SEC Officials Detail Future Enforcement Priorities

Speaking at a recent event hosted by the NYU School of Law, Securities and Exchange Commission (SEC) Chairman Jay Clayton outlined the regulator’s enforcement priorities for the remainder of 2017 and beyond.

Other SEC representatives participating in the panel discussion, titled “The Securities and Exchange Commission: Priorities Going Forward,” were Stephanie Avakian and Steven Peikin, co-directors of the SEC’s Division of Enforcement, along with Peter Driscoll, acting director of the SEC’s Office of Compliance Inspections and Examinations.

The SEC unveiled its 2017 Enforcement Priorities in January and Clayton hinted that investors should not expect any dramatic shift from those priorities released at the beginning of the year, which were written under the direction of former chair Mary Jo White.

“I’m very comfortable with the approach of the staff to our job in this regard,” Clayton said, adding that his personal priority areas revolved around the themes of individual accountability and cybersecurity.

“The securities industry has rewarded many people who work in it. It is an important industry that links our industrial sector to the everyday investor, and people should behave,” he said. “And if they don’t behave, it is important to focus on individual accountability.”

Cybersecurity and Initial Coin Offerings

Clayton stated that cybersecurity and cyber crimes present a significant and increasing risk to investors and the market in general, adding that enhanced disclosure could help to ameliorate that risk.

“I am not comfortable that the American investing public understands the substantial risks that we face systemically from cyber issues and I’d like to see better disclosure around that,” he said, adding that initial coin offerings (ICOs) will be a particular area of interest.

Avakian also highlighted the SEC’s focus on ICOs, while elaborating that the regulator will also be on the lookout for ensuring financial firms take proper measures to safeguard sensitive information and cyber-related disclosure failures.

Meanwhile, Driscoll highlighted a risk alert the Office of Compliance Inspections and Examinations recently published that detailed the level of cybersecurity preparedness it observed during its examinations at various firms, with many showing a failure to address vulnerabilities after they were discovered.

Retail Investors

One of the main priorities the SEC highlighted in January was an increased focus on protecting retail investors. In response to a question as to how the SEC balances that objective with other enforcement priorities — such as violations under the Foreign Corrupt Practices Act (FCPA) — “in a world of limited resources, where more focus on one side inevitably will mean less on another,” Avakian noted that she “wouldn’t expect to see any pendulum swing” but that “it’s fair to say we are very focused on retail investors and things that affect retail investors — as I think the Commission’s always been.” She further noted that “these are often our most vulnerable, often our most unsophisticated market participants, so they deserve a really focused level of protection.” She also stated that she does not think that there is as “strict of a trade-off as folks think.”

Both Clayton and Peikin echoed the sentiment that the focus on retail investors would not reduce the SEC’s efforts in other areas, indicating that the regulator would continue to enforce the FCPA as robustly as it has in the past.