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By: Amy J. Greer and A. Valerie Mirko, Baker & Mckenzie LLP
This article discusses the change in the U.S. presidential administration, including its impact on financial regulation generally and the U.S. Securities and Exchange Commission (SEC) specifically. This article addresses transition matters and timelines for new leadership as well as the potential impact of the Biden-Harris Administration's priorities on the direction of the SEC, with a focus on retail investors, COVID-19, and Economic Social and Governance (ESG) matters.
Gary Gensler Announced Nominee to Chair SEC in the Biden Administration
On January 18, 2021, Gensler was nominated to be the next SEC Chair. As of the date of this article, Gensler’s Senate confirmation hearings had not yet been scheduled.
Gensler brings with him significant relevant experience, having served as chair of the Commodity Futures Trading Commission (CFTC), a partner at Goldman Sachs, the Department of Treasury Undersecretary for Domestic Finance, and an advisor to then-Senator Paul Sarbanes on the drafting of the 2002 Sarbanes-Oxley Act. Gensler also was an early and prominent critic of the London Interbank Offered Rate (LIBOR)―calling for reforms to the LIBOR system as early as 2012. When Gensler was CFTC chair, the agency settled enforcement actions with several major financial institutions charged with LIBOR manipulation.1
In recent years, Gensler has been a professor of global economics and management at the MIT Sloan School of Management, with a focus on public policy, financial technology, blockchain, and cryptocurrencies. Gensler also chaired the Maryland Financial Consumer Protection Commission, which made several recommendations to the Maryland legislature in January 2019―most notably legislation to broaden the fiduciary duty standard to apply to broker-dealers, their representatives, and insurance producers.2 As detailed below, he has also been a key leader in Biden-Harris administration transition efforts.
Gary Gensler Led Agency Review Team for Federal Reserve, Banking and Securities Regulators
On November 10, 2020, the Biden-Harris team announced several agency review teams, including the Federal Reserve, Banking, and Securities Regulators team led by Gary Gensler. This team was charged with reviewing the following agencies: the SEC, the CFTC, the Federal Deposit Insurance Corporation, the Federal Reserve, and the National Credit Union Administration. The choice of Gensler as team lead, as well as the range of perspectives represented on the 15-person team, indicated the potential for a forward-looking approach to the review, driven by both academic and labor-oriented points of view. Gensler’s choice also indicated the possibility―but not the certainty―of his eventual nomination to be SEC Chair.
Gensler’s transition review team was not the only one focusing on the review of financial regulators. The Consumer Financial Protection Bureau (CFPB) was the subject of its own 10-person review team, chaired by Leandra English, formerly Deputy Director of the CFPB and senior policy advisor to New York Department of Financial Services Superintendent Linda Lacewell. This was a considerable investment of resources in the transition for a single agency, which suggests there may be a more prominent future role for the CFPB. On the same day that Gensler's nomination was announced, Rohit Chopra, who is currently a commissioner with the Federal Trade Commission, was nominated to lead the CFPB.
Interim Changes in Leadership at the SEC
Following a presidential election, a new SEC chair is usually in place by late winter, though that timing is driven by administration priorities and the then-current economic climate. For example, after the 2008 election, when the United States was deep in the financial crisis, then-incoming Chair Mary Schapiro began her term on January 27, 2009, underlining the Obama administration’s priorities in light of the crisis. In contrast, Mary Jo White began her term on April 10, 2013 and Jay Clayton on May 4, 2017.
Along with Chair Clayton’s previously announced departure at the end of 2020, several additional departures were announced and have since occurred. This is a fairly typical year-end and election-cycle rotation among the senior staff of the SEC, though it does seem a bit more hectic this go-round; and it generally has trickle-down impacts, as new and open senior staff slots are and will be filled. Bill Hinman, Director of the Division of Corporate Finance, departed December 4, 2020; Enforcement Division Director Stephanie Avakian departed at the end of 2020, as did Trading and Markets Director Brett Redfearn. SEC General Counsel Bob Stebbins departed in early January 2021, and Investment Management Division Director Dalia Blass announced her departure at year-end, leaving in early February 2021, followed by the Commission's Chief Accountant, Sagar Teotia. In addition, at the CFTC, Chair Heath Tarbert, who has led the agency since last year, announced that he would depart in January 2021.
Upon the departure of Chair Clayton, in late December, then-President Trump appointed Commissioner Elad Roisman to the role of Acting Chairman, a position he held only until January 21, 2021, when President Biden appointed Commissioner Allison Herren Lee to serve as Acting SEC Chair, pending Gary Gensler's confirmation.
At the Division of Enforcement, Marc Berger, who was Acting Enforcement Director upon the departure of Stephanie Avakian, followed her out the door in January 2021, leaving the top spots of this key Division open. The SEC acted quickly, on January 22, 2021, appointing Melissa Hodgman, then an Associate Director of the Division, to serve as Acting Director of Enforcement; and on February 5, 2021, appointing Kelly Gibson, the Director of the Philadelphia Regional Office, to serve as the Acting Deputy Director of Enforcement.
The Biden-Harris administration had announced its priorities as part of its transition plans as follows: COVID-19, economic recovery, racial equity, and climate change. The SEC under the Biden-Harris administration and led by Gensler is expected to continue to emphasize the protection of retail investors and market integrity while giving greater weight to ESG matters. The SEC’s existing COVID-19 relief is expected to also continue, as that is a bipartisan issue and one directly in line with the Biden-Harris transition plan’s focus on COVID-19.
