisfy its requirements.” Pitt agreed, however, that “enforcement will be difficult, especially while SEC exams are still being handled remotely.”
