SEC Commissioner Peirce Criticizes Recent SEC Actions
Commentary by Steven Lofchie
SEC Commissioner Hester M. Peirce criticized recent SEC actions, including the "Enhancement and Standardization of Climate-Related Disclosures for Investors" rule and a draft recommendation concerning a Predictive Data Analytics proposal.
In remarks before the Investor Advisory Committee, Ms. Peirce began by questioning how the SEC will move forward on its remaining proposals to change equity market structure. (Her statement follows the SEC's recent adoption of an amendment to NMS Rule 605, requiring further disclosure of trading routing and execution information.) Ms. Peirce said that the remaining rules raises significant questions, including, "what problem are we trying to solve?"
In discussing the SEC's recently enacted rule entitled "Enhancement and Standardization of Climate-Related Disclosures for Investors," Ms. Peirce said she did not support the rule. Ms. Peirce criticized the SEC's climate disclosure rule for not being based in financial "materiality," expressing concern that it assumes highly detailed climate disclosures are universally material for all companies. She highlighted that information is material if a reasonable investor would find it important to their investment or voting decisions. Ms. Peirce argued that, while all investors value financial returns, their interests in non-economic considerations diverge. She warned that moving away from materiality "could trigger a hodgepodge of requirements tailored to meet the demands of a vast and ever-expanding panoply of special interests." Ms. Peirce questioned what the limiting principle is on this rule.
Ms. Peirce also commented on the SEC's consideration of a draft recommendation concerning a recent Predictive Data Analytics proposal. Ms. Peirce argued that, while she is interested in hearing the discussion on the recommendation, she would have liked to see more time allotted to it, noting that the discussion of the draft at a prior meeting seemed "rushed." She said that conversations about the draft recommendation had occurred before the meeting, including with non-Committee members, which seemed to lead to a decision to rewrite the recommendation before voting. Ms. Peirce said she would have liked to know why this decision was made and would like to understand the rationale for the specific changes made from the last draft, especially why the current draft is "toned down so considerably."
Commentary
Commissioner Peirce's comments on the SEC's rulemakings having no limiting principle follows a similar statement along the same line by Commissioner Uyeda.
Much of the SEC's rulemaking under Chair Gensler has been adopted by 3-2 vote, with the dissenting Commissioners objecting not only to the substance of the rules, but questioning the underlying statutory authority and, arguing that even if there might be statutory authority, the process by which the rules were adopted did not meet the requirements of the Administrative Procedures Act.
This raises the question of what will happen to these rule makings after the Presidential election. If President Biden does not win re-election, it would seem quite likely that the next SEC Chair may revisit the SEC's rulemakings. If President Biden wins, the litigation against these rule makings being in violation of law will proceed. In that case, the next SEC Chair will likely find that much of the SEC's resources will have to be devoted to defending past rulemaking. Given that the SEC has already lost a number of significant challenges to its authority, one may thus guess that a good amount of these resources will be devoted to very uphill battles.