Continued Focus on Retail Investors
The SEC has emphasized retail investor protection for the last four years, but has done so in a selective manner―largely in the enforcement realm―as opposed to a holistic manner. For example, while Regulation Best Interest (Reg BI) is focused on retails investors, other rulemakings—such as those relating to the use of derivatives by registered investment companies and business development companies and improving access to capital in private markets—have not been perceived to be as protective of retail investors.3 A Democratic-majority SEC that is focused on building confidence in the economy and the markets will likely broaden the retail investor focus and implement additional regulatory measures or approaches, such as the following:
There is a strong likelihood that the SEC becomes more active in the ESG area, in contrast to the lighter touch disclosure-focused activity to date. Until now, ESG-related disclosures have remained largely voluntary in the United States, and the SEC and its staff have focused on ESG through disclosure alone, whether for public companies or in the investment management space. For example, OCIE conducted a sweep in 2018 in which it asked firms with ESG product offerings (1) about their criteria for defining ESG; (2) whether firms were following established principles like the United Nations-supported Principles for Responsible Investments (UNPRI); and (3) to what degree firms were engaging on ESG matters with issuers in which they invest. OCIE also asked about firms’ marketing of ESG products and the degree to which the products were advertised as sustainable or green. In its report on examination priorities in 2020, OCIE referred to ESG investment offerings as an area of concern in which examiners would pay particular attention. More recently, at least three SEC offices (Boston, Philadelphia, and Los Angeles) have begun or continued local ESG-focused exam initiatives.
Another key indicator is the recent appointment of Satyam Khanna as Senior Policy Advisor for Climate and ESG to the office of Acting Chair Lee, a newly created role that will likely transition to Gensler’s office when he becomes Chair. Looking ahead, the SEC’s focus on ESG may take one or more of the following approaches in addition to simply focusing on whether products sold to investors actually are what they claim to be―a perennial issue for the Enforcement Division:
Amy J. Greer serves as the co-chair of Baker McKenzie’s North America Financial Regulation & Enforcement Practice and is on the steering committees of the Global Financial Services Regulatory and Global Financial Institutions Groups. Amy advises all manner of financial industry clients and SEC reporting companies in connection with regulatory enforcement investigations and examinations, as well as internal investigations. Her clients include broker-dealers, investment advisers, hedge funds, mutual funds, securities issuers and reporting companies, commodities traders, and those providing services to those businesses. Drawing on her experience leading an SEC regional office trial program, Amy provides practical and forward-looking guidance to clients, who seek her advice on matters as diverse as conflict-of-interest disclosures, sales practices concerns, insider trading/market abuse, financial reporting and accounting issues, securities offerings, investigations into complex products and trading, and whistleblower concerns.
A. Valerie Mirko advises on federal and state securities laws and regulations impacting the financial services industry, with a focus on the investment adviser and brokerage industries. Valerie’s practice includes a wide range of regulatory, compliance, examinations, and enforcement matters. Immediately prior to joining Baker McKenzie, Valerie was general counsel of the North American Securities Administrators Association (NASAA). As general counsel, Valerie advised NASAA’s board of directors on developments in the federal securities laws, including the SEC Regulation Best Interest rule set, and their impact on state securities regulations. Earlier in her career, Valerie advised broker-dealers and investment advisers on regulatory matters and enforcement investigations as an associate at a Washington law firm and held legal and compliance roles at Oppenheimer & Co., Inc., and Merrill Lynch (now BofA Securities) in New York. Valerie is also a member of the adjunct faculty at the George Washington University Law School and a committee chair within the DC Bar Corporation, Finance, and Securities Law Section.
To find this article in Lexis Practice Advisor, follow this research path:
RESEARCH PATH: Capital Markets & Corporate Governance > Trends & Insights > First Analysis > Articles
For an overview of practical guidance on COVID-19, see
Coronavirus (COVID-19) Resource Kit
Research Path: Capital Markets & Corporate Governance > Trends & Insights > Practice Notes
For a summary of the requirements under Regulation Best Interest (Reg BI), see
Broker-Dealers Hope Good Faith Carries the Day as Reg BI is Implemented Amid Pandemic
Research Path: Financial Services Regulation > Trends & Insights >First Analysis > Articles
For a discussion of Regulation BI, see
Regulation Best Interest: First Analysis
Research Path: Capital Markets & Corporate Governance > Trends & Insights > First Analysis > Articles
For an overview of practical guidance to assist finance lawyers with the legal issues emerging from the COVID-19 pandemic and resulting economic downturn, see
Coronavirus (COVID-19) Resource Kit: Finance
Research Path: Finance > Trends & Insights > First Analysis > Practice Notes
For an introduction to corporate environmental social governance (ESG), sustainability, and social responsibility, see
Research Path: Capital Markets & Corporate Governance > Corporate Governance and Compliance Requirements for Public Companies > Corporate Governance > Practice Notes
1. See e.g., CFTC Orders The Royal Bank of Scotland plc and RBS Securities Japan Limited to Pay $325 Million Penalty to Settle Charges of Manipulation, Attempted Manipulation, and False Reporting of Yen and Swiss Franc LIBOR (Feb. 6, 2013). 2. See Maryland Financial Consumer Protection Commission 2018 Final Report (Jan. 1, 2019). 3. See, e.g., Use of Derivatives by Registered Investment Companies and Business Development Companies, SEC Release No. IC-34084 (Nov. 2, 2020) and Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Securities Act Release Nos. 33-10884; 34-90300; IC-34082 (Nov. 2, 2020). 4. See e.g., Division of Investment Management’s Engaging on Non-DVP Custodial Practices and Digital Assets (March 12, 2019). 5. See Risk Alert: Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers (August 12, 2020). 6. See e.g., Risk Alert: Cybersecurity: Ransomware Alert (July 10, 2020). 7. See Allison Herren Lee, SEC Commissioner, Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation (Nov. 5, 2020). 8. See Request for Comment on Fund Names, SEC Rel. No. IC-33809, 85 FR 13221 (March 6, 2020).