SEC confirmation hearings for new chairman should be fast-tracked

Financial industry leaders should urge President Trump and Republican congressional leaders to move quickly on the confirmation hearing for SEC Chairman nominee Jay Clayton, who will replace Mary Jo White.
Ms. White’s tenure ended with the Obama administration last week.
Normally, the confirmation of a new SEC chairperson is a relatively low-priority concern, as a temporary chairperson can be appointed from the remaining commissioners. However, this time there are only two remaining commissioners, and while Michael Piwowar, a Republican, will be named acting chairman, little of consequence will likely be forthcoming from the Commission since he and the other remaining commissioner, Kara Stein, a Democrat, are ideological opposites.

IN-HOUSE JUDGES

While some in the industry might cheer a stalled Commission, that would not necessarily be good for the financial markets, or the industry. For example, the SEC’s method of hiring its administrative law judges was recently found unconstitutional by a federal judge who granted an injunction halting a case before the agency’s in-house court.
The SEC can appeal the ruling, or simply change the way it appoints its administrative law judges. But until it decides which course to take it might have to take all enforcement action to a federal court instead of its own judges.
This will be inefficient and time-consuming for the SEC and defendants, and likely more expensive for both. No decision is likely to be made until Mr. Clayton is confirmed, or is rejected and a replacement is confirmed. Two other commissioner vacancies must also be filled.

(More: Jay Clayton, SEC chairman nominee, likely to shift focus away from rulemaking, enforcement)

While the odds seem to be in favor of Mr. Clayton’s ultimate confirmation, since the Republicans hold a majority in the Senate, he will face stiff opposition from Senate Democrats, who might drag out the confirmation hearings.
Democrats are wary of Mr. Clayton because of his background as a Wall Street securities lawyer, where, as a partner in the law firm of Sullivan and Cromwell, he specialized in securities transactions, including mergers and acquisitions and initial public offerings.

FLAK FROM SEN. WARREN

He already has taken flak from Sen. Elizabeth Warren, D-Mass., who commented: “Mr. Clayton’s selection is great news if you happen to run a big bank or manage a hedge fund, but you’re out of luck if you want to see tough rules on Wall Street and bankers held accountable when they break the law.”

(More: Sen. Elizabeth Warren challenges financial firms to resist efforts to delay DOL fiduciary rule )

Democrats had some of the same concerns about Ms. White when she was appointed, as she also had worked for a Wall Street firm. However, Ms. White had served as U.S. Attorney for the Southern District of New York before working on Wall Street. Mr. Clayton does not have similar experience. Further, he has been on the other side of the table from the SEC, for example helping secure a bribery settlement with the SEC on behalf of Italian oil giant Eni.
In addition, Mr. Clayton has said that if confirmed he wants the SEC to strike a balance between providing oversight of the financial markets and helping the economy. He is also considered likely to review much of the recent securities regulation to see if it can be streamlined.

(More: SEC clarifies how funds should disclose fee changes to comply with DOL fiduciary rule )

“We will carefully monitor our financial sector as we set policy that encourages American companies to do what they do best: create jobs,” he said.
The SEC needs leadership, and Mr. Clayton’s confirmation hearings should be expedited. A frozen SEC is not good for the financial markets or investors.

Related Topics: Securities and Exchange Commission