New SEC boss Walter may not be lame duck

Naming of commissioner as designated chair could keep her in charge for almost all of 2013

Nov 26, 2012 @ 10:57 am

By Mark Schoeff Jr.

Elisse Walter may have an extended tenure as chairman of the Securities and Exchange Commission. That, in turn, could give her influence over the fates of potential regulation that would change the standard of care for investment advice and legislation that would shift investment-adviser oversight from the SEC to an industry-run organization.

President Barack Obama's designated Ms. Walter as SEC chairman to replace outgoing chairman Mary Schapiro.

The nuance surrounding Ms. Walter's title is important. As designated chair, she is eligible to serve as head of the agency until late 2013. Currently an SEC commissioner, Ms. Walter's term in that role has expired, but she can stay at the SEC until the end of the next session of Congress, which likely will occur next December.

Under Secretary of Treasury Mary Miller, former Bank of America Merrill Lynch chief executive Sallie Krawcheck and Ms. Walter are among those mentioned to succeed Schapiro on a long-term basis.

Neither Ms. Walter nor Ms. Krawcheck immediately responded to a request for comment from InvestmentNews.

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Ms. Schapiro announced Monday that she will step down Dec. 14, after having served nearly four years as the head of the agency charged with overseeing U.S. financial markets. InvestmentNews first reported on Ms. Schapiro's likely departure from the agency Sept. 9.

The shuffling gives Mr. Obama time to nominate a permanent replacement for Ms. Schapiro.

“In this case, [Ms. Walter's title] has a little more permanency to it – but not for long,” said Rick Roberts, a principal at Roberts, Raheb and Gradler LLC and a former SEC commissioner. “They went out of their way not to use 'acting chair' or 'interim chair.'”

Mr. Obama may need all the flexibility he can get, given the political tension in Washington. The Democratic-majority Senate must approve Mr. Obama's choice.

“We could see a very long and contentious confirmation battle,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “Elisse could serve without any question of being consigned to the role of a seat-warmer. She'd have the full authority of the title of chairman.”

How long Ms. Walter will be in place may be contingent on when someone is nominated to fill the vacancy on the five-member commission that Ms. Schapiro's departure is causing. The SEC as of Dec. 14 will consist of two Democrats and two Republicans, making voting difficult.

The commission will have a Democratic majority, thanks to Mr. Obama's re-election. But Mr. Obama also will get a chance to appoint a Republican when GOP commissioner Troy Paredes' term expires in 2013.

“They like to do [SEC-appointments] in tandem, so one is not held hostage,” said Duane Thompson, senior policy analyst at Fi360, a fiduciary-duty training firm.

The uncertain calendar means that Ms. Walter could have months to influence investment-adviser issues.

Certainly, Ms. Walter, a Democrat who has also worked at the Financial Industry Regulatory Authority Inc., could help tip the scales on legislation that would shift oversight of the sector from the SEC to a self-regulatory organization. A bill that would authorize one or more SROs died in Congress this year but is likely to be reintroduced in 2013.

Investment advisers have staunchly resisted the SRO bill, calling it a costly additional layer of regulation. Instead, they are backing a measure that would authorize the SEC to charge advisers user fees to conduct exams, keeping the agency in charge of adviser reviews.

Finra has been the primary backer of the SRO bill and covets adding advisers to its jurisdiction, which currently extends only to brokers. Advisers are especially wary of Finra's becoming the adviser SRO.

Observers said that Finra was hampered in its efforts to promote the SRO bill because Ms. Schapiro, a former Finra chief executive, recused herself from the debate.

Ms. Walter has not shown similar reticence on the issue. She wrote a dissent to an SEC staff study on adviser oversight in January 2011, saying that it did not strongly enough advocate an SRO.

“She is clearly in support of an adviser SRO, and that does not bode well for SRO opponents,” Mr. Thompson said.

Even though Congress must OK an SRO through legislation, Ms. Walter or the next SEC chairman can be an important voice in the debate, according to Knut Rostad, president of the Institute for the Fiduciary Standard.

“She is in a position to push that forward, if that's what she chooses to do,” Mr. Rostad said.

Ms. Roper doubts that Ms. Walter would determine the outcome of an SRO bill.

“I don't think that will be the deciding factor on the Hill,” Mr. Roper said. “Congress listens to or ignores the SEC as they see fit depending on the issue.”

On another issue important to investment advisers, Ms. Walter is taking over the agency as it determines whether to move forward with a rule that would impose a uniform fiduciary standard on retail investment advice. The SEC was given the authority to promulgate such a regulation by the Dodd-Frank financial reform law but has not acted in the two and half years that the measure has been on the books.

“The fate of the fiduciary rule making is going to depend on the leadership of [Ms. Schapiro's] successor,” said Neil Simon, vice president for government relations at the Investment Adviser Association.

But Richard Matta, a principal at Groom Law Group, thinks that there won't be much in the way of regulation that will be resolved in the immediate term, particularly on fiduciary duty. “It's possible that it may get done, but it's also possible that the SEC will follow the Labor Department.”

He added that he thinks the DOL will come up with its new fiduciary proposal next year. " I suspect it will be a lightning rod for attention and that this will slow things down at the SEC until they see the fallout and the effects of the regulation,” he said.

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Ms. Schapiro departs after having served longer than 24 of the 28 SEC heads in the grueling job. She took over as the SEC was losing stature due to the $65-billion Bernard Madoff Ponzi scheme. She also has consistently fought congressional Republicans' efforts to rein in the agency.

“It has been an incredibly rewarding experience to work with so many dedicated SEC staff who strive every day to protect investors and ensure our markets operate with integrity,” Ms. Schapiro said in a statement. “Over the past four years, we have brought a record number of enforcement actions, engaged in one of the busiest rule-making periods, and gained greater authority from Congress to better fulfill our mission.”

The SEC is touting Ms. Schapiro's success in overhauling the enforcement division and achieving a record number of enforcement actions in fiscal year 2011. The agency almost set another record in fiscal 2012. But Ms. Schapiro also was dealt a major setback when she could not cobble together a majority of the five SEC commissioners this summer to propose reforms to money market funds.

“She deserves credit for helping the SEC navigate a particularly volatile and challenging period in its history,” Mr. Simon said.

Even groups that opposed Ms. Schapiro on some issues are offering encomiums.

“Mary is a dedicated public servant and we owe her a debt of gratitude for answering the president's call to serve during the most challenging, turbulent times we've experienced in decades," said Financial Services Institute president and CEO Dale Brown in a statement. "While we have had differences on policy, Mary and her staff have always been open to dialogue and input from those on the front lines of providing financial advice to middle America.”

(Darla Mercado contributed reporting to this story)


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