Senate Banking Hearing on SEC Nominations
Senate Banking Committee
SEC Nominations Hearing
Tuesday, March 15, 2016
Key Topics & Takeaways
- Retrospective Review: Peirce agreed that a retrospective review is “tremendously important” to determine whether rules are working as intended. She specifically named the area of equity market structure as one where she would like to see a review.
- Campaign Finance: Sens. Charles Schumer (D-N.Y.) and Robert Menendez (D-N.J.) stated that they were leaning towards voting against the nominees’ confirmations because they would not definitively support a rule requiring disclosures of political spending.
- Fiduciary Rule: Peirce said she is “quite worried” about the Department of Labor’s (DOL) proposal because she has heard that the SEC’s input was not considered by the DOL, and that the rule might “cut a whole segment of people” off from access to advice.
- Dodd-Frank Rulemaking: Sen. Elizabeth Warren (D-Mass.) argued that an SEC commissioner “has a lot of tools that can be used to undermine Congress’ mandates,” such as delaying or watering down rules. She said there is a big difference between disagreeing about a rule’s implementation and actively sabotaging the law, and that Peirce’s record “gives reason to be concerned.”
Nominees
- Lisa Fairfax, to be an SEC Commissioner
- Hester Peirce, to be an SEC Commissioner
Opening Statements
In his opening statement, Chairman Richard Shelby (R-Ala.) commented on the importance of the Securities and Exchange Commission’s (SEC) mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation. He also discussed the backlog of nominations for the Committee to consider, noting an executive session scheduled for April 7, but also insisted that there will not be a hearing for nominees to the Federal Reserve Board of Governors until President Obama “fulfills his duty” and nominates a vice chairman for supervision.
Ranking Member Sherrod Brown (D-Ohio), in his opening statement, expressed his frustration with the Committee’s failure to act on many nominees and defended President Obama’s right to select qualified individuals to serve in important positions. He called for quick action on all pending nominations.
Testimony
Lisa Fairfax, to be an SEC Commissioner
In her testimony, Fairfax noted her experience teaching corporation and securities law and her research and work with organizations such as the American Bar Association (ABA) and the Financial Industry Regulatory Authority (FINRA). She also stressed her belief that the SEC has a responsibility to promote capital formation for all market participants.
Hester Peirce, to be an SEC Commissioner
In her testimony, Peirce highlighted the role of capital markets in providing innovative companies with financing and allowing investors to save money. She discussed her past work with the SEC and its Investors Advisory Committee, as well as her time with the Mercatus Center and the Senate Banking Committee.
Questions and Answers
RetrospectiveReview
Shelby stated that the U.S. capital markets are the “envy of the world” and argued that ensuring that standing will require that regulators do everything they can to ease regulatory burdens on businesses. He suggested that regulators and Congress should review existing rules and regulations and streamline them as appropriate. Shelby asked how important economic analysis is to rulemaking and whether the nominees believe regulators should undertake a retrospective review.
Peirce expressed support for robust economic analysis as a way to both identify problems and consider alternative solutions to them while also anticipating their consequences. She also agreed that a retrospective review is “tremendously important” to determine whether rules are working as intended. She specifically named the area of equity market structure as one where she would like to see a review.
Fairfax similarly agreed that it is important to understand the costs and benefits of new rules, and she also concurred that a retrospective review is important in understanding the unintended consequences of existing regulations.
Sen. Dean Heller (R-Nev.) asked the witnesses to identify an existing regulation whose costs outweigh its benefits. Peirce answered that many of the regulations emerging from Dodd-Frank raise questions, and specifically named the conflict minerals rule. Fairfax said she could not name any “right now,” as she has not had the opportunity to hear the concerns of SEC staff and market participants.
Dodd-Frank Rulemaking
Brown asked if the nominees are committed to finishing the Dodd-Frank rulemaking process “promptly and faithfully according to the law,” regardless of their personal views. Peirce and Fairfax both responded affirmatively.
SEC Enforcement
Brown asked about the SEC’s enforcement record, pointing out that the vast majority of cases are settled without admissions of guilt, often with repeat offenders. Peirce replied that settlements without admissions of guilt have become the expectation “on both sides,” but suggested that settlements would send a stronger message if they required admissions. She added that taking this additional step is sometimes worth the extra legal costs, particularly when pertaining to repeat offenders.
