SEC Commissioner Uyeda Warns of SEC's Expanding Jurisdiction
Commentary by Steven Lofchie
SEC Commissioner Mark T. Uyeda urged the SEC not to seek to expand its authority over foreign entities.
In an address before the Managed Funds Association Global Summit, Mr. Uyeda explained that, historically, the SEC has limited the application of its rules to foreign entities. He highlighted the long established principle, articulated by former SEC Commissioner Charles Cox, on promoting the harmonization of regulatory approaches rather than the "forced imposition of the SEC’s own standards."
Mr. Uyeda expressed concern that the SEC is beginning to replace this traditional deference to foreign jurisdictions with an "approach that favors the primacy of U.S. regulations." He referenced recent SEC rulemakings that (i) "fundamentally upend" the SEC’s longstanding recognition of home-jurisdiction reporting requirements by mandating foreign private issuers make quarterly filings with the SEC and (ii) impose prescriptive requirements for foreign private fund advisers. In critiquing these proposals, Mr. Uyeda stated that they rarely offer a convincing rationale behind their adoption, considering that these requirements may have limited use given the lack of certain types of disclosure. Further, Mr. Uyeda said that the SEC is using enforcement authority to hold foreign entities accountable for violations of securities regulations that are "more properly regulated" by home jurisdictions.
Mr. Uyeda warned of the potential possible outcomes associated with more burdensome costs and regulations if the SEC continues to pursue its rulemaking agenda, such as (i) foreign entities retreating from the U.S. market entirely, (ii) foreign entities banning U.S. investors or (iii) foreign jurisdictions reciprocating the SEC’s approach by subjecting U.S. entities to additional regulations.
Commentary
When Mr. Gensler was the Chair of the CFTC, he also initially took an expansive approach to assertions of CFTC jurisdiction over non-U.S. entities having contact with the United States. Forcing U.S. regulatory dominance over European firms was thwarted in significant part by EU Commissioner Michel Barnier who made clear that he would respond by making it difficult for U.S. firms to do business in the European Union if Chair Gensler attempted to regulate European firms. See, e.g., EU Commissioner Barnier to Accept Clearing Rules from Five Countries outside EU, but Not the United States.