SEC Chair White Describes Challenges to Global Securities Regulation

In remarks before the Legal Practice Division at the International Bar Association Annual Conference, SEC Chair Mary Jo White discussed the SEC’s “robust and wide-ranging work” to regulate the global securities marketplace.

Chair White emphasized:

  • current work by the SEC to modernize regulation of the asset management industry, “which is of particular interest to other domestic and international authorities assessing potential systemic risks to financial stability.” In this regard, Ms. White noted the SEC’s imposition of “new required reporting about separately managed accounts and their use of derivatives and borrowing”;
  • the “significant supervisory challenge” of being able to examine non-U.S. based registrants for compliance with SEC laws and regulations; and
  • the SEC Foreign Corrupt Practices Act enforcement program, “which is so dependent on international cooperation for its success.”

Lofchie Comment: It is noteworthy that SEC Chair White links the SEC’s “modernization” of the regulation of the asset management industry to systemic risk. The idea that the SEC should regulate the asset management industry to protect clients is obvious; likewise, that the SEC should regulate the industry to prevent any trading or investment misconduct of advisers from injuring third party market participants is obvious. That the SEC should be regulating investment advisers so as to limit systemic risk is far less obvious and, in fact, questionable. It is not merely that the SEC would not seem to have the expertise, resources or focus to take on this task in light of its other obligations; it goes beyond that. By what authority should the SEC be imposing limits on what investment managers, particularly managers of private funds, buy and sell? Could the SEC tell fund managers that they are too concentrated in oil and that they must diversify into solar, or into healthcare? This seems to be a function that the government should take not take on.

Regarding the SEC’s efforts to collect information regarding the use by advisers of leverage and derivatives, we have commented numerous times that the SEC’s Form PF (designed in connection with the Financial Stability Oversight Commission) is – to anyone who understands how leverage, derivatives, and bankruptcy work – a massive collection of data that is almost completely useless.

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