DOL Fiduciary Rule
Sen. Tim Scott (R-S.C.) stated that the data “certainly concludes” that small investors will be worse off under the Department of Labor’s (DOL) fiduciary rule proposal. He said it appears the rule will “make winners and losers” of small investors and asked if it is right for the government to pick winners and losers.
Peirce said she is “quite worried” about the proposal because she has heard that the SEC’s input was not considered by the DOL, and that the rule might “cut a whole segment of people” off from access to advice. Fairfax stressed the importance of protecting investors from conflicts of interest by promoting transparency. She said she would want to speak with staff to better understand the rule.
Campaign Finance
Sen. Charles Schumer (D-N.Y.) stated that the Citizens United Supreme Court case “ripped a giant hole in our campaign finance system” and has had a corrosive effect on politics. He suggested that the SEC could help by requiring companies to disclose information on their political spending, and asked if shareholders have a right to this information. Fairfax pointed out that the 2016 omnibus appropriations bill prevents any rulemaking in this area, but that if this was not the case then she would consider the various perspectives on the issue. Peirce echoed Fairfax’s response and added that she would have to see the text of any proposed rule before commenting.
Schumer said he was not satisfied with either nominee’s answer, and was leaning towards voting against their confirmation.
Sen. Robert Menendez (D-N.J.) said he believes disclosures of political spending are both a shareholder interest and for the public good. He noted that he proposed S. 214, the Shareholder Protection Act, to give shareholders a say in political contributions. He asked what steps the nominees would take, short of finalization, to set in motion the development of such a disclosure. Fairfax said any steps would be up to SEC Chair Mary Jo White, and Peirce insisted that the language from the appropriations bill is clear.
Menendez commented that he has similar reservations to Schumer about the nominations, given their responses to his question.
Sen. Jeff Merkley (D-Ore.) asked whether spending other people’s money on political contributions without telling them is “stealing speech.” Peirce said a corporation has the ability to spend money without checking with investors. She added that if political spending does come up at the SEC, then she would listen to both sides.
Sen. Elizabeth Warren (D-Mass.) noted that Peirce has criticized many of the Dodd-Frank rulemakings and has called for Congress to reduce the mandates. She also pointed out specific criticisms of the CEO pay ratio rule and the conflict minerals rule, which Peirce called “pointless.” Warren said Peirce’s proposal amounts to less oversight of big banks, fewer efforts to rein them in, more chance for them to take big risks, and allowing them to once more “come crying to the government for another bailout.” She questioned whether an SEC commissioner charged with enforcing laws should think the regulations she enforces are “pointless.”
Peirce defended herself by pointing to her past experience working for the SEC, and insisted that she would adhere to whatever Congress directs by implementing rules as best as she can. She said she would point out where mandates are flawed, but that until the problems are addressed by Congress, she would enforce the law as written.
Warren retorted that an SEC commissioner “has a lot of tools that can be used to undermine Congress’ mandates,” such as delaying or watering down rules. She said there is a big difference between disagreeing about a rule’s implementation and actively sabotaging the law, and that Peirce’s record “gives reason to be concerned.”
FINRA
Sen. Tom Cotton (R-Ark.) recalled a paper by Peirce analyzing the structures and operations of FINRA that suggested the organization is not accountable to the industry as a self-regulatory organization (SRO) should be. Peirce explained that FINRA has changed over time, and that its board is not drawn from the industry. She raised concerns about who FINRA is accountable to, be it the SEC or the industry, and stated that if confirmed she would like to improve SEC oversight.
Cotton asked if FINRA should move towards either full oversight by the SEC or becoming more like other SROs. Peirce answered that she has not yet formed an opinion on the right answer and would like to discuss the matter with SEC staff.
Volcker Rule
Merkley noted that the Volcker Rule sought to distinguish between banned proprietary trading and legitimate market-making. He asked if the nominees would work to make this boundary clearer. Fairfax and Peirce agreed that it is important to write clear rules, and both said they would work with SEC staff to clarify the boundary if confirmed.
