SEC Staff Views & Speeches

Summary - SEC Commissioner Hester M. Peirce recently discussed the SEC regulatory approaches and how these approaches can best suit today’s markets and technology. Commissioner Peirce suggested ways in which the SEC can make it easier for investors, whether on their own or with the help of financial professionals, to plan for their futures and avoid predictable investment pitfalls that too many Americans encounter. Peirce provided her thoughts on ways the SEC can facilitate fund adaptation of technological and other innovations to better serve investors and provide them with a wider selection of investment choices.

For more information, click here.

SEC Staff Speeches, Why and Whither Title VII?: Remarks before the 2018 ISDA Annual North America Conference by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed the SEC's efforts on derivatives and derivative dealers regulation. Peirce discussed the remaining derivative dealer regulations rulemaking outstanding and indicated that "the immediate task is to take the steps necessary to stand up our dealer regime. I believe we need to finalize these three remaining rules expeditiously. I also believe we need to make some adjustments in other areas, including, in some cases, rules that have already been finalized, to ensure that dealers are able to register and come into compliance with the relevant Title VII requirements in a way that avoids unnecessary market disruption. In my view, once we have completed this work, we will need to turn to the task of getting transactions reported and disseminated to the public.

For more information, click here.

SEC Staff Speeches, Wolves and Wolverines: Remarks at the University of Michigan Law School by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently spoke to a group of law students covering a number of topics, including digital assets and the SEC. Hester indicated that in her "short time as a commissioner, innovations such as blockchain, cryptocurrencies, and digital assets have moved from technological novelties to policy flashpoints. Technology has continually reshaped, and often immeasurably improved, our lives from the beginning of human history. The capital markets are no exception. They have been the origin of some technological innovations and heavy users of others. Technology in the capital markets, though, is often derided as a source of problems, not a place to look for solutions. I hope that, with careful—but not paralyzing— deliberation, we at the SEC can foster an environment in which truly useful developments can flourish without either undue intrusion on our part, or, of course, undue harm to investors or other market actors. Once again, we must not fall into the trap of substituting our regulatory judgment about which technologies will succeed in transforming our markets for the judgment of people in the marketplace."

Peirce went on to caution that new technologies could upend, among other things, how securities transactions are conducted, how companies are governed, and the way retail investors engage in the financial markets. For those concerned about “wolves” in the financial industry preying on retail investors, new technologies offer great promise. Technological change is leading to better products and services for retail investors, greater ease for investors seeking to trade and monitor their investments, and opportunities for new competitors to challenge the incumbents. Technology, if we allow it, can make the capital markets more competitive and more investor-friendly. Peirce indicated that she is "confident, however, that new technology will make our capital markets work better for investors, open new opportunities for a whole generation of innovators, and enable us as securities regulators to be better at tracking down the wolves and holding them to account."

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SEC Staff Speeches, From the Data Rush to the Data Wars: A Data Revolution in Financial Markets by Commissioner Kara M. Stein

Summary - SEC Commissioner Kara M. Stein recently spoke about the importance of data to our financial markets. Stein indicated that “the prolific availability of data and information has disrupted and transformed the capital markets. Financial services companies look nothing like they did in the ’20s and ’30s. Stock exchanges, securities brokers and dealers, investment advisers, and other key participants in the securities markets now look and act more like technology companies. In fact, today’s investors may only interact with a software program or smartphone app when making investment decisions or executing transactions.” Stein cautioned that it “makes sense that these transformative changes are provoking new and complicated questions about data ownership, use, availability, and protection. In order to oversee the financial markets with insight and intelligence, the Commission I am a member of, the U.S. Securities and Exchange Commission needs to start grappling with some of the potential answers to these questions.”

Topics discussed by Stein included:

The data rush;
Laying the groundwork for the data infrastructure of tomorrow; and
Cyber wars.

For more information, click here.

SEC Staff Speeches, My Beef with Stakeholders: Remarks at the 17th Annual SEC Conference, Center for Corporate Reporting and Governance by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently spoke about the scope of those considered stakeholders in the corporate setting. Peirce indicated that the phrase stakeholder "is so popular precisely because it is so elastic. In the corporate context, however, that elasticity has some troubling implications. It is used to refocus corporate decision-makers on constituencies other than their shareholders. In the stakeholder-centric view of the world, a corporation and its directors owe a duty not just to shareholders, but to a broader group of ‘stakeholders.’"

