SEC chairman nominee Clayton not asked about key adviser issues, reveals no specific plans
Jay Clayton spent most of his confirmation hearing fending off questions about conflicts.
After two hours and twenty-five minutes of testimony before the Senate Banking Committee on Thursday, President Donald J. Trump’s nominee to chair the Securities and Exchange Commission, Jay Clayton, remains a blank slate on issues affecting financial advisers.
No lawmaker asked Mr. Clayton about his stance on proposing a fiduciary standard for retail investment advice, which the agency has been mulling since the Dodd-Frank financial reform law authorized it to promulgate such a regulation nearly seven years ago.
Sen. Sherrod Brown, D-Ohio, ranking member of the committee, did briefly mention fiduciary duty during his opening statement.
“Americans worry that the financial system is rigged against them,” Mr. Brown said. “And at a time when we are actually debating whether retirement advisers should put their clients’ interests first, it is not hard to see why people feel that way. Think about that.”
Mr. Clayton avoided any questioning about the controversial topic despite the fact that the Trump administration is trying to delay the April 10 implementation date of the Labor Department’s fiduciary rule. Many Republican lawmakers have called on the SEC to act first on advice regulation, while Democrats have defended the DOL rule.
It’s not clear whether the silence on both sides of the aisle Thursday indicated a lack of interest in the subject or was simply a function of the random way in which queries are posed in Capitol Hill hearings.
“I was a little surprised, yes,” said Daniel Gallagher Jr., a former SEC commissioner who attended the hearing, in reference to the lack of fiduciary questioning. “But they asked some [questions] that if they didn’t ask, we would be surprised.”
Even if Mr. Clayton had been pressed about fiduciary duty, it’s unlikely he would have given a detailed answer.
“I don’t think he knows” where he stands on the issue, said Mr. Gallagher, a skeptic of the rule who is now president of Patomak Global Partners.
MANDATORY ARBITRATION
Mr. Clayton sidestepped another adviser issue when Sen. Catherine Cortez Masto, D-Nev., asked him whether the SEC would address mandatory arbitration under his leadership. The Dodd-Frank law gave the agency the authority to prohibit mandatory arbitration clauses in brokerage contracts, but it has not acted.
“It’s an issue I don’t know a great deal about,” Mr. Clayton said.
Mr. Clayton, a partner at the prominent Wall Street law firm Sullivan & Cromwell, spent most of the hearing fending off doubts by Democrats that he could run the SEC without a bias in favor of financial firms.
Sen. Elizabeth Warren, D-Mass., said Mr. Clayton would have to recuse himself for two years from voting on enforcement cases that involve his or his firm’s clients, such as Goldman Sachs, Deutsche Bank, Barclays and UBS.
“If Donald Trump wants to make sure that the SEC would have a hard time going after his Wall Street friends, it seems to me that you would be the perfect SEC chair,” Ms. Warren said.
Republicans defended Mr. Clayton’s background, saying that his deep experience in securities law gives him a familiarity with the industry that will help him oversee it.
Mr. Clayton promised he would be impartial.
“There’s zero room for bad actors in the capital markets,” Mr. Clayton said. “I am 100% committed to rooting out any fraud and shady practices in our financial system.”
He did not provide any indication of how he would address Dodd-Frank rules.
“Dodd-Frank should be looked at,” he said. “I have no specific plans for attacking particular provisions of Dodd-Frank.”
He also avoided outlining a policy toward cybersecurity, but did say it needs to be strengthened.
“I question whether disclosure is where it should be,” he said.
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