For more information on this hearing, please click here.
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Senate Banking Committee
SEC Nominations Hearing
Tuesday, March 15, 2016
Key Topics & Takeaways
- Retrospective Review: Peirce agreed that a retrospective review is “tremendously important” to determine whether rules are working as intended. She specifically named the area of equity market structure as one where she would like to see a review.
- Campaign Finance: Sens. Charles Schumer (D-N.Y.) and Robert Menendez (D-N.J.) stated that they were leaning towards voting against the nominees’ confirmations because they would not definitively support a rule requiring disclosures of political spending.
- Fiduciary Rule: Peirce said she is “quite worried” about the Department of Labor’s (DOL) proposal because she has heard that the SEC’s input was not considered by the DOL, and that the rule might “cut a whole segment of people” off from access to advice.
- Dodd-Frank Rulemaking: Sen. Elizabeth Warren (D-Mass.) argued that an SEC commissioner “has a lot of tools that can be used to undermine Congress’ mandates,” such as delaying or watering down rules. She said there is a big difference between disagreeing about a rule’s implementation and actively sabotaging the law, and that Peirce’s record “gives reason to be concerned.”
Nominees
- Lisa Fairfax, to be an SEC Commissioner
- Hester Peirce, to be an SEC Commissioner
Opening Statements
In his opening statement, Chairman Richard Shelby (R-Ala.) commented on the importance of the Securities and Exchange Commission’s (SEC) mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation. He also discussed the backlog of nominations for the Committee to consider, noting an executive session scheduled for April 7, but also insisted that there will not be a hearing for nominees to the Federal Reserve Board of Governors until President Obama “fulfills his duty” and nominates a vice chairman for supervision.
Ranking Member Sherrod Brown (D-Ohio), in his opening statement, expressed his frustration with the Committee’s failure to act on many nominees and defended President Obama’s right to select qualified individuals to serve in important positions. He called for quick action on all pending nominations.
Testimony
Lisa Fairfax, to be an SEC Commissioner
In her testimony, Fairfax noted her experience teaching corporation and securities law and her research and work with organizations such as the American Bar Association (ABA) and the Financial Industry Regulatory Authority (FINRA). She also stressed her belief that the SEC has a responsibility to promote capital formation for all market participants.
Hester Peirce, to be an SEC Commissioner
In her testimony, Peirce highlighted the role of capital markets in providing innovative companies with financing and allowing investors to save money. She discussed her past work with the SEC and its Investors Advisory Committee, as well as her time with the Mercatus Center and the Senate Banking Committee.
Questions and Answers
RetrospectiveReview
Shelby stated that the U.S. capital markets are the “envy of the world” and argued that ensuring that standing will require that regulators do everything they can to ease regulatory burdens on businesses. He suggested that regulators and Congress should review existing rules and regulations and streamline them as appropriate. Shelby asked how important economic analysis is to rulemaking and whether the nominees believe regulators should undertake a retrospective review.
Peirce expressed support for robust economic analysis as a way to both identify problems and consider alternative solutions to them while also anticipating their consequences. She also agreed that a retrospective review is “tremendously important” to determine whether rules are working as intended. She specifically named the area of equity market structure as one where she would like to see a review.
Fairfax similarly agreed that it is important to understand the costs and benefits of new rules, and she also concurred that a retrospective review is important in understanding the unintended consequences of existing regulations.
Sen. Dean Heller (R-Nev.) asked the witnesses to identify an existing regulation whose costs outweigh its benefits. Peirce answered that many of the regulations emerging from Dodd-Frank raise questions, and specifically named the conflict minerals rule. Fairfax said she could not name any “right now,” as she has not had the opportunity to hear the concerns of SEC staff and market participants.
Dodd-Frank Rulemaking
Brown asked if the nominees are committed to finishing the Dodd-Frank rulemaking process “promptly and faithfully according to the law,” regardless of their personal views. Peirce and Fairfax both responded affirmatively.
SEC Enforcement
Brown asked about the SEC’s enforcement record, pointing out that the vast majority of cases are settled without admissions of guilt, often with repeat offenders. Peirce replied that settlements without admissions of guilt have become the expectation “on both sides,” but suggested that settlements would send a stronger message if they required admissions. She added that taking this additional step is sometimes worth the extra legal costs, particularly when pertaining to repeat offenders.
