Introduction: The Chair’s Agenda & Regulatory Priorities
On June 11, 2021, the Securities and Exchange Commission (SEC) released its Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions (regulatory agenda). This particular regulatory agenda is noteworthy for a few reasons. One, it is the first regulatory agenda issued by the SEC since Gary Gensler was confirmed as SEC Chair, and therefore, it is the first official view into Chair Gensler’s regulatory priorities. Matters listed are regulatory priorities; conversely, matters omitted are unlikely to see regulatory action (even if outside observers speculated before Chair Gensler was confirmed that one or more of these matters would be a regulatory priority). Finally, the composition of this regulatory agenda proved to be controversial with two SEC Commissioners – Peirce and Roisman – who issued their own statement questioning why the SEC Chair included some matters on the regulatory agenda while omitting matters that those Commissioners believed merited inclusion.
1. What is the regulatory agenda, anyway?
Twice per year, in the Spring and Fall, all federal agencies must prepare a regulatory agenda that lists each regulatory action the agency expects to work on within the next 12 months. The agencies’ regulatory agendas are then published in the Unified Agenda of Regulatory and Deregulatory Actions.
2. What’s so important about the regulatory agenda, anyway?
Regulatory agendas are part of transparency in rulemaking. The SEC’s regulatory agenda took on increased importance during the term of Jay Clayton, Chair Gensler’s immediate predecessor. Chair Clayton publicly stated on several occasions that he intended to treat the regulatory agenda seriously and planned to streamline it to show what the SEC actually expected to take up in the subsequent period. True to that notion, the SEC’s regulatory agenda under Chair Clayton generally did serve as an accurate forecast for SEC rulemakings. Moreover, then-President Trump had issued an executive order generally prohibiting an agency from issuing a regulation unless it was identified on the agency’s most recent regulatory agenda.
However, the Biden administration rescinded this executive order on its first day in office. For that reason alone, the SEC’s regulatory agenda has less significance now than it did before January 20th.
3. What does the SEC put on its regulatory agenda? Final rules? Proposed rules? No-action letters?
Starting from the bottom – no, the SEC does not put no-action letters on its regulatory agenda.
Like most other federal agencies, the SEC’s agenda is divided into four sections:
- the pre-rule stage – this includes actions the SEC will undertake to determine whether or how to initiate rulemaking;
- the proposed rule stage – this includes proposed rules the SEC has published or plans to publish within the next 12 months;
- the final rule stage – this includes planned final rules; and
- long-term actions – this includes items that are on the agenda but for which the SEC does not expect to take regulatory action within the next 12 months.
4. Thank you for the background, but what I’m really interested in is what’s on tap. Is there anything noteworthy?
Yes, there are noteworthy items for investment advisers, funds and broker-dealers (as well as items for public operating companies, but we don’t focus on those).
Several interesting pre-rule stage items have been added, including considering whether to seek public comment on:
- the role of third-party index providers and model providers, and the implications for the asset management industry. This appears to be an escalation of an issue first publicly articulated by the previous director of the Division of Investment Management (IM), who questioned whether the provider of an index used by a single ETF should be required to register as an investment adviser under the Investment Advisers Act of 1940, instead of relying on the publisher’s exception from registration.
- potential rules related to gamification, behavioral prompts, predictive analytics, and differential marketing. Chair Gensler noted in a recent speech that gamification was a feature that is appearing with increasing frequency across mobile brokerage apps. He stated that while many of these features encourage investors to trade more, some academic studies suggest, however, that more active trading or even day trading results in lower returns for the average trader. This item is of even more significant in 2021, due to meme trades.
The regulatory agenda also includes several items in the proposed rule stage that would affect funds, investment advisers and broker-dealers. These items include:
- electronic filing of broker-dealer reports;
- amendments to the investment adviser custody rule;
- amendments to the investment company cross-trade rule;
- amendments to Form PF;
- amendments to the broker-dealer recordkeeping rule;
- equity market structure modernization;
- ESG rules for investment advisers and funds;
- money market fund reforms;
- amendments to transfer agent rules;
- special purpose acquisition companies;
- proxy voting advice;
- open-end fund liquidity and dilution management; and
- amendments to the securities transaction settlement cycle.
Items in the final rule stage that would affect funds, investment advisers and broker-dealers include:
- universal proxy cards; and
- amendments to the disclosure framework for mutual funds and ETFs
Long-term action items that would affect funds, investment advisers and broker-dealers include:
- proxy process amendments;
- stress testing for large asset managers and large funds;
- amendments to the fund names rule;
- amendments to improve the fund proxy system;
- fund securities lending arrangements;
- removal of certain references to credit ratings under rules adopted under the Securities Exchange Act of 1934;
- exchange-traded products; and
- credit rating agencies – conflicts of interest and transparency.
Interestingly, the SEC removed from the regulatory agenda its proposed amendments to the Section 13(f) reporting requirements, which would have significantly narrowed the universe of institutional investors who are required to make periodic filings reflecting their holdings in specific securities.
5. What triggered Commissioners Peirce and Roisman to issue a statement criticizing the regulatory agenda?
In simple terms, Commissioners Peirce and Roisman appear to be unhappy that Chair Gensler is: (i) reopening matters addressed during Chairman Clayton’s tenure; and (ii) ignoring matters that they believe should be addressed.
Chair Gensler’s regulatory agenda appears to take aim at two recently completed rulemakings, addressing proxy voting and amending the accredited investor definition. The Commissioners argued that the SEC had fully complied with the Administrative Procedure Act (APA) in adopting each of these rules that Chair Gensler proposed to revisit and that no new data could have come to light that would warrant revisiting any of the rules so soon after they were adopted. To be fair, these recent rulemakings, which the current agenda suggests will be revisited, were adopted on party-line votes.
Potentially more significantly, however, Commissioners Peirce an Roisman also complained that the regulatory agenda failed to propose “rules to provide clarity for digital assets, allow companies to compensate gig workers with equity, and revisit proxy plumbing.” Commissioner Peirce, sometimes known as “Crypto Mom”, has not been reticent about her views that US Regulators should embrace digital assets in a more thoughtful way, to deter fraud and to create a safe, well-regulated playing field and become the market leaders in the digital asset economy. Commissioners Peirce and Roisman have also previously jointly supported equity compensation proposals for gig economy workers. Commissioner Roisman has been vocal on proxy plumbing issues since after the August 2019 SEC guidance on proxy voting issues.
6. So, what happens now?
We watch and wait. And as we do, we note that while the SEC has appointed a new General Counsel and new Directors of the Divisions of Corporation Finance and Enforcement, IM and Trading & Markets still are overseen by Acting Directors. Moreover, as we mentioned in an earlier Legal Insight, Chair Gensler is the first SEC Chair to appoint a policy director to lead a team of policy experts to advise him on agency rulemakings. Therefore, it may be fair to expect that any rulemaking that comes out of the SEC will have much more of the SEC Chair’s imprimatur than was the case under past SEC Chairs.
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