SEC Chairman Clayton to Step Down

Clayton said on Oct. 19 that he was “cautiously satisfied” with Regulation Best Interest but noted that three months after its enforcement date he was noticing some troubling trends.

Reg BI was “overdue — we needed to do this,” Clayton said during a Q&A at the Securities Industry and Financial Markets Association’s virtual yearly meeting.

Ken Joseph, managing director and Head of Disputes Consulting at Duff & Phelps, told ThinkAdvisor in a Monday email that Clayton “made his mark in the areas of capital formation, protection of retail investors, regulation of fraud in the digital asset space, micro-cap offering fraud and for expediting investigations through the increased use of data analytics and whistleblowers.”

Clayton also “deserves credit for keeping the agency focused during the ongoing dislocation caused by the pandemic, and for his commitment to improving the agency’s diversity and inclusion practices—especially in light of recent social and racial injustice public concerns,” said Joseph, who served as an inaugural supervisor in the SEC Division of Enforcement specialized asset management unit, and was a senior officer in the Commission’s Office of Compliance Inspections and Examinations.

However, “some may criticize his commission for the changes to the proxy rules, the failure to harmonize the duty owed by broker-dealers and investment advisors to retail clients (Reg BI), and for the perceived lack of large-scale enforcement actions involving Wall Street firms,” Joseph said.

Clayton’s successor will likely focus in the short-term on “pressures to deal with ESG disclosure and reporting standards, to make further enhancements to Reg BI, to undo what some may view as corporate-friendly rules or policies,” Joseph added.

Any new chair will also be “dealing with the inevitable frauds that typically come to light in asset classes that become exposed by market stress and volatility.”

Under Clayton, the SEC also amended its “accredited investor” definition to allow investors to qualify based on defined measures of professional knowledge, experience or certifications — including holding certain Financial Industry Regulatory Authority licenses — in addition to the existing tests for income or net worth.

Under Clayton’s leadership, the SEC’s Division of Enforcement established a Retail Strategy Task Force, Teachers’ Initiative, and Military Service Members’ Initiative to concentrate efforts to combat fraud and educate investors. According to the agency, since May 2017, the Enforcement Division:

• brought over 2,750 enforcement actions,
• obtained more than $14 billion in financial remedies;
• distributed approximately $3.5 billion to harmed investors; and
• paid awards of approximately $565 million to whistleblowers.

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