Luis Aguilar recalls harrowing times at SEC
The former commissioner began a seven-year stint just as the financial crisis began.
Luis Aguilar began his seven-year stint as a member of the Securities and Exchange Commission just before the proverbial “stuff” hit the fan.
Speaking Tuesday in Miami at the MarketCounsel Summit, Mr. Aguilar reflected on the harrowing days of the financial crisis in late 2008 and early 2009 when the inner workings of the Securities and Exchange Commission were considerably more frantic than anyone observing from the outside might have assumed.
Mr. Aguilar, who served as an SEC commissioner from July 2008 through December 2015, recalls his first year as being “the most active period with internal restructuring and changes in the regulatory environment. And this was all before Dodd-Frank.”
On dealing with such high-profile regulatory fumbles as Bernie Madoff’s infamous Ponzi scheme, Mr. Aguilar said there was plenty of confusion and fear.
“Depending on who you talked to, people were either looking at their shoes because they knew that they hadn’t performed right or they were panicked, but the solace I took is that I just got there three months ago,” he said. “But most of it was done behind closed doors, so fortunately we didn’t have to read the criticisms we had about each in the headlines. And that was important because the global regulators were looking to the SEC for leadership.”
(Related read: SEC takes steps to avoid Madoff sequel)
Illustrating how things might have felt on the inside of the SEC, Mr. Aguilar recalls the reaction to the breaking of the buck by the Reserve Fund in September 2008.
“One of the things we recognized during the crisis is how much information we didn’t have when the Reserve Fund broke the buck,” he said. “I remember asking an analyst if other money funds were at risk, and he just shrugged. We were still calling around trying to figure it out.”
Fast forward to 2016, and Mr. Aguilar believes things are vastly improved in terms of regulatory oversight of the financial services industry.
“I think the SEC is much better positioned today for variety of reasons,” he said. “They’ve made it a focus to hire a lot of market specialists and economists who are not lawyers, and I do think the commission is much more informed today.”
The upcoming departure of SEC Chairman Mary Jo White, who plans to step down when President-elect Donald Trump takes office, will leave just two commissioners, Kara Stein and Michael Piwowar, and three vacancies.
Two candidates who have already been approved by the Senate banking committee, Republican Hester Peirce and Democrat Lisa Fairfax, are essentially waiting in the wings, but not expected to be installed anytime soon.
(Related read: SEC’s Mary Jo White says agency won’t rush rulemakings across finish line before Trump presidency)
And, according to Mr. Aguilar, the Republican Mr. Piwowar and Democrat Ms. Stein are virtual polar opposites.
“You couldn’t pick people who see the world in more different ways than the two commissioners,” Mr. Aguilar said.
In terms of how the commission functioned during his time, Mr. Aguilar said “95% of the time it was a unanimous 5-0 vote, and when it came to rulemaking it was a little less high.”
On the subject of increased enforcement actions on smaller issues, sometimes referred to as “broken windows enforcement,” he attributed that to the reality of having a larger staff.
“You’ve got more people looking at more things, and there’s a lot more information that we were getting,” he said. “I think you will always see the SEC bringing smaller matters and I think that’s a good thing. The commission will always bring some of those, but I don’t think we’ll continue to see the numbers you have seen. There needs to be time to spend on larger, macro issues.”
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But while the focus on smaller enforcement matters might start to abate some, Mr. Aguilar said advisers should brace for a bigger focus on SEC exams.
“We can now make judgment as to an adviser’s risk profile, and the idea is to move those advisers to the front of the line,” he said. “This happens by looking at the areas they’re operating in, the amount of dollars invested in certain ways. There is some subjectivity to that.”
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