IAA Blog: What Can We Expect from the New SEC?

Posted by Karen Barr, President & CEO, IAA on 01/26/2017

Post Categories: SEC, Regulation, Compliance, Advocacy


As we launch into 2017, many in the investment adviser community are asking what the new Administration and, specifically, a newly reconstituted SEC, might mean for the regulatory environment in which they operate. While it is too early to answer that question definitively, it is clear that the coming change in policymaking personnel could bring a new approach to regulation.

A majority of the SEC will be brand new in 2017. President Trump has nominated Jay Clayton as the next Chair of the SEC, replacing Mary Jo White. There are also two longstanding vacancies on the Commission that will have to be filled. Once the SEC is at full strength, there will be three new Commissioners outnumbering the two incumbents – Republican Mike Piwowar and Democrat Kara Stein. Piwowar will serve as Acting Chairman until Clayton is confirmed. Although the SEC is composed of five commissioners, including the Chair, the Chair typically controls the agency’s priorities and agenda.

Clayton, currently a partner at the law firm Sullivan & Cromwell who works with financial institutions, private funds and other clients on mergers and acquisitions, capital markets offerings, and regulatory investigations, is a well-respected and accomplished securities lawyer. He has not yet publically discussed his views on regulatory policy or the regulatory framework for investment advisers. It is not known whether he would be inclined to prioritize investment adviser regulation, as Chair White has or whether he would focus more on other areas, such as securities offerings or market structure. Clayton’s confirmation hearing may yield some clues, but it will undoubtedly take some time for Clayton to develop his agenda.

Nevertheless, it is likely that Clayton and the other new commissioners will take a fresh look at the rules currently in the pipeline and consider whether the SEC should continue to move forward with them in their present form. For example, the Chair may reconsider proposed rules on derivatives, business continuity planning, and executive compensation. It is also possible that the new Chair may take some time before deciding whether to proceed with a proposal on third-party examinations for investment advisers. This potential rulemaking was a priority for Chair White, but Clayton and the other new commissioners will have the chance to consider whether this concept should be pursued as conceived by Chair White and the SEC staff – or whether it should remain on the agenda at all.

In addition, the SEC has mostly finished the staggering load of Dodd-Frank rulemakings, new regulatory regimes and registrants, studies, and reports that it has been laboring under for the past several years. And Acting Chairman Piwowar has indicated that he will not prioritize the remaining Dodd-Frank rulemakings. The SEC staff may now have more available time to re-emphasize and revisit its longstanding “bread-and-butter” Investment Advisers Act and Investment Company Act rules and interpretations. This presents an excellent opportunity for the SEC to review the rules on the books – both recent and longstanding – to determine whether they are working as intended, whether they are achieving their goals, and whether there are ways of achieving the rules’ objectives in a more efficient or cost-effective manner.

The IAA intends to urge the commissioners and staff to conduct this retrospective assessment with respect to certain rules that directly affect advisers and are long overdue for reevaluation. The advertising rule, for example, has not been reviewed comprehensively since 1961 – the dark ages, from a communications perspective. The commissioners in 1961 could not have imagined a world with social media, the internet, or even personal computers. Another example is the custody rule, which was significantly amended more recently. While the rule is intended to achieve important investor protection goals, it is overly complex – with interpretations of various provisions causing confusion and consternation for advisers who are doing their best to be compliant. Similarly, the rules surrounding political contributions are not well-calibrated to efficiently achieve their appropriate objectives. The CFTC recently conducted a review of its outdated recordkeeping rules in response to an IAA petition for rulemaking and is now poised to revise and modernize its rule along the lines recommended by the IAA. The SEC should consider doing so as well.

We welcome members’ feedback on rules that may warrant a retrospective review. In the meantime, we anticipate a pause in significant new regulations as the new Chair goes through the confirmation process, two other new commissioners get nominated, vetted, and confirmed, and all three new members of the Commission get settled and up to speed on the issues. Firms and their compliance staffs will have to continue their substantial efforts to digest and implement the raft of recently adopted regulations, but perhaps the pause in additional new regulations (at least in the U.S.) will provide time to refocus their efforts on existing rules and serving clients pursuant to their fundamental fiduciary duties.

Indeed, regardless of Administration, investment advisers will still be executing on their core compliance goals – analyzing and mitigating conflicts of interest, providing clear, critical information to clients, ensuring that they put their clients’ interests first, and fostering an ethical “tone-at-the-top.”

As always, we look forward to working with you, our members, in the coming year to advocate for a regulatory environment that allows you to serve your clients loyally and grow your businesses efficiently.

Karen Barr
President & CEO



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