On August 24, 2022, the SEC released its draft strategic plan for the fiscal years 2022 to 2026 and sought public comment on same. The three primary goals set forth in the plan include: (i) protecting working families against fraud, manipulation, and misconduct; (ii) developing and implementing a robust regulatory framework that keeps pace with evolving markets, business models, and technologies; and (iii) supporting a skilled workforce that is diverse, equitable, inclusive, and is fully equipped to advance agency objectives.
To achieve these goals, the SEC intends to use of market and industry data to prevent, detect, and prosecute improper behavior. The SEC also seeks to modernize design, delivery, and content of disclosures to investors so they can access consistent, comparable, and material information while making investment decisions.
These statements are very broad, but even at face value, the different focus of the SEC as compared to the last plan published in 2018 is clear. In 2018 the three primary goals were (i) focusing on the long-term interests of Main Street investors; (ii) recognizing significant developments and trends in evolving capital markets and adjusting efforts to ensure the effective allocation of resources; and (iii) elevate the SEC’s performance by enhancing analytical capabilities and human-capital development (see HERE).
The Strategic Plan begins with a broad overview about the SEC itself, a topic I go back to and reiterate on occasion, such as in HERE. The SEC’s mission has remained unchanged over the years, including to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation. In addition, according to the Strategic Plan, the SEC:
- Engage and interact with the investing public, directly and on a daily basis, through a variety of channels, including investor roundtables, education programs, and alerts on SEC.gov;
- Oversee annual trading of approximately $118 trillion in U.S. equity markets, $2.8 trillion in exchange-traded equity options, and $237 trillion in the fixed income markets;
- Selectively review the disclosures and financial statements of approximately 5,248 exchange-listed public companies with an aggregate market capitalization of $51 trillion;
- Oversee the activities of more than 29,000 registered entities, including investment advisers, mutual funds, exchange-traded funds, broker-dealers, and transfer agents, who collectively employ at least 1 million individuals in the United States;
- Oversee 24 national securities exchanges, 9 credit rating agencies, 7 active registered clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), and the Financial Accounting Standards Board (FASB); and
- Provide critical market information through technology systems, such as the more than 70 million pages of documents available on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The following is a summary of each goal and the SEC’s plan of action.
Protecting working families against fraud, manipulation, and misconduct
To protect families against fraud, manipulation and misconduct, the SEC intends to focus on enforcement as it has been doing for the past two years. The strategic plan specifically mentions actions related to deceptive conduct by registered or private funds, offering or accounting frauds, insider trading, market manipulation, failures to act in retail customers’ best interests when making a recommendation, reporting violations, best execution and failure to act in accordance with the fiduciary duty.
Although many different types of actions can be pursued, as part of this particular goal, the SEC is emphasizing misconduct that affects individual investors. Part of the mission includes reviewing “the economic realities of a given product or arrangement to determine whether it complies with the securities laws.” Although the plan does not specify cryptocurrency, the statement clearly encompasses crypto as a target.
In pursuing actions, the SEC has the core goals of accountability and deterrence. We have definitely been witness to an uptick in deterrence-based enforcement actions and resolutions of those actions. Deterrence-based actions are the sister to regulation by enforcement, a topic of debate that has been garnering greater attention under the current SEC regime (see HERE).
As has been the case for many years and through many administrations, technology continues to evolve which requires the SEC to keep up with modern markets, and modern technologically-based schemes. The SEC continues its never-ending battle to best use technology and data analytics to surveil the markets, promote competition, and enforce the law.
The strategic plan specifically notes a need to build out the SEC’s systemic risk identification abilities. Systemic risk relates to actual market operations. Methods to implement this strategy include expanding disclosure and analytical tools, broadening the use of machine learning and artificial intelligence, developing long-term risk analysis directly connected to policy development, and focusing on more strategic and collaborative analysis across all regulated activities.
Finally, in support of its stated goal of protecting families from fraud, the SEC intends to continue to make amendments to public disclosure obligations. In that regard, the strategic plan sites the controversial climate risk disclosure rules, cybersecurity policy disclosures (subject of a future blog) and human capital disclosures (see HERE.)
For more information on the climate disclosure rules, see my eight-part blog series. In the first blog in the series, I provided some background and an introduction to the rules – HERE. The second provided a high-level summary of the proposed rules including the phase in compliance schedule – HERE. The third blog in the series discussed the disclosures of climate-related risks – HERE. The fourth moved on to disclosures regarding climate-related impacts on strategy, business model and outlook – HERE . The fifth blog in the series delved into risk management and transition plan disclosures – HERE.
The sixth blog provided an overview of the extremely complex financial statement metrics requirements – HERE. The seventh blog in the series covered GHG emissions disclosures and Scope 1 and 2 attestations – HERE. Finally, Part 8 covered miscellaneous items including the disclosure of targets and goals and affected reporting companies and forms – HERE.
Developing and implementing a robust regulatory framework that keeps pace with evolving markets, business models, and technologies
Innovation and technology bring challenges for the SEC, particularly related to cybersecurity risks and 24-hour international market connectedness. To implement its goal of increasing regulation to keep pace with the markets, the SEC intends to develop regulations to enhance transparency over private markets. I note that FinCEN has already developed beneficial ownership reporting requirements for certain private market participants (subject of a future blog). In addition, the SEC intends to work with international regulators to increase supervisory responsibilities including data flow.
According to the Strategic Plan, the SEC will examine strategies to address systemic and infrastructure risks faced by the capital markets and its participants, including related to digital assets and cryptocurrencies. In that regard, the SEC has already and will continue to lobby Congress for greater regulatory authority on the subject. The SEC will also increase its outreach programs for input from market participants on new and changing products including crypto, derivatives and fixed income instruments.
Supporting a skilled workforce that is diverse, equitable, inclusive, and is fully equipped to advance agency objectives
The final goal in the Strategic Plan is to support a skilled workforce that is diverse, equitable, inclusive and equipped to advance agency objectives. To fulfill these goals, the SEC will focus on recruiting, training, and retaining staff. In that regard, the SEC will update its workforce policies and practices. In addition, the SEC intends to promote collaboration within and across the various SEC offices, including through staff rotation and telework programs. Finally, as with other goals, the SEC intends to utilize technology, including updating software and security programs, to improve workforce efficiency.
Laura Anthony, Esq.
Anthony L.G., PLLC
A Corporate Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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