Response to SEC Chairman Addressing Regulation by Enforcement in Senate Banking Committee Hearing

December 10, 2019

Today, the Securities and Exchange Commission (SEC) Chairman Jay Clayton testified before the Senate Committee on Banking, Housing and Urban Affairs. During the hearing, Sen. Jerry Moran (R-Kan.) questioned Chairman Clayton about its practice of regulation by enforcement.

Below is a statement from Financial Services Institute (FSI) Executive Vice President & General Counsel David Bellaire regarding regulation by enforcement and Chairman Clayton’s response:

“It is a reasonable expectation that the SEC will establish clear rules before engaging in enforcement. However, the SEC’s ongoing practice of regulation by enforcement is unfair and hinders independent financial services firms’ and advisors’ ability to properly serve their clients. In his testimony before the Senate Committee on Banking, Housing and Urban Affairs, SEC Chairman Jay Clayton stated the SEC ‘should not be in the business of gotcha’ – but the SEC’s recent pattern of regulation by enforcement is just that.

“It is time for the SEC to return to rulemaking and guidance that sets clear expectations before resorting to enforcement activity. The Commission should provide transparency and opportunity for comment throughout the process as well as adequate time for compliance.

“We have been working to engage with the SEC in a constructive dialogue to address this issue and find a workable solution. Such conversations are necessary to create effective regulation that provides investor protection while also creating clear, suitable rules for advisors and firms.”

Click here to view a recording of the hearing. Regulation by enforcement is discussed beginning at 1:21:45.