Investment Management

Posted on Thursday, February 8 2018 at 9:42 am by

SEC Chairman Clayton’s Remarks on Remaining Dodd-Frank Mandates

By Paul Foley, John I. Sanders, and Lauren Henderson

On January 22, 2018, SEC Chairman Jay Clayton gave the opening remarks at the Securities Regulation Institute.[1] As part of his remarks, Chairman Clayton discussed the SEC’s approach to the remaining Dodd-Frank rulemaking mandates. The SEC’s approach places the remaining rulemaking into three categories.[2]

In the first category are rules to complete the security-based swap regime.[3] Chairman Clayton seeks to harmonize SEC and CFTC rules governing security based swaps. The SEC and CFTC rules generally vary because of differences in the products and markets of each agency and statutory differences. By harmonizing the SEC’s and CFTC’s rules governing security-based swaps, the SEC hopes to increase effectiveness and reduce costs.[4]

In the second category are rules related to executive compensation for public and SEC-regulated companies.[5] Under recently finalized rules, registrants must provide pay ratio disclosures for fiscal years beginning on or after January 1, 2017. This means some companies will be required to make pay ratio disclosures early this year.[6] The SEC recently released interpretive guidance on the pay ratio rules as the first step in an incremental approach to implement the remaining executive compensation rules.[7]

In the third category are specialized disclosure rules, like resource extraction disclosure.[8] Chairman Clayton noted multiple constraints on the rule implementation process in this area, including the Administrative Procedure Act, legal challenges, and the Congressional Review Act and how any proposed rule will take these factors into account.[9] In addition, Chairman Clayton stated any rule should reflect market developments that have “mitigated some of the motivation behind the statutory requirement.”[10]

While Chairman Clayton’s tenure has not been marked by formal rulemaking, his remarks indicate substantial rulemaking is on the horizon. Fortunately, market participants have anticipated these rules since Dodd-Frank was enacted in 2010 and Chairman Clayton has been clear in his approach.

If you have any questions about Chairman Clayton’s remarks or Dodd-Frank mandates generally, please feel free to contact us.

Paul Foley is a partner with Kilpatrick Townsend & Stockton’s Winston-Salem and New York offices. John I. Sanders and Lauren Henderson are associates based in the firm’s Winston-Salem office.

[1] SEC Chairman Jay Clayton, Opening Remarks at the Securities Regulation Institute – Washington, D.C. (Jan. 22, 2018), available at https://www.sec.gov/news/speech/speech-clayton-012218#_ftnref1.

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Division of Corporate Finance, SEC, Commission Guidance on Pay Ratio Disclosure, Release No. 33-10415 (Sept. 21, 2017), available at https://www.sec.gov/news/press-release/2017-172.

[7] Clayton, supra note 1.

[8] Id.

[9] Id.

[10] Id.

Posted on Friday, November 17 2017 at 8:38 am by

SEC Announces Enforcement Results, Sets New Priorities

By Paul Foley, John I. Sanders, and Lauren Henderson

On November 15, 2017, the SEC announced the results of its enforcement actions for fiscal year 2017 and stated its enforcement priorities for fiscal year 2018.

During fiscal year 2017, the SEC brought 754 enforcement actions, returned $1.07 billion to harmed investors, and obtained judgments and orders totaling $3.789 billion in disgorgement and penalties.[i] Of the 754 enforcement actions, 446 were standalone cases.[ii] Investment advisory issues, securities offerings, and issuer reporting each accounted for 20% of the standalone cases, roughly in line with fiscal year 2016 results.[iii]

In the current fiscal year, the following five core principles will guide the SEC’s enforcement actions:[iv]

  • Focus on Main Street (i.e., unsophisticated) investors
  • Focus on individual accountability (as opposed to organizational accountability)
  • Keep pace with technological change
  • Impose sanctions that most effectively further enforcement goals
  • Assess the allocation of resources

Both the enforcement results for the recently completed fiscal year and the stated priorities for the current fiscal year reflect Chairman Clayton’s oft-articulated dedication to the SEC’s mandates: protect investors, maintain fair and efficient markets, facilitate capital formation.

If you have any questions about the SEC enforcement actions or enforcement priorities, please feel free to contact us directly.

Paul Foley is a partner with Kilpatrick Townsend & Stockton’s Winston-Salem and New York offices. John I. Sanders and Lauren Henderson are associates based in the firm’s Winston-Salem office.

[i] SEC, SEC Enforcement Division Issues Report on Priorities and FY 2017 Results (Nov. 15, 2017), available at https://www.sec.gov/news/press-release/2017-210.

[ii] Id.

[iii] Id.

[iv] Id.

Posted on Thursday, November 9 2017 at 11:10 am by

Four Key Takeaways for Investment Advisers from Chairman Clayton’s PLI Address

By Paul Foley and John I. Sanders

On November 8, 2017, SEC Chairman Jay Clayton gave the keynote address at the Practicing Law Institute’s 49th Annual Institute on Securities Regulation.[i] Chairman Clayton’s remarks shed considerable light on the SEC’s priorities in the near-term. We believe there are four key takeaways from the address for investment advisers:

  • The SEC will deemphasize formal rulemaking and focus instead on enforcement actions that will improve “transparency in our securities markets”;[ii]
  • The SEC will scrutinize whether investment advisers’ proxy voting decisions are maximizing value for their clients;[iii]
  • The SEC will prioritize enforcement actions related to “complex, obscure, or hidden fees and expenses that can harm investors” (e.g., investing client assets in a mutual fund share class that charges a 12b-1 fee when a lower-cost share class of the same fund is available);[iv] and
  • The SEC will help investors track bad actors by creating a website with a searchable database of “individuals who have been barred or suspended as a result of federal securities law violations.”[v]

Chairman Clayton is clearly signaling to investment advisers that the SEC, in the near-term, will focus its energy on whether they are making complete and accurate disclosures to their clients.

If you have questions about Chairman Clayton’s keynote address or the regulations that govern investment advisers generally, please feel free to contact us.

Paul Foley is a partner with Kilpatrick Townsend & Stockton’s Winston-Salem and New York offices. John I. Sanders is an associate based in the firm’s Winston-Salem office.

[i] SEC Chairman Jay Clayton, Remarks at the PLI 49th Annual Institute on Securities Regulation – New York, N.Y. (Nov. 8 2017), available at https://www.sec.gov/news/speech/speech-clayton-2017-11-08.

[ii] Id.

[iii] Id.

[iv] Id.

[v] Id.