The SEC Releases it Annual Regulatory and Deregulatory Agenda

The Securities and Exchange Commission (SEC) recently announced its Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions, which summarises topics financial regulatory agencies will be addressing in the coming months.

“The SEC has a lot of regulatory work ahead of us,” said SEC Chair Gary Gensler. “I look forward collaborating with my fellow commissioners and the dedicated staff to propose and finalize rules that will strengthen our markets, increase transparency, and safeguard investors.”

Proposed and final regulatory topics on the SEC Regulatory Agenda include a continued emphasis on modernizing the financial regulatory system, increased disclosure and transparency measures, and continued rulemaking regarding the Dodd-Frank Reform Act of 2010.

The following is a summary of the major initiatives included in the SEC’s Spring Regulatory Agenda.

Environmental, Social, and Corporate Governance / Impact Investing and Cyber Security Disclosures

Impact investing or ESG investing has become a hot topic in the financial world as more investors are weighing the impact of companies they invest in, and the SEC is considering requiring more disclosures in these areas. In March of 2021, the SEC Announced an Enforcement Task Force Focused on Climate and ESG Issues and regulators will continue working on crafting proposed rules regarding companies’ impact on climate.

“Human Capital Management” disclosures include issues like workforce diversity, particularly at the corporate board level, and issues dealing with how companies treat and value employees.

Enhancing Cybersecurity Risk Governance disclosure is also on the agenda, which has gained greater importance in the wake of several hacking and ransomware attacks on companies that impact the national infrastructure.

Modernization / Transparency and Disclosure

Much of the rulemaking activity will revolve around the continued modernization of the financial and regulatory system, including requiring more detailed disclosures. Highlights include:

  • Equity market structure modernization includes topics related to payment for order flow, best execution, market concentration, stock buybacks, short sale disclosure, securities-based swaps ownership, and the convertible debenture market.
  • Filing fee disclosure and payment methods aimed at improving preparation and payment processing.
  • Changes to move more reporting to mandated electronic form rather than paper fillings.

Transfer Agents

The SEC will also be looking at ways to improve disclosure and record-keeping issues related to Transfer Agents. In the Federal Register of proposed rulemaking and request for public comment, the SEC wrote that due to technological changes, “the Commission has observed that the manner in which transfer agents carry out their traditional functions may no longer be adequately addressed in the rules.” Rule changes include issues related to “transfer agent registration and reporting requirements, safeguarding of funds and securities, and revision of obsolete or outdated rules.”

Insider Trading

Improvements to 10b5-1 affirmative defense provisions, which allow company insiders a process of making predetermined trades to avoid insider trading accusations. Gensler has indicated his belief that there is room for improvement. One area that the SEC could target is improving cooling-off periods. In June of 2021 he told the CFO Network Summit audience that “when insiders or companies adopt 10b5-1 plans, there’s currently no cooling off period required before they make their first trade. I worry that some bad actors could perceive this as a loophole to participate in insider trading…Proposals to mandate four- to six-month cooling-off periods have received public, bipartisan support … I believe this approach deserves further consideration.”

Continued Dodd-Frank Reform Implementation

The SEC will also continue unfinished work required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. These include securities-based swaps, incentive-based compensation, and conflict of interest rules.

Enhancing shareholder democracy

Likely refers to actions to include shareholder proposals in a company’s proxy statements.

Special purpose acquisition companies (SPACs)

SPACS have come under increased scrutiny as companies going public via SPAC has increased in popularity.

There are 49 items included in the Spring 2021 Agency Rule List, including four in the Prerule Stage, 36 in the Proposed Rule Stage, and nine in the Final Rule Stage.

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