Chair Jay Clayton Talks SEC Approach to Regulatory Modernization

SEC Chair Jay Clayton described agency efforts to modernize the regulatory framework, emphasizing the importance of operating within the limits of its regulatory authority.

In a speech at the University of Pennsylvania, Mr. Clayton highlighted the following SEC modernization efforts.:

• transitioning the delivery of fund reports to investors from paper to the web (ICA Rule 30e-3);

• adopting the standards of conduct for investment professionals rulemaking and interpretations package;

• expanding company capital accommodations under the JOBS Act;

• codifying existing Investment Company Act exemptive relief to modernize the exchange-traded funds ("ETFs") approval process;

• tightening the requirements that broker-dealers must meet before being permitted to post public quotations on OTC securities;

• updating public company reporting requirements; and

• amending the proxy voting system (see previous coverage here, here and here).

Mr. Clayton also highlighted efforts around investor education and protection of retail investors (e.g., the Teachers' and Military Service Members' Initiative).

In addition, Mr. Clayton stated that the SEC earns "authority, independence and respect" by doing the job that is assigned to it. He said that the SEC is often confronted by requests to "stretch [its] authority" by either using "all available means" to reach a goal or "fill the gap" within regulatory oversight. Mr. Clayton said he has received requests to (i) introduce regulation that would restrict what a company can do with available funds (i.e., "capital allocation decisions") and (ii) provide expertise and authority in competition policy. Mr. Clayton rejected these approaches and emphasized that the agency will remain true to its statutory mission and authority.

While Mr. Clayton emphasized that the SEC would not involve itself in monetary policy, he said that the agency was becoming more involved in market monitoring. He cited the risks posed by the growing share of debt held outside of banks, noting that the SEC is working with regulatory partners to monitor, among other things:

• the size of corporate debt, both as a whole and by industry;

• the location and type of debt holder;

• the exposure of banks to funds through derivative instruments; and

• the overlapping portfolio holdings that are vulnerable to similar price and liquidity shocks.