DOL Fiduciary Rule
Sen. Tim Scott (R-S.C.) stated that the data “certainly concludes” that small investors will be worse off under the Department of Labor’s (DOL) fiduciary rule proposal. He said it appears the rule will “make winners and losers” of small investors and asked if it is right for the government to pick winners and losers.
Peirce said she is “quite worried” about the proposal because she has heard that the SEC’s input was not considered by the DOL, and that the rule might “cut a whole segment of people” off from access to advice. Fairfax stressed the importance of protecting investors from conflicts of interest by promoting transparency. She said she would want to speak with staff to better understand the rule.
Campaign Finance
Sen. Charles Schumer (D-N.Y.) stated that the Citizens United Supreme Court case “ripped a giant hole in our campaign finance system” and has had a corrosive effect on politics. He suggested that the SEC could help by requiring companies to disclose information on their political spending, and asked if shareholders have a right to this information. Fairfax pointed out that the 2016 omnibus appropriations bill prevents any rulemaking in this area, but that if this was not the case then she would consider the various perspectives on the issue. Peirce echoed Fairfax’s response and added that she would have to see the text of any proposed rule before commenting.
Schumer said he was not satisfied with either nominee’s answer, and was leaning towards voting against their confirmation.
Sen. Robert Menendez (D-N.J.) said he believes disclosures of political spending are both a shareholder interest and for the public good. He noted that he proposed S. 214, the Shareholder Protection Act, to give shareholders a say in political contributions. He asked what steps the nominees would take, short of finalization, to set in motion the development of such a disclosure. Fairfax said any steps would be up to SEC Chair Mary Jo White, and Peirce insisted that the language from the appropriations bill is clear.
Menendez commented that he has similar reservations to Schumer about the nominations, given their responses to his question.
Sen. Jeff Merkley (D-Ore.) asked whether spending other people’s money on political contributions without telling them is “stealing speech.” Peirce said a corporation has the ability to spend money without checking with investors. She added that if political spending does come up at the SEC, then she would listen to both sides.
Sen. Elizabeth Warren (D-Mass.) noted that Peirce has criticized many of the Dodd-Frank rulemakings and has called for Congress to reduce the mandates. She also pointed out specific criticisms of the CEO pay ratio rule and the conflict minerals rule, which Peirce called “pointless.” Warren said Peirce’s proposal amounts to less oversight of big banks, fewer efforts to rein them in, more chance for them to take big risks, and allowing them to once more “come crying to the government for another bailout.” She questioned whether an SEC commissioner charged with enforcing laws should think the regulations she enforces are “pointless.”
Peirce defended herself by pointing to her past experience working for the SEC, and insisted that she would adhere to whatever Congress directs by implementing rules as best as she can. She said she would point out where mandates are flawed, but that until the problems are addressed by Congress, she would enforce the law as written.
Warren retorted that an SEC commissioner “has a lot of tools that can be used to undermine Congress’ mandates,” such as delaying or watering down rules. She said there is a big difference between disagreeing about a rule’s implementation and actively sabotaging the law, and that Peirce’s record “gives reason to be concerned.”
FINRA
Sen. Tom Cotton (R-Ark.) recalled a paper by Peirce analyzing the structures and operations of FINRA that suggested the organization is not accountable to the industry as a self-regulatory organization (SRO) should be. Peirce explained that FINRA has changed over time, and that its board is not drawn from the industry. She raised concerns about who FINRA is accountable to, be it the SEC or the industry, and stated that if confirmed she would like to improve SEC oversight.
Cotton asked if FINRA should move towards either full oversight by the SEC or becoming more like other SROs. Peirce answered that she has not yet formed an opinion on the right answer and would like to discuss the matter with SEC staff.
Volcker Rule
Merkley noted that the Volcker Rule sought to distinguish between banned proprietary trading and legitimate market-making. He asked if the nominees would work to make this boundary clearer. Fairfax and Peirce agreed that it is important to write clear rules, and both said they would work with SEC staff to clarify the boundary if confirmed.
For more information on this hearing, please click here.