Receive our daily newsletter

SEC Commissioner Gallagher Speaks on the Priorities and Mispriorities of the SEC (with Lofchie Comment)

SEC Commissioner Daniel M. Gallagher delivered a speech to the AICPA/SIFMA Financial Management Society Conference on the Securities Industry regarding the need for the SEC to re-prioritize its agenda to focus on subjects more relevant to the SEC mission. Commissioner Gallagher stated that this mission is comprised of three intertwined components: to facilitate capital formation, to maintain orderly and efficient capital markets, and to protect investors. While the mission is fairly straightforward, Gallagher said that often becomes complicated due to "the thick overlay of recent congressional mandates that, given our necessarily limited capacity, compete for our attention."

Commissioner Gallagher also spoke about the SEC's conflicting priorities, first describing instances in which the SEC has misprioritized its agenda. Gallagher highlighted the Dodd-Frank disclosure mandates for conflict minerals and resource extraction payments as an example, stating that "they were certainly mandates, but should never have been priorities," since they did nothing to further the SEC's mission. Along with those examples, Commissioner Gallagher noted the Pay Ratio Disclosure Rule proposal as an SEC misprioritization, stating that it did not "address any aspect of the financial crisis, and, unlike other non-germane mandates in Dodd-Frank, it did not even purport to address a humanitarian crisis."

As a result of this kind of misprioritization, Commissioner Gallagher stated, the SEC has suffered, having gone from one of the best places to work in the federal government to one of the worst. According to Gallagher, this is due to "years of carrying out mandates unresponsive to the financial crisis under unrealistic, arbitrary deadlines." Commissioner Gallagher went on to outline his idea of how to determine what the SEC priorities should be, which focuses on the SEC's threefold mission: the relevancy of the task to the causes of the financial crisis, the trade-offs of engaging in the task, its cost, and whether the SEC has the expertise to complete it.

Gallagher then described what would be on his list of priorities, including:

  • credit agency reference removal as required by Dodd-Frank, Section 939A ("Review of Reliance on Ratings");
  • the commencement of a comprehensive market structure review;
  • proxy advisory reform;
  • the responsible implementation of Title IV of the JOBS Act, or "Regulation A+";
  • fixed income regulatory reform; and
  • general disclosure reform.

Commissioner Gallagher also provided "a couple of items that would certainly not make my list," such as mandated disclosure by issuers of non-material "political" contributions, and rewriting the Section 1504 "extractive industries" payment rule. He concluded by stating that it is critical for the SEC to avoid setting its priorities in a vacuum, and emphasized the need for help from other regulators to ensure that the SEC agenda is not mistargeted.

Lofchie Comment: Commissioner Gallagher's lists of mispriorities and priorities is a valuable start. Regulators must, as a group and not merely as individuals, prioritize those rules that actually have something to do with financial regulation. There should not be so many priorities that the market is overwhelmed by them.

See: Commissioner Gallagher's Speech.
Related news:SEC Chair White Delivers Speech on Equity Market Structure (with Lofchie Comment) (October 2, 2013); SEC Publishes Pay Ratio Disclosure Rule (Fed. Reg.) (October 1, 2013).