Winds of change

 Jay Clayton has given scant detail of his intentions for the Securities and Exchange Commission, but evidence is mounting that the US regulatory body is turning its attention towards capital formation and away from enforcement.
Here are four moves that suggest the regulator is taking a new tack:

1Extension of the Jumpstart Our Business Startups Act
This was new chairman Jay Clayton’s first big policy change.
A regulation allowing the private filing of initial public offering documents was extended to cover private equity firms with the aim of encouraging more IPOs.
“By expanding a popular JOBS Act benefit to all companies we hope that the next American success story will look to our public markets when they need access to affordable capital,” Clayton said at the time.
Private equity IPO value fell 45 percent year-on-year in 2016, according to EY, and to its lowest level since 2012. But that looks to be rebounding as the first quarter of 2017 saw a 300 percent year-on-year increase in the number of PE-backed IPOs.
The SEC has expressed concern about the decline in IPOs, not just from the private equity sector. It argued start-ups going public are more innovative than large companies and “account for a substantial percentage of the jobs created each year.”

2 The mixed message in its annual budget
The agency is on track to deliver a 20 percent increase in the number of examinations in 2017, Clayton told the Senate during his presentation of the agency’s budget. But he has requested $1.6 billion for the forthcoming fiscal year, essentially the same as its 2017 total.
“It’s going to make it extremely difficult to increase its current examination cycle for investment advisors,” says Duane Thompson, senior policy analyst for a fiduciary training and accreditation firm, adding that the SEC could hit a ceiling on the number of examinations it could perform given its budget request.

3 Nomination of a Dodd-Frank opponent as commissioner
President Donald Trump has nominated Hester Peirce, a staunch critic of the Dodd-Frank Act and the Volcker Rule to fill a vacancy on the SEC commissioner panel.
Peirce’s name was thrown into the ring during the Obama administration, but her nomination was rejected by Democrats who objected to her views on regulation.
Peirce, a research fellow at a conservative think tank and former SEC attorney, said the Volcker Rule has taken up much regulatory and industry attention and resources “that could have been spent on pressing issues like cybersecurity.”
She has also written positively about Clayton’s overall approach to reform, saying he is “searching for better ways to ensure that our public securities markets are an efficient and safe place for investors and companies to meet their complementary goals.”

4 Silence on enforcement division powers
Clayton is yet to say whether he will allow enforcement division staffers to issue subpoenas on their own authority, as they have in recent years. In February, acting chairman Michael Piwowar began requiring division directors to approve these requests.
Officials in the enforcement division usually issued subpoenas and negotiate settlements without commissioner participation, except in the biggest and most sensitive cases. Piwowar’s policy was expected to reduce the number of compliance examinations.
The appointment of Steve Peikin, a colleague of the chairman at Sullivan & Cromwell, and Stephanie Avakian as co-heads of the enforcement division also cast doubt on the number of examinations.
Democrats fear Peikin’s relationship with some of Wall Street’s biggest names will make him go easy on financial misconduct, but Republicans argue his past as a prosecutor means he is unlikely to turn into a light-touch regulator.
The top man has remained tight-lipped on the general policy direction of the Securities and Exchange Commission under his stewardship, but evidence is mounting that its focus will move towards capital formation and away from enforcement. ?

Pieces of the puzzle
Clayton gave a few more hints about the future direction of the SEC at a panel discussion with the US Chamber of Commerce Center for Capital Markets Competitiveness at the end of July. Here are the points that will affect private fund managers

Enforcement: the Commission has increased the use of data to target exams, using it to consider which firms to look at, how to conduct the exam and whether the Commission is being effective.

Proxy reports/disclosure effectiveness: more disclosure does not mean better disclosure, Clayton said. It should be written to protect the investor rather than to hedge against legal action.

Reduction in number of public companies: the SEC will not do anything to inhibit private capital formation. Clayton said having both a healthy public and private equity market provides companies with financing options, facilitates capital formation and provides healthy and necessary market competition. 

Costs of compliance: Clayton acknowledged the need to be aware of compliance costs when writing rules.
Co-ordination among domestic regulators: there should not be gaps or duplication between various regulations and regulators should not ask for the same information in different ways. 

Cybersecurity: watchdogs should develop standards to respond effectively to incidents. Clayton added that if a company acts responsibly in terms of protections and disclosures, regulators should not punish them for being victims.