United States: SEC Commissioner Hester Peirce Voices Concern Over Staff Guidance

SEC Commissioner Hester Peirce voiced concern that certain agency guidance may have turned into a "body of secret law" due to a lack of transparency and accountability.

In remarks at the "SEC Speaks" Conference, Ms. Peirce said that staff guidance can help market participants to "navigate the complexity" of the federal securities laws. She stated that such guidance performs several important functions, which include helping to ensure that the SEC is responsive to the markets and that market participants are able to satisfy their regulatory obligations.

Further, Ms. Peirce stated that no-action letters issued by the SEC staff, when used properly, can be beneficial to market participants, particularly when they are made publicly available. She explained that no-action letters can enhance the consistency of staff-level guidance across time and across similarly situated market participants, and keeps the staff accountable to the SEC and to the public by making sure that the no-action process is transparent.

However, Ms. Peirce raised concerns about transparency, saying:

Further, Ms. Peirce said, there is a "line that can be crossed" when nonpublic staff guidance restricts market participants without an opportunity for review. To illustrate this point, Ms. Peirce stated that the line was crossed after hearing commentary from market participants that SEC rules "do[] not matter much in practice because firms operate" under published and unpublished letters and other SEC staff directives.

Ms. Peirce called on the SEC to engage publicly with market participants, underscoring the importance of the SEC's actions being "subject to democratic accountability and some form of review."

Commentary / Steven Lofchie

As the authority of the regulatory agencies grows and the regulators become fearful of second-guessing by Congress, it becomes more and more difficult for the agencies to issue relief or make decisions at a pace that is proportionate to the needs of the market for clarification or liberalization. Requiring all rule relief to be issued through a rulemaking process would further reduce the speed of governmental action.

The path regulators might take is (i) toward more transparency, meaning more published advice, combined with (ii) more leeway to the agency staff to issue no-action letters where senior staff believes it appropriate, even if there is a chance that the commissioners would later "withdraw" the no-action position (but, of course, not take enforcement action against firms who had reasonably relied upon it). This would require Congress and the regulators to trust their staff to make reasonable decisions (knowing that the staff, at least at the financial regulators, tends not to be a wild and crazy bunch).

It is less troublesome for regulatory staff to grant relief than for them to impose stricter conditions than the law requires. In this regard, it seems that staff often feels safer imposing stricter conditions than it does granting relief.

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