SEC Commissioner Allison Herren Lee Urges Additional Protections for Retail Investors

In remarks at the 2021 Section 19(d) Conference, SEC Commissioner Allison Herren Lee urged regulators to consider private market reforms to increase investor protection and improve market transparency.

The Section 19(d) Conference, held in accordance with Section 19(d) ("Federal and State cooperation") of the Securities Act, is presented jointly by the North American Securities Administrators Association and the SEC annually to facilitate discussions on best practices for investor protection.

Ms. Lee addressed the following issues:

• Regulation Best Interest. Ms. Lee noted that the SEC is now in a position to start evaluating the effectiveness of Form CRS and other disclosures required under Regulation Best Interest ("Reg BI") considering that, at this point, Reg BI has been in effect for approximately one year.

• The "gamification" of trading. Ms. Lee expressed concern over the impact of game-like features in app-based investing platforms on investor behavior, and questioned whether additional disclosures would sufficiently address the issue.

• Environmental, Social and Governance ("ESG"). Ms. Lee asserted that regulators should move quickly to create a framework that will provide investors with the "consistent, comparable, and reliable" ESG disclosures necessary to price risk and allocate capital. Ms. Lee encouraged states to submit comments during the SEC's open comment period concerning regulatory requirements in connection with ESG disclosures.

• Private Markets. Ms. Lee stated that the SEC should (i) update the wealth thresholds for accredited investors and index them to inflation and (ii) consider reforms to Regulation D ("Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933") by:

  • conditioning SA Rule 506(c) ("Conditions to be met in offerings not subject to limitation on manner of offering") exemptions on the filing of Form D;

  • requiring Form D to be filed prior to an SA Rule 506(c) offering;

  • mandating additional information to be collected on Form D; and

  • requiring that legends be used on SA Rule 506(c) written general solicitation materials and that such materials be filed with the SEC.