This June, the U.S. Securities and Exchange Commission published a draft of its strategic plan, which outlines the SEC’s policy priorities through 2022. In his cover letter, SEC Chairman Jay Clayton explained that the Plan “provides a forward-looking framework for making the SEC even more effective, focusing on the most important goals and initiatives that will best position the SEC to fulfill our mission.”
The agency set three main goals, which appear to be responsive to changes in the marketplace and the SEC’s focus. The first is to protect the interests of Main Street investors; the second is to adjust to trends in capital markets; and the third is to enhance the agency’s analytical capabilities and human capital development.
By way of background, the 2014-2018 strategic plan had prioritized different goals, including: to establish and maintain an effective regulatory environment; to foster and enforce compliance with the federal securities laws; to facilitate access to the information investors need to make informed investment decisions; and to enhance the Commission’s performance through effective alignment and management of human, information, and financial capital.
The goals and initiatives outlined in the current draft plan indicate that the SEC continues to grapple with how to meaningfully adapt in order to best protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation given the changes in securities and technologies. But the overarching theme of this Plan is that the agency intends to modernize its focus, especially to improve its ability to understand and react to new technologies that are changing the nature of how people invest and the speed in which they do it.
Goal 1: Focus on the long-term interests of Main Street investors. This goal reflects a conceptual reframing of the SEC’s target audience, and the five initiatives the agency identified for this goal all aim to help the agency to better understand and protect modern “Main Street” investors. (“Main Street” being colloquially used to refer to “regular” investors, in contrast to more professionalized “Wall Street” investors.)
As the landing page of the agency’s website explains, “[t]he SEC’s focus on Main Street investors reflects the fact that American households own $26 trillion worth of securities—more than 60 percent of the U.S. equities markets—either directly or indirectly through mutual funds, retirement accounts and other investments.” According to the Plan, “[t]he continuing evolution away from company-managed retirement plans to 401(k) plans also means that today’s workers must shoulder more responsibility for saving and investing for retirement compared to prior generations.” With that in mind, the Plan’s initiatives are designed to help the SEC prioritize retail investors and their retirement planning.
The Plan proposes the agency interact with investors in ways that reflect the diversity of businesses, markets, and investors. The SEC also expressed a desire to improve the agency’s understanding of the different channels investors use to participate in the markets, to better understand the associated risks, and recognized the need to modernize regulations and information systems. To facilitate greater access and participation in markets, the agency expressed an interest in increasing the number and range of SEC-registered and exchange-listed investment choices available to consumers. The Plan also proposes focusing enforcement in areas where it directly benefits retail investors, such as penny stock trading and securities custody.
Goal 2: Recognize significant developments and trends in evolving capital markets and adjust efforts to ensure the commission is effectively allocating its resources. This goal signals that the SEC is focused on modern concerns like the “scope and severity of risks that cyber threats present” and the applicability of securities law to initial coin offerings. “Data security and the rapid transmission of data are vital to the functioning of the U.S. and global securities markets,” as the Plan notes, and the SEC admits that some of its rules and approaches are “outdated.” As the agency’s “ability to remain an effective regulator requires that [the agency] continually monitor the market environment—and adapt,” this Plan posits the agency should expand its focus, expertise, and possibly scope to better position itself to monitor the current landscape.
Part of adapting will mean updating the way that the SEC monitors, regulates, and communicates with consumers about risks. To improve efficacy in this area, the SEC will seek feedback to help modernize its rules and approaches to ensure it is appropriately managing risks related to cybersecurity and the possibility of market emergencies.
Additionally, the agency is well-aware that “[t]echnology has fundamentally altered consumer interactions with securities market participants,” in terms of access, information-sharing, and risks. “Today’s interconnected world market offers new opportunities for securities manipulation, fraud, and abuse,” and technology also can facilitate fresh versions of well-known challenges, “giving new life to age-old scams like Ponzi schemes.”
But the SEC faces some legitimately new challenges. Addressing these will require the technology and data security upgrades mentioned above, as well as coordination with parties outside the agency. While the SEC’s focus is clearly on Main Street investors, the Plan also reflects that “[g]lobal risks are U.S. risks, and wrongdoing that affects the U.S. markets increasingly occurs outside our country.” Learning from the global financial crisis, the agency expressed an awareness that the “need for coordination with fellow financial regulators, including foreign regulators, will continue to rise.”
Goal 3: Elevate the SEC’s performance by enhancing analytical capabilities and human capital development. This third goal is grounded in “using resources wisely.” As expressed in the Plan, this goal will be achieved through two disparate but complementary aims: the first being a focus on attracting and retaining key talent; the second a commitment to “stretching” resources and “adapting [the agency’s] operational focus to meet constantly changing and evolving risks.”
In pursuit of the first prong, the Plan proposes a focus on recruiting, retraining, and training staff with the “right mix of skills.” The SEC recognizes its staff and leaders are “the foundation of the agency” and will seek to develop and retain staff, providing opportunities for additional training and skills development. The Plan mentions that the agency will promote diversity, inclusion, and equality of opportunity among the agency’s staff, as well as stressing collaboration within and across offices.
At the same time, the SEC seeks to expand the use of risk and data analytics to set regulatory priorities and focus staff resources. The agency “must innovate,” the Plan explains, in order “to stretch our resources further for the benefit of our mission.” The Plan proposes steps like developing a data management program; enhancing its market and industry data analytics to prevent, detect, and prosecute improper behavior; and enhancing its abilities to mitigate threats to its systems and sensitive data. By better understanding and uncovering market risks, the agency intends to better position itself to intervene where appropriate. Such analytical improvements would also allow the SEC to improve how the agency flags problems for and communicates with investors.
The concise presentation of this Plan reflects the SEC’s focus on reaching a broader base of consumers. According to what Chairman Clayton said in a press release announcing the draft’s release, the Plan was intentionally written to be brief, with an eye to this broader audience: “We are presenting the plan in a more concise and readable format this year, which we hope will further encourage investors—particularly our Main Street investors—and market participants to share their views on how we can meet and exceed their expectations of our agency.” The prior strategic plan runs 56 pages long; this iteration clocks in at a mere 12 pages.
While, in its brevity, the Plan does not set forth performance goals or benchmarks for measuring the agency’s progress, the SEC appears to be pursuing these goals already. For example, the agency will have just wrapped up its participation in the second annual World Investor Week—a global effort to raise awareness of securities regulations and educate investors on how to avoid fraud—where the SEC announced its focus for the week would be exclusively on one of the goals outlined in the Plan: empowering its newly articulated Main Street investors.
Margaret A. Dale and Mark D. Harris are partners at Proskauer Rose. Kelly Landers Hawthorne, an associate, assisted in the preparation of this article.