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SEC Staff Speeches, Measuring the Impact of the SEC's Enforcement Program by Stephanie Avakian, Co-Director, Division of Enforcement

Summary - Stephanie Avakian, Co-Director of the SEC's Division of Enforcement, recently spoke about the SEC's Enforcement Program performance. Avakian cautioned that he fellow co-director and her "fundamentally reject the premise these analyses embrace – that numbers – standing alone – can adequately measure the success or impact of an enforcement program. Statistics such as the number of actions the SEC brought in a fiscal year and the dollar amount of judgments and orders obtained in that year are interesting so far as they go, but they only tell us so much. Put simply, statistics do not provide a full and meaningful picture of the quality, nature, and effectiveness of the Division’s efforts."

Specific topics covered by Avakian included:

ICOs and digital assets;
The share class selection disclosure initiative; and
Challenges facing the Enforcement Division.

For more information, click here.

SEC Staff Speeches, Unfair Exchange: The State of America's Stock Markets by Commissioner Robert J. Jackson Jr.

Summary - SEC Commissioner Robert J. Jackson, Jr. recently spoke about the state of America's stock markets. Jackson indicated "that it’s time to put the “exchange” back in the Securities and Exchange Commission. I want to highlight four puzzling practices in today’s markets—the two-tiered system for stock-price information, legal limits on exchange liability when they harm investors, the structure of stock exchanges themselves, and payments exchanges make to brokers who send orders their way—that don’t look like the kind of competition that American investors deserve. And I want to highlight the way forward for us at the SEC."

For more information, click here.

SEC Staff Speeches, Motherhood and Humble Pie: Remarks before the Cato Institute's FinTech Unbound Conference by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently spoke about new financial technologies (FinTech) and the need for more nimble regulatory approaches. Peirce indicated that “because most of us regulators are neither entrepreneurs nor technologists, we should respond to attempts to bring innovative solutions into the financial markets with an appropriate degree of humility.”

Peirce cautioned that “an essential step to encouraging innovations in our markets is to provide innovators with greater clarity and certainty in their interactions with the Commission and its staff. Innovators are often reluctant to ask for regulatory permission for fear of getting an adverse response.”

For more information, click here.

SEC Staff Speeches, Remarks before the AICPA National Conference on Banks & Saving Institutions by Wesley Bricker, Chief Accountant

Summary - SEC Chief Accountant Wesley Bricker recently spoke at the AICPA’s National Conference on Banks & Saving Institutions. While Bricker’s comments were directed at financial institutions, other entities may find his remarks informative on the topics of:

Implementation of the new accounting standards on credit losses (CECL);
Digital asset activities; and
Expanded audit reports.

Highlights of Bricker’s remarks are provided below.

Implementation of the New Accounting Standards on Credit Losses

Bricker believes “implementation of CECL can result in financial reporting that better reflects management’s expectations and an institution’s credit risk information.” Bricker cautioned that adoption plans for CECL should consider requirements under the federal securities laws and expectations set forth in SEC guidance for preparers to:

Make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of assets of the issuer;
Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that, among other things, transactions are recorded in conformity with GAAP or any other criteria applicable to such statements; and
Document a systematic methodology to be employed each period in determining the amount of loan losses to be reported and rationale supporting each period’s determination.

The SEC staff guidance included within SEC Staff Accounting Bulletin (SAB) 102 will continue to be relevant, even after being updated to align the concepts to an expected loss measurement that incorporates reasonable and supportable forecasts. These principles include maintaining documentation and supporting evidence to facilitate the review, validation, and audit of that estimate.

Bricker urged active involvement by company audit committees in the implementation of this standard. The audit committee plays a vital role in overseeing a company’s financial reporting, including the implementation of new accounting standards. Anticipated impacts of the standard may need to be communicated externally as well to help avoid surprises. Transition disclosures enable investors to understand the anticipated effects of the new standard.

