Monday, February 9, 2009

SEC Chief Announces Priorities and Reforms

On Friday, SEC Chairman, Mary Schapiro, addressed the Practicing Law Institute's "SEC Speaks," an annual roundtable and workshop series featuring the SEC's Commissioners and senior staff. In her address, Chairman Schapiro set forth some goals of the Commission in these turbulent times, some of the agency's priorities, and some reforms within the organization itself. Referring to the SEC's role, Schapiro said,
It is precisely during times like these that we need the SEC as the "investor's advocate." An SEC with the staff, the will, and the resources necessary to move with great urgency to:
  • bring transparency and accountability to all corners of the marketplace,

  • vigorously prosecute those who have broken the law and cheated investors, and

  • modernize our country's regulatory system to match the realities of today's global, interdependent markets.
Schapiro was frank in her assessment of the agencies shortcomings, but declared her full faith and in the SEC's mission, and in its staff to meet the challenges ahead.
As the current market crisis has unfolded, the SEC, along with the entire regulatory structure, has been put under a microscope. This crisis has exposed weaknesses and gaps in the regulatory system and areas where the SEC particularly must re-commit its resources and talents in order to restore investor confidence. We must help to restore that lost confidence — that is our challenge.

Success in this endeavor demands that we as an organization engage in serious self-evaluation. That means taking an honest look at everything we are doing and how we do it. I know there is so much being done right, but there is also much that can be done better. I learned long ago that one of the SEC's greatest strengths has been its ability to adapt to change, while never forgetting that it is the American people we are here to serve.

The SEC is a proud institution with a remarkable history and a tradition of activism. In the days ahead, we will rise to the new challenges of today's financial and regulatory realities, both by embracing new approaches and by maintaining the great traditions that have defined this institution throughout its history
Declaring that, "No one should be heard credibly to question whether enforcement is a priority at the SEC. It is, and always will remain, a foundation of our mission," Schapiro stated that she intends to help restore investors' trust and confidence in the financial markets by removing some of the agency's own procedural restraints on the enforcement staff:

(1) ending the "penalty pilot" experiment,
I am this week taking action to end the Commission's two-year "penalty pilot" experiment, which had required the Enforcement staff to obtain a special set of approvals from the Commission in cases involving civil monetary penalties for public companies as punishment for securities fraud. The action I am taking to end the penalty pilot is designed to expedite the Commission's enforcement efforts to ensure that justice is swiftly served to those public companies who commit serious acts of securities fraud.
(2) streamlining the procedures necessary to issue subpoenas, and

Another immediate change I am putting in place to bolster the SEC's enforcement program is to provide for more rapid approval of formal orders of investigation — the permission slips given out by the Commission that allow SEC staff to use the power of subpoenas to compel witness testimony and the production of documents. When I was a Commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the Commission or by "duty officer" — a single Commissioner acting promptly and on behalf of the entire Commission.

(3) improving the handling of tips and whistleblower complaints, and focusing on risk areas.
In addition to these immediate actions, I have also spent much of my first week and a half on the job in meetings with my fellow Commissioners and the agency's senior staff to discuss other ways in which we can reinvigorate the SEC's enforcement program, including improving the handling of tips and whistleblower complaints and focusing on areas where investors are most at risk.
Chairman Schapiro also used this address to set forth some of the other initiatives she hopes to pursue as priorities:
  • Improving the quality of credit ratings by addressing the inherent conflicts of interest credit rating agencies face as a result of their compensation models and limiting the impact of credit ratings on capital requirements of regulated financial institutions.

  • Reducing systemic risk to investors and markets by promoting — and regulating appropriately — centralized clearinghouses for credit default swaps.

  • Strengthening risk-based oversight of broker-dealers and investment advisers.

  • Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser.

The full text of Chairman Schapiro's address is available at: