Commissioner Peirce Criticizes SEC's Expanding Jurisdiction

SEC Commissioner Hester M. Peirce criticized the expanding regulatory scope of the SEC. She argued that the current trend of imposing bank-style prudential regulation on capital markets is misaligned with the fundamental nature of capital markets.

In her remarks at the Hoover Monetary Policy Conference, Ms. Peirce argued that the regulatory frameworks for capital markets and bank financing are (and should be) markedly different. She said that capital markets' regulation should be primarily focused on disclosure and antifraud regulations that promote transparency. In contrast, she said, that bank regulation should be aimed at ensuring stability and continuity. She criticized the trend of imposing bank-style prudential regulations on capital markets, declaring that this is contrary to the intrinsic nature of capital markets, which thrive on risk-taking and innovation. This shift, according to Ms. Peirce, stems from an increasingly risk-averse society and a misplaced belief that the SEC should intervene in market dynamics and decision-making, even extending its reach to entities it does not directly regulate.

Further, Ms. Peirce pointed out the problematic expansion of the SEC’s role into areas traditionally not within its purview, such as the systemic risk regulation of private funds, where it has been influenced by other regulatory bodies like FSOC. Ms. Peirce also highlighted the recent regulatory changes that have brought capital markets closer to a prudential regulatory model, such as the rules for private fund advisers. This shift has been partly driven by prudential regulators' concerns over the systemic risks posed by private funds, especially during financial stress, which she contends contributes to the resilience of financial systems by providing liquidity even during downturns. She expressed concern over the prudential regulatory encroachment into the SEC’s domain, warning that regulating capital markets as if they were banks would undermine the role of markets in facilitating economic growth and innovation.

Ms. Peirce said that the SEC should focus on getting investors the information they need, bank regulators should focus on regulating banks and central bankers should focus on monetary policy. All of these jobs, Ms. Peirce argued "are big and important... on their own without moonlighting in someone else’s lane." She argued the SEC should focus investors’ minds on their task at hand and remind them that, in the capital markets, "failure is a possibility, but government bailouts are not."