Digital Asset Activities

Regarding the emergence of digital assets, Bricker indicated that it “is critical that we keep ourselves informed about emerging technologies so that the accounting profession can continue to perform the essential gatekeeper function for issuer compliance related to financial reporting.” Companies must continue to maintain appropriate books and records, regardless of whether distributed ledger technology (such as Blockchain) smart contracts, and other technology-driven applications are (or are not) used. Bricker cautioned that the auditor of an issuer, broker-dealer, or investment adviser is required to determine the nature and extent of the audit procedures to perform based on the circumstances of the entity and the auditing standards applied. Distributed ledger technology and digital assets, despite their exciting possibilities, do not alter the fundamental responsibility of companies to comply with existing requirements of securities laws. Bricker’s remarks included brief illustrative examples of new technologies with consideration of compliance with existing securities laws requirements, including books and records, internal accounting controls, fair value or related party disclosure requirements, and consideration of loss contingencies.

Expanded Auditor’s Report

Bricker provided a brief update on the status of implementation of the PCAOB’s new auditing standard for auditor reports and, in particular, the pending inclusion of critical audit matters (or CAMs) within the auditor’s report. Bricker indicated that the “goal of the new standard is to make the auditor’s report more informative and relevant to investors and other users of the financial statements.” Ongoing dialogue among auditors, audit committees, management, and others, will be critical.

Bricker is pleased to see the PCAOB staff’s update to its guidance for applying the auditor reporting standard and, if needed, encourage the PCAOB to consider further updates as it relates to CAMs. I am also pleased with the level of dialogue including through dry-runs between auditors, audit committees, and management. Bricker noted that these “dry runs can help auditors and audit committees plan for meaningful information specific to the audit to be included in the audit report. Please consider sharing your experiences with the PCAOB staff and with us at the SEC as we monitor the implementation of critical audit matters.”

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SEC Staff Speeches, Statement Regarding SEC Staff Views by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton issued a statement clarifying the authority given to SEC staff views vs. the official rules and regulations issued by the SEC. The SEC staff frequently makes their views known through a variety of communications, including written statements, compliance guides, letters, speeches, responses to frequently asked questions and responses to specific requests for assistance. Clayton cautioned that the SEC’s “longstanding position is that all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.”

Clayton believes that the SEC should keep this important distinction in mind and has directed directors of the Division of Enforcement and the Office of Compliance Inspections and Examinations to further emphasize this distinction to their staff. Clayton indicated that “our divisions and offices, including but not limited to the Division of Corporation Finance, the Division of Investment Management and the Division of Trading and Markets, have been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments.”

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SEC Staff Speeches, Remarks on Capital Formation at the Nashville 36|86 Entrepreneurship Festival by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton recently discussed small business capital formation and efforts by the SEC in this area. Clayton indicated that he believes “the SEC should be keenly focused on helping small businesses from coast to coast access capital to grow, create new jobs, and, in turn, provide investors, including our Main Street investors, expanded investment opportunities. That is why we have been reaching out to and engaging with businesses across the country. We also should recognize, in our analysis, the many connections among small, medium and large businesses, long-term investment capital and, importantly, human capital.”

Clayton shared his views on efforts the SEC has undertaken over the last sixteen months that are intended to foster capital formation, and what should be expected from the SEC’s upcoming regulatory agenda. Topics covered by Clayton included:

Initial Coin Offerings;
Efforts to Promote Capital Formation for Public Companies and Companies Considering Going Public;
Scaled Disclosure Framework for Smaller Companies; and
Disclosure Modernization and Simplification.

For more information, click here.

SEC Staff Views - Amendments to the Smaller Reporting Company Definition: A Small Entity Compliance Guide

Summary - The staff in the SEC’s Division of Corporation Finance have published a Small Entity Compliance Guide, Amendments to the Smaller Reporting Company Definition. The guide summarizes and explains the rules recently adopted by the SEC to amend the definition of a “Smaller Reporting Company.” The new smaller reporting company definition enables a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition. The final rules also expand the definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million. This reflects a change from the revenue test in the prior definition, which allowed companies to provide scaled disclosure only if they had no public float and less than $50 million in annual revenues.

