Breakingviews - SEC chair departure starts warped musical chairs

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

SAN FRANCISCO (Reuters Breakingviews) - U.S. financial watchdogs are starting to play a warped version of musical chairs. Securities and Exchange Commission Chairman Jay Clayton kicked off the game on Monday by announcing he will depart at the end of the year, six months prior to his term’s end. It means his spot will be filled by a lame duck acting chair. That’s on top of President-elect Joe Biden’s late start on the transition as Chinese listings, blank-check companies, and other issues await SEC scrutiny. As financial regulators vacate, corporate malfeasance continues while rules reining them in go unfinished.

It’s not unusual for people like Clayton to leave before a new White House takes over, and a smooth handover reduces gaps by allowing a new president’s team to start vetting possible replacement candidates. That’s particularly important for those that require a Senate confirmation, like the role of SEC chair. Current U.S. President Donald Trump’s decision not to concede the election has made this process more difficult.

In the meantime, the SEC is still responsible for a host of hot-button issues that started under Clayton. The agency is studying whether to delist Chinese companies from American exchanges if they don’t comply with U.S. auditing rules. It’s also examining whether there should be more regulations around special purpose acquisition vehicles. There are also major ongoing investigations, including an accounting probe at General Electric.

Clayton also rolled back some rules, like disclosure requirements on legal proceedings and environmental risk factors, that a new chair could revisit. But the agency may delay decisions on major topics as it waits for new, permanent leadership. And it isn’t just an SEC problem. The Commodity Futures Trading Commission and the Federal Deposit Insurance Corporation are in a similar position if vacancies mount. So is the Office of the Comptroller of the Currency, which is already under an acting chairman.

In 2017, the CFTC lacked a quorum for months after going down to two members, preventing the agency from moving on some Dodd-Frank reforms until later that year. If financial watchdogs like the SEC can’t continue plans that are already in motion, companies not only are in limbo. They are potentially operating in ways that fly in the face of what the agency is set out to do.


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