A Securities and Exchange Commission in flux for several months to start 2017 will probably avoid controversial rulemakings and enforcement cases, according to experts.
The Senate adjourned its lame-duck session over the weekend without confirming two SEC commissioner nominees — Republican Hester Peirce and Democrat Lisa Fairfax.
Chairwoman Mary Jo White said last month
she will step down as President-elect Donald Trump enters the Oval Office. Following her announcement,
four division directors said they will soon depart as well.
The exodus will leave Republican Commissioner Michael Piwowar, Democratic Commissioner Kara Stein and several acting division heads guiding the SEC in the new year — perhaps for as many as six months while two commissioners and a chair are nominated and confirmed by the Senate.
Mr. Piwowar likely will be named acting chairman.
The skeleton crew is likely to pursue a cautious agenda.
“I wouldn't expect to see novel enforcement cases or anything that is particularly controversial on the rulemaking front,” said Tyler Gellasch, founder of the consulting firm Myrtle Makena and former counsel to Ms. Stein. “Having two commissioners is remarkably similar to having three — you need them all to agree to address something.”
On her way out the door, Ms. White this week promised Congress the SEC would not be inert.
In a Dec. 12 letter to Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, and Sen. Mike Crapo, R-Idaho, chairman of the panel's securities subcommittee, Ms. White said the agency could act before she leaves office on rules regarding security-based swaps, liquidation of broker-dealers and the use of derivatives in mutual funds.
“Proceeding with this work, I believe, will significantly further the commission's mission for the benefit of investors and our markets,” Ms. White wrote.
She added that the SEC would pursue its “year-end priorities” as part of its mission to “exhibit a spirit of firm independence,” a phrase she quoted from the agency's Canons of Ethics.
After the potential flurry of rules in the next couple of weeks, the SEC is likely to enter a quiet stage of business as usual. Despite the pending changes at the top, the agency's day-to-day operations will continue through the work of its approximately 4,000 staff members.
For instance, some investment advisers will have the SEC knocking on their doors.
“In the short-term, exams are scheduled,” said Jay Baris, a partner at Morrison & Foerster. “That's done at the staff level and that will go on.”
The exam priorities, including conflicts of interest for advisers, also will remain in place.
“They will evolve over time,” Mr. Gellasch said. “The shift doesn't happen immediately.”
Although the SEC will only have two commissioners as of Inauguration Day on Jan. 20, it could still promulgate proposed and final rules as long as Mr. Piwowar and Ms. Stein concur.
That's not a likely outcome on regulations affecting advisers, such as one that would impose a uniform best-interest standard on retail investment advice and another that would allow adviser examinations by non-governmental entities.
In a recent appearance at an industry conference,
former SEC Commissioner Luis Aguilar expressed doubts that Mr. Piwowar and Ms. Stein would reach many agreements.
Even if they are in sync on a third-party exam rule, they may not act on it, Mr. Gellasch said.
“Because it's such a high-profile issue, you may see the acting chair leave it in the hands of the incoming chair,” he said.
In general, major action is unlikely with a temporary leader.
“It's difficult to steer a ship as big as the SEC without knowing who the captain is long-term,” said Marc Leaf, a partner at Drinker Biddle & Reath and a former counsel to Mr. Aguilar.
It's unclear when that captain will be identified. Paul Atkins, a former SEC commissioner, is leading the Trump transition team for independent agencies, including the SEC. Mr. Atkins himself may be a
candidate for chairman.
Mr. Leaf anticipates Mr. Atkins will recommend a chair and two commissioners to Mr. Trump.
“My guess is that Atkins will try to put together some kind of package,” he said.