Topics discussed in this compliance guide include:

Summary of Amendments;
Qualifying as a Smaller Reporting Company;
Guidance on Transitioning to the Amended Smaller Reporting Company Definition;
Chart of Scaled Disclosure Requirements Available to Smaller Reporting Companies;
Amendments to Rule 3-05 of Regulation S-X; and
Amendments to the Accelerated Filer and Large Accelerated Filer Definitions.

For more information, click here.

SEC Staff Speeches - What's in a Name? Regulation Best Interest v. Fiduciary by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed the SEC’s proposed Regulation Best Interest. This proposal includes standards for broker-dealers and investment advisers providing investment assistance to investors. Proposed Regulation Best Interest requires a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer, to act in the best interest of the retail customer at the time the recommendation is made without placing the financial or other interest of the broker-dealer ahead of the interest of the retail customer.

In comparing the proposed Regulation Best Interest standard as well as a broker-dealer’s other requirements under the securities laws to an adviser’s fiduciary duty as described in the proposed interpretive release, Peirce indicated that “only two differences stand out. First, an adviser generally has an ongoing duty to monitor over the course of its relationship with its client, while a broker-dealer generally does not. Second, a broker-dealer must either mitigate or eliminate any material financial conflict of interest it may have with its client. An adviser is required only to disclose such a conflict. Rhetoric aside, arguably proposed Regulation Best Interest would subject broker-dealers to an even more stringent standard than the fiduciary standard outlined in the Commission’s proposed interpretation.”

Peirce urged those interested in the proposal to provide feedback to the SEC. Comments on the proposal are due Tuesday, August 7, 2018.

For more information, click here.

SEC Staff Speeches - Observation on Culture at Financial Institutions and the SEC by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton recently spoke about the importance of developing, improving and reinforcing positive culture in our financial institutions. Topics discussed by Clayton included:

Culture is not an option;
Culture is a collection of countless internal and external actions;
Preserving and enhancing culture through a clear and consistent mission;
Culture beyond laws and regulations; and
SEC expects commitment and action.

For more information, click here.

SEC Staff Speech - Remarks Before the Institute of Maangement Accountant's 2018 Annual Conference and Expo - "Advancing Purpose and Promise of Those Involved in Financial Reporting," byt Wesley Bricker, Chief Accountant

Summary - SEC Chief Accountant Wesley Bricker recently spoke about the important role management accountants play within our financial reporting process and the relationship among management, the audit committee, and the auditor. Topics discussed by Bricker included:

Business and markets;
Financial reporting information in our markets;
Those involved in financial reporting;
Management's crucial responsibilities;
Responsibility of auditors and audit committees; and
Innovations and emerging issues in technology and commerce.

For more information, click here.

SEC Staff Speech - Digital Asset Transactions - When Howey Met Gary (Plastic) by William Hinman, Director, Division of Corporation Finance

Summary - William Hinman, Director of the SEC’s Division of Corporation Finance (Corp Fin) recently discussed the application of Federal securities laws to digital asset transactions. Hinman indicated that promoters “in order to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering.” Federal securities laws would apply to these types of transactions given that funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument.

Hinman’s indicated factors to consider in assessing whether a digital asset is offered as an investment contract and is thus a security. Primarily, consider whether a third party, be it a person, entity or coordinated group of actors, drives the expectation of a return. That question will always depend on the particular facts and circumstances and this list is illustrative, not exhaustive:

Is there a person or group that has sponsored or promoted the creation and sale of the digital asset, the efforts of whom play a significant role in the development and maintenance of the asset and its potential increase in value?
Has this person or group retained a stake or other interest in the digital asset such that it would be motivated to expend efforts to cause an increase in value in the digital asset? Would purchasers reasonably believe such efforts will be undertaken and may result in a return on their investment in the digital asset?
Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network, and, if so, has it indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise? Does the promoter continue to expend funds from proceeds or operations to enhance the functionality and/or value of the system within which the tokens operate?
Are purchasers “investing,” that is seeking a return? In that regard, is the instrument marketed and sold to the general public instead of to potential users of the network for a price that reasonably correlates with the market value of the good or service in the network?
Does application of the Securities Act protections make sense? Is there a person or entity others are relying on that plays a key role in the profit-making of the enterprise such that disclosure of their activities and plans would be important to investors? Do informational asymmetries exist between the promoters and potential purchasers/investors in the digital asset?
Do persons or entities other than the promoter exercise governance rights or meaningful influence?

