President Joe Biden’s victory is already leading to consequences for Wall Street, as U.S. regulators scrap a Trump-era policy that critics contend helped insulate firms from tougher penalties.
At issue are waivers that banks, hedge funds and other financial companies must obtain to protect themselves from knock-on sanctions that are automatically triggered when they settle enforcement cases with the Securities and Exchange Commission.
In a major policy shift, the SEC said Thursday it would make it harder for firms to obtain such reprieves.
The implications for financial firms could be significant, as they rely on the waivers to keep doing activities that are vital to their businesses, such as raising money in capital markets and issuing new securities and debt. But progressive lawmakers, including Democrat Sen. Elizabeth Warren, have questioned why securing the passes has been akin to a rubber stamp for banks and asset managers that seem to get in trouble again and again.
Waivers “should not be used as a bargaining chip in settlement negotiations or regarded as on obstacle to be overcome on the way to a settlement,” Acting SEC Chair Allison Herren Lee said in a statement. “A waiver is not the default position under the law, and should not be considered one under our processes.”
Lee is undoing a policy implemented in 2019 under then-SEC Chairman Jay Clayton, a former Wall Street lawyer appointed by ex-President Donald Trump. Clayton stipulated that the agency’s commissioners should vote on whether to approve waivers and accept enforcement settlements all at once -- a change that he said would streamline negotiations with financial firms.
But Democrats derided the change, arguing that the process for resolving cases and paying fines should be separate from discussions about whether banks and asset managers deserve waivers.
While the SEC has routinely granted the passes, they have at times become key sticking points in settlement talks.
For instance, Och-Ziff Capital Management failed to get a waiver in 2016 when it agreed to pay $412 million to resolve SEC and Justice Department claims that it bribed African officials -- a move that made it difficult for the firm now known as Sculptor Capital Management Inc. to raise money for its hedge funds. Sculptor eventually secured the reprieve in 2019 during Trump’s presidency.
In 2014, the SEC and Bank of America Corp. haggled for weeks over whether the lender deserved a waiver that would allow it to keep raising money for private companies, holding up a $16.7 billion settlement in a mortgage-bond case that involved the Justice Department.
Lee, who earlier in her career was an attorney in the SEC’s enforcement division and an aide to former Democratic Commissioner Kara Stein, was appointed by Biden in January.
No date has been set for a Senate hearing to confirm Gary Gensler, the president’s pick to permanently lead the regulator.
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