What can we expect from Jay Clayton, new Chair of SEC?
With Jay Clayton’s confirmation, as new SEC chair, we know we can expect to see changes in both focus and tone from the Commission. I anticipate that, with his background as a corporate attorney, Clayton will focus more on improving capital markets than on enforcement. In fact, during his opening statement to the Senate Committee on Banking, Housing, and Urban Affairs at his confirmation hearing, he was explicit in his concern that public capital markets may be less attractive to business than in the past and said that he sees room for improvement.
With this in mind, I’ve been considering a handful of key areas where we are likely to see Clayton’s impact as he begins his tenure at the SEC.
Dodd-Frank and Executive Compensation Disclosures
The new Administration and Congressional leadership have stated their intentions to replace and eliminate portions of the Dodd-Frank Act. Clayton has been clear that he wants to ensure that the Act is achieving its intended goals. I expect there will be an emphasis on revisions to a number of SEC rules adopted under the Dodd-Frank Act. However, when pressed on which sections of the legislation may need re-evaluation, Clayton did not go into specifics, saying that he wanted more information and input from the SEC’s staff.
Many of the rules related to executive compensation are not controversial or disliked. However, the rules to require CEO pay-ratio disclosure and to place limits on incentive compensation at financial institution are notable exceptions. It’s fair to anticipate significant changes here. In February, Acting SEC Chair Michael Piwowar opened the door to eliminate the pay ratio disclosure when he requested public comment on the rule. If Congress repeals the pay-ratio rule (which currently will be required for filings beginning in 2018), very few public companies would disclose their pay ratios, even after all the work already done to collect data and run calculations.
Considering Clayton’s background and comments made during his Senate confirmation hearing, I wouldn’t be surprised to see him prioritize simplifying the disclosure regime for public companies and investment companies, as well.
Clayton indicated that he has “a problem with rules that are unnecessarily complex, and the SEC should reduce complexity and provide clarity in rulemaking.” He supports a thorough review of the “cost and economic impact of rules.” It seems likely that he will continue the SEC’s efforts to streamline disclosures.
XBRL and structured data
At an open meeting on March 1, 2017, the SEC approved: an Inline XBRL proposal, exhibit hyperlink mandate and use of the IFRS taxonomy, demonstrating bipartisan support for using structured data and making disclosure more interactive. Similarly, the SEC is seeking to streamline the rulemaking process to ensure disclosure is useful to the public while keeping compliance costs down. Structured data can achieve both aims. That is a balance I expect Clayton will strive to achieve.
Support for structured data is consistent with the SEC’s existing goal to modernize and streamline disclosure. Furthermore, XBRL is not seen as a partisan area.
Overall, we will see a different overall focus at the agency with the end goal of making it easier for companies to raise capital while streamlining the disclosure process. This is consistent with the current administration’s view that economic growth has been inhibited by excessive enforcement and regulations.
Check our May issue of Dimensions for a deeper dive into these and other points of interest, including the impact of new SEC senior staff, the Financial CHOICE Act, pay-ratio disclosure and anticipated enforcement trends.