For more information, click here.

SEC Staff Views - Announcement - Division to Release through EDGAR Serious Deficienies Letters

Summary - The SEC’s Division of Corporation Finance (Corp Fin) announced that it will begin making serious deficiencies letters publicly available through EDGAR shortly after they are issued by Corp Fin. Corp Fin selectively reviews certain registration statements or offering documents to monitor and enhance compliance with the applicable disclosure and accounting requirements. Corp Fin generally makes the review correspondence publicly available through EDGAR no sooner than 20 business days after we complete a filing review.

In some cases, however, a registration statement or offering document is so deficient that Corp Fin sends the issuer a letter informing it that we are deferring our review of the filing until it is amended to resolve the deficiencies. Corp Fin indicated that consistent with its “ongoing efforts to enhance the transparency of our review process, we intend to make these letters publicly available through EDGAR shortly after we issue them. This will make it clear that the Division believes the filing under consideration is not minimally compliant with statutory or regulatory requirements.”

These letters will appear in companies’ filing histories as “SEC STAFF LETTER: SERIOUS DEFICIENCIES.” Corp Fin indicated that it will begin by publishing letters issued on June 15, 2018 and later. The letters will be disseminated via EDGAR within 10 calendar days of issuance.

For more information, click here.

SEC Staff Views & Speeches - Page 4

Articles On This Page

Articles

SEC Staff Speeches, Pickups and Put Downs: Remarks at the Financial Planning Association 2018 Major Firms Symposium by Commissioner Hester M. Peirce

SEC Staff Speeches, Why and Whither Title VII?: Remarks before the 2018 ISDA Annual North America Conference by Commissioner Hester M. Peirce

SEC Staff Speeches, Wolves and Wolverines: Remarks at the University of Michigan Law School by Commissioner Hester M. Peirce

SEC Staff Speeches, From the Data Rush to the Data Wars: A Data Revolution in Financial Markets by Commissioner Kara M. Stein

SEC Staff Speeches, My Beef with Stakeholders: Remarks at the 17th Annual SEC Conference, Center for Corporate Reporting and Governance by Commissioner Hester M. Peirce

SEC Staff Speeches, Measuring the Impact of the SEC's Enforcement Program by Stephanie Avakian, Co-Director, Division of Enforcement

SEC Staff Speeches, Unfair Exchange: The State of America's Stock Markets by Commissioner Robert J. Jackson Jr.

SEC Staff Speeches, Motherhood and Humble Pie: Remarks before the Cato Institute's FinTech Unbound Conference by Commissioner Hester M. Peirce

SEC Staff Speeches, Remarks before the AICPA National Conference on Banks & Saving Institutions by Wesley Bricker, Chief Accountant

SEC Staff Speeches, Statement Regarding SEC Staff Views by Chairman Jay Clayton

SEC Staff Speeches, Remarks on Capital Formation at the Nashville 36|86 Entrepreneurship Festival by Chairman Jay Clayton

SEC Staff Views - Amendments to the Smaller Reporting Company Definition: A Small Entity Compliance Guide

SEC Staff Speeches - What's in a Name? Regulation Best Interest v. Fiduciary by Commissioner Hester M. Peirce

SEC Staff Speeches - Observation on Culture at Financial Institutions and the SEC by Chairman Jay Clayton

SEC Staff Speech - Remarks Before the Institute of Maangement Accountant's 2018 Annual Conference and Expo - "Advancing Purpose and Promise of Those Involved in Financial Reporting," byt Wesley Bricker, Chief Accountant

SEC Staff Speech - Digital Asset Transactions - When Howey Met Gary (Plastic) by William Hinman, Director, Division of Corporation Finance

SEC Staff Views - Announcement - Division to Release through EDGAR Serious Deficienies Letters