SEC ship won’t become a speedboat in wake of Gallagher departure

Although one of the Securities and Exchange Commission’s most vocal and pugnacious commissioners will be leaving in less than a month, Chairwoman Mary Jo White is not likely to have an easier time passing her agenda.
Daniel M. Gallagher announced last Friday he will step down on Oct. 2. There’s almost no chance his successor will be on board by that time. The White House has yet to nominate anyone for Mr. Gallagher’s position or for a vacancy that will be created at the end of Democratic member Luis Aguilar’s term.
Without Mr. Gallagher, there will be four SEC commissioners instead of the usual complement of five. Mr. Gallagher, who originally was going to stay at the agency until he was replaced, said he couldn’t wait any longer, after submitting his resignation to the Obama administration in May.
Mr. Aguilar has said he has no plans to leave, according to Reuters.
The agency has operated with four or fewer commissioners in the past, and is likely to take a vacancy in stride without interruption to Ms. White’s game plan, said Scott Kimpel, a partner at Hunton & Williams.
“It’s not going to impede her ability to carry out whatever agenda she has,” Mr. Kimpel said.
‘DELIBERATIVE PACE’
He doesn’t anticipate Ms. White will use the loss of one of the two Republican commissioners to accelerate rule-makings, even though the agency has been criticized for moving too slowly to implement regulations mandated by the Dodd-Frank financial reform law.
“She doesn’t strike me as the type of person who would try to expedite the schedule in some way to exploit a perceived advantage,” said Mr. Kimpel, a counsel to former SEC member Troy Paredes. “She’ll keep going at her deliberative pace. The number of commissioners and their political parties really doesn’t factor into it at all.”
The status quo also is what Peter Chepucavage, general counsel at the Plexus Consulting Group, anticipates.
“She would look distinguished if she said, ‘I’m not going to ram anything through. I am going to wait until I have a full commission,’” said Mr. Chepucavage, a former attorney fellow at the SEC. “Her reputation is important to her.”
The already languid pace of SEC consideration of a rule to raise investment advice standards for brokers could slow even further with Mr. Gallagher’s departure.
Dodd-Frank gave the SEC the authority to promulgate a rule that would impose a uniform fiduciary standard for retail investment advice. The SEC has not acted in five years. Ms. White indicated last spring she favors fiduciary duty, but has to convince at least two other commissioners to join her in proposing a rule.
TIME RUNNING OUT
“Time’s running out for her,” said Duane Thompson, a senior policy analyst at Fi360, a fiduciary training firm. Mr. Gallagher’s exit “raises the question of whether she will want to wait for both new commissioners to get on board before proceeding.”
Another complicating factor is the Labor Department’s proposed fiduciary rule that addresses advice to retirement accounts. A final regulation is anticipated early next year.
“I don’t see the SEC proposing anything until Labor gets its rule finalized,” Mr. Kimpel said.
By that time, there should be more clarity surrounding the SEC openings. The leading candidate for Mr. Gallagher’s seat is Hester Peirce, a senior research fellow at George Mason University and a former Senate Banking Committee aide.
A front-runner for the Democratic seat has yet to crystalize. Keir Gumbs, a partner at Covington & Burling, was seen as the Obama administration’s choice. But the Wall Street Journal reported last week that Lisa Fairfax, a law professor at George Washington University, has emerged with the backing of Massachusetts Democratic Sen. Elizabeth Warren.

Related Topics: Securities and Exchange Commission