On September 26, 2017, SEC Chairman Jay Clayton delivered to the U.S. Senate Committee on Banking, Housing and Urban Affairs his first testimony as Chairman.  A copy of his prepared remarks may be found here.

Mr. Clayton’s testimony was fairly broad in scope, covering a variety of issues of concern to the Committee, from the SEC’s budget request to its activity in the enforcement arena.  However, we highlight a few items that are likely to be of particular interest to our broker-dealer clients.

Encouraging Initial Public Offerings and Investor Choice.  Mr. Clayton expressed his concern that investors could have fewer investment choices if IPOs continued their downward pace.  Accordingly, Mr. Clayton expects that regulatory tools, such as scaled disclosure and confidential submissions of draft registration statements, would continue to be used to attract smaller and mid-sized companies to the capital markets.  He indicated that the SEC will soon consider a rule proposal, as required by the FAST Act, to modernize and simplify the disclosure requirements in Regulation S-K in a manner that reduces costs and burdens on companies, while still providing for the disclosure of all required material information.

The Staff is also developing rule amendments that would eliminate redundant, overlapping, outdated or superseded disclosure requirements.  In addition, the Staff is developing recommendations for the SEC on final rule amendments to the “smaller reporting company” definition under Exchange Act Rule 12b-2, which would expand the number of issuers eligible to provide scaled disclosures.

A Fiduciary Duty for Broker-Dealers?  Mr. Clayton summarized the SEC’s current efforts and considerations in assessing changes to the standards of conduct for investment advisers and broker-dealers, including:

  • the need for retail investors to have access to high-quality and affordable investment advice, without sacrificing the protection of the securities laws;
  • the actions taken by the financial industry to date in the aftermath of the Department of Labor’s fiduciary rules, including changes to product offerings;
  • changes by mutual fund complexes to the terms of their offerings; and
  • the need to work with the Department of Labor, due to the interaction of their efforts with those of the SEC on investors and financial institutions.

Examinations of Broker-Dealers.  Mr. Clayton discussed the national examination program conducted by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”).  In light of the growth of assets managed by investment advisers, the SEC has moved additional resources to these examinations; Mr. Clayton indicated that the SEC is on track to deliver a 30% increase in the number of investment-adviser examinations in 2017, or 15% of all investment advisers.

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Mr. Clayton’s testimony reflects the fact that the SEC’s current rule making and other activities are broad in scope, are widely scrutinized, and will have a substantial impact on the financial markets.  His testimony may not have conveyed much in the way of specific actionable items for market participants, but did provide a useful overview of the types of issues that the SEC will act on during the remainder of 2017 and beyond.