What Chairman Jay Clayton’s Resignation Could Mean for Future of Financial Regulation

On November 16^th, 2020 Securities and Exchange Commission (“SEC”) Chairman, Jay Clayton announced he will be stepping down from his position at the end of 2020[1]. The Chairman’s announcement comes as no surprise, mainly due to Joe Biden’s presidential victory. SEC chairs typically step down when there is a new president elect[2]. (Former Chair Mary Jo White stepped down in 2016 after current President Donald Trump’s election[3] and former Chair Mary Schapiro resigned in 2012 after former President Barack Obama’s election.[4]) President-Elect Joe Biden is likely to nominate a new chairman before his inauguration on January 20^th, 2021.

SEC Commissioner, Allison Lee is positioned to become the acting Chair until President Biden appoints a replacement for Jay Clayton[5]. Possible appointments include former SEC commissioner Kara Stein, Former commissioner Rob Jackson, Preet Bharara, a former United States attorney for the Sothern District of New York, Maxine Waters head of the House Financial Services Committee and, Gary Gensler who is currently leading the financial policy transition team for the future Biden administration[6].  

An appointment of a democratic chair will create a democratic majority within the commission. Historically, democratic members of the SEC rely heavier on enforcement than their republican counterparts. Gary Gensler, for example, aggressively implemented regulations such as the Dodd-Frank Act during his tenure as chairman of the Commodities Futures Trading Commission (“CFTC”)[7]. The appointment of a democratic chair within the SEC will result in increased enforcement and investigations.

The main question lies in where the priorities of enforcement will be.  Over the previous 3-years, the SEC commission focused more on deregulation and lowering business costs[8].  A democratic commission will possibly shift focus onto increased regulation, specifically on private markets. Additionally, environmental, social, and corporate governance (“ESG”) disclosures are likely to become a larger part of SEC enforcement in a democratic commission, particularly regarding environmental disclosures. Democratic Commissioner Allison Herren-Lee has advocated for standardized reporting for public companies regarding their climate risk[9] efforts which could lead to another amendment to Regulation S-K. Regulation Best Interest and Shareholder Proxy Voting are both expected to come under review with a democratic commission[10]. While these are just theories about what could potentially happen, it is still not for certain. When a new chair is nominated and confirmed, we will have a better idea of what to expect from the SEC. Here at Cosgrove Law Group, LLC we will keep an eye on future changes within the SEC and CFTC.

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[1] Sorkin, A., Karaian, J., Merced, M., Hirsch, L., & Livni, E. (2020, November 16). Trump's S.E.C. Chairman Is Stepping Down. Retrieved November 30, 2020, from https://www.nytimes.com/2020/11/16/business/dealbook/clayton-sec-stepping-down.html 

[2] Cox, J. (2020, November 16). Jay Clayton says he will step down early as head of the SEC at the end of 2020. Retrieved November 30, 2020, from https://www.cnbc.com/2020/11/16/jay-clayton-says-he-will-step-down-early-as-head-of-the-sec-at-the-end-of-2020.html 

[3] Merle, R. (2019, March 28). SEC chair to step down, clearing path for Trump to eliminate tough Wall Street regulations. Retrieved November 30, 2020, from https://www.washingtonpost.com/news/business/wp/2016/11/14/sec-chair-to-step-down-clearing-path-for-trump-to-eliminate-tough-wall-street-regulations/ 

[4] Press Release. (2012, November 26). Retrieved November 30, 2020, from https://www.sec.gov/news/press-release/2012-2012-240htm 

5 Schroeder, P., Price, M., & Johnson, K. (2020, November 27). Factbox: The top contenders to run Biden's financial agencies. Retrieved November 30, 2020, from https://www.reuters.com/article/us-usa-biden-wallstreet-regulators-factb/factbox-the-top-contenders-to-run-bidens-financial-agencies-idUSKBN28716L 

[6] Schroeder, P., Price, M., & Johnson, K. (2020, November 27). Factbox: The top contenders to run Biden's financial agencies. Retrieved November 30, 2020, from https://www.reuters.com/article/us-usa-biden-wallstreet-regulators-factb/factbox-the-top-contenders-to-run-bidens-financial-agencies-idUSKBN28716L

 [7] Miedema, D. (2014, January 03). Swaps regulator Gensler: Banker turned Wall Street scourge. Retrieved December 01, 2020, from https://www.reuters.com/article/us-financial-regulation-gensler/swaps-regulator-gensler-banker-turned-wall-street-scourge-idUSBREA020OC20140103 

[8] Zanki, T. (2020, October 20). 4 Ways A Biden Election Could Swing SEC Priorities. Retrieved December 01, 2020, from https://www.law360.com/articles/1319347 

[9] Pisani, B. (2020, November 12). What a Democrat-controlled SEC might look like and what it would mean for markets. Retrieved December 01, 2020, from https://www.cnbc.com/2020/11/11/what-a-democrat-controlled-sec-might-look-like-and-what-it-would-mean-for-markets.html 

[10] Rasmussen, P., & Tehrani, P. (2020, November 7). ANALYSIS: Four Spots Biden Is Likely to Reverse SEC Deregulation. Retrieved December 01, 2020, from https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-four-spots-biden-is-likely-to-reverse-sec-deregulation

 AUTHOR: Julianna M. Ness

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