SEC Commissioner Contends Certain Agency Guidance Has Turned Into "Body of Secret Law"

SEC Commissioner Hester Peirce voiced concern that certain agency guidance may have turned into a "body of secret law" due to a lack of transparency and accountability.

In remarks at the "SEC Speaks" Conference, Ms. Peirce acknowledged that staff guidance can aid market participants "navigate the complexity" of the federal securities laws. Staff-level guidance, according to Ms. Peirce, performs several important functions, which include helping to ensure that the SEC is responsive to the markets and that market participants are able to satisfy their regulatory obligations. However, she warned that this guidance has transformed into "secret law" and has bound market participants on the basis that it is resistant to judicial and agency review.

As stated by Ms. Peirce, no-action letters issued by the SEC staff - when used properly - can be beneficial to market participants, particularly when they are made publicly available. She explained that requiring that these letters be published has benefits, namely that it enhances consistency in staff-level guidance across time and across similarly-situated market participants and keeps the staff accountable to the SEC and to the public by making sure that the no-action process is transparent. Ms. Peirce said that there is a "line that can be crossed" when non-public staff guidance restricts market participants without an opportunity for review. To illustrate this point, Ms. Peirce stated that this line was crossed when she heard that a set of SEC rules "does not matter much in practice because firms operate" under published and unpublished letters and other SEC staff directives.

Ms. Peirce called on the SEC to engage publicly with market participants, underscoring the importance of the SEC's actions being "subject to democratic accountability and some form of review."