Commissioner Aguilar Urges SEC to Reform the Waiver Review Process

SEC Commissioner Aguilar urged the SEC to reform its waiver review protocols to provide the SEC and the public greater insight into the entire process.  In a public statement, Commissioner Aguilar discussed the ways in which the SEC should strengthen its protocols for handling waiver requests and providing enhanced transparency and clarity for its waiver process. He highlighted two basic reforms that he stated he believes could be implemented easily: 

  • First, the SEC could consider implementing procedures that would give it a more holistic view of the waiver process. For instance, he suggested, the staff could be directed to provide periodic reports to the SEC detailing relevant information about the waiver process, including (i) a list of the requests and informal inquiries that were received, (ii) information about the circumstances that triggered the need for those waivers, (iii) reporting on whether any waiver requests or inquiries were handled via delegated authority and, if so, why, (iv) the final disposition of the waiver requests or inquiries, including the dates acted on, and (v) regarding requests and inquiries handled by the staff, information concerning the staff’s justification for granting them or not.
  • Second, the SEC could consider creating a public Web site to track the progress and ultimate resolution of all waiver requests and inquiries. This Web site, Commissioner Aguilar suggested, could explain the circumstances that led the SEC or its staff to grant or not grant a waiver request. In addition, the Web site could redact information that might reveal the identity of the requesting party. This information, he said, could provide useful guidance and additional transparency to a process that has garnered considerable public interest in recent years.

Commissioner Aguilar argued that the public and the Commission should better assess whether “the Commission is fulfilling its obligation to grant waivers only when it is appropriate to do so” and whether the Commission is granting waivers “in the manner that is consistent with the protection of investors and the public interest .”

Commissioner Aguilar also discussed the benefit of conditional waivers. Conditional waivers, he explained, can permit statutorily disqualified persons or parties to continue engaging in regular courses of business in cases that don’t involve clear-cut grants or denials. Specific benefits of conditional waivers that were highlighted by Aguilar included (i) imposing meaningful investor protections while mitigating the potential damage of not granting waivers at all, (ii) dispelling the notion that the breadth and severity of disqualification provisions have left the SEC too willing to grant blanket waivers and (iii) allowing the Commission to grant waivers in a judicious manner – one that limits damage to an entity’s operations while minimizing potential risks to investors and the public.

Conditional waivers, Commissioner Aguilar concluded, “seem to be a fair and sensible approach to an especially nettlesome problem.”

Lofchie Comment: The fundamental issue with the grant of waivers to financial institutions is the pretense that granting a waiver is an act of forbearance, whereas the reality is that, in most instances, the imposition by the SEC of a broad disqualification as part of a regulatory sanction would be completely inappropriate. That is the problem with a statute that makes the disqualification automatic: it creates the need for a routine waiver process. Eliminating automatic statutory disqualification would save the SEC considerable time and the needless expenditure of regulatory resources. It would also abate the politicization of the enforcement process by curtailing gasps of public shock whenever a waiver is granted.

Consider what would happen if the same standards that are applied to private industry were applied to the government. Imagine the consequences if, whenever a member of government was charged with misconduct in connection with official activities, the automatic result were a shutdown of that entire agency. That sanction would be disproportionate to the misconduct and damaging to society.

It is no different when sanctions are imposed on private industries. The imposition of sanctions that are disproportionate to the violation (which arguably is a fairly common event) enriches the collector of the fine without benefiting the economy or society as a whole.