SEC Commissioner Stein Speaks about SEC Tools to Enhance Investor Protection
SEC Commissioner Kara M. Stein delivered remarks at the Consumer Federation of America's 27th Annual Financial Services Conference. She focused on disclosure, aligning interests of market participants and accountability.
Commissioner Stein explained that disclosures are only an effective tool only if they can provide the investor with the information needed to make "informed decisions about the future." Commissioner Stein recognized that there are "disparate levels of investor capacity in the marketplace," and stated that the SEC's "one-size-fits-all approach" falls short of providing investors with necessary information. In order to recognize the needs of, and differences in disclosures for, investors, Commissioner Stein recommended that the SEC should consider ways to provide different "layers" of disclosure to different types of investors.
In order to provide more and better data to investors, Commissioner Stein noted that the SEC must do a better job of utilizing technology in the disclosure process which would reduce errors, and eliminate the burden on filers who must file disclosures in multiple formats. For example, she recommended that the SEC require the addition of "in-line XBRL" to annual reports which would consolidate the reporting process by embedding data tags within one filed document.
Commissioner Stein stated that the SEC must remain vigilant to "align interests that should naturally be aligned" between investors, companies and other market participants. She identified two areas where the SEC could work on aligning interests: (i) broker-dealers and the investors they serve, and (ii) companies and its shareholders to build a better partnership.
Commissioner Stein stressed that the SEC must implement accountability among market participants in order to deter wrongdoers. Commissioner Stein identified one way the SEC has encouraged accountability is through automatic bars or disqualifications, including Rule 506 of Regulation D ("Exemption for Limited Offers and Sales without Regard to Dollar Amount of Offering") or the "bad actor rule." The "bad actor rule," explained Commissioner Stein, automatically bars law-breakers from participating in 506 exempt offerings; however, the SEC may grant waivers of the disqualifications "if there is good cause." In granting waivers, according to Commissioner Stein, the SEC must take a "flexible and nuanced" approach. She expressed support of the SEC's decision to grant a conditional and limited waiver from disqualification under Rule 506. By granting the conditional waiver, Commissioner Stein stated that the SEC can "focus and empower management to change behavior throughout the corporate culture."