SEC’s Cybersecurity Enforcement Juxtaposed Against Clayton Initiatives for Deregulation

Equifax Faces Tough Questions After Massive Cyberbreach

Even before assuming the position of chairman of the U.S. Securities and Exchange Commission (SEC) earlier this year, Jay Clayton has been outspoken about the need for regulation reform.

One area of growing interest, and possibly increased regulation, is cybersecurity. On June 8, 2017, Stephanie Avakian and Steven Peikin were named the new co-directors of the SEC Division of Enforcement. In a recent interview, Peikin said, “the greatest threat to our markets right now is the cyberthreat.” Meanwhile, Avakian has noted a recent “uptick” in cybercrime investigations and anticipates seeing “the cyberthreat continue to emerge” in coming years – a clear indication that cybersecurity will continue to be an area of close scrutiny. Firms should expect cybersecurity enforcement and examination activity to continue under the new administration.

Alternatively, during his first public speech as chairman – delivered at the Economic Club of New York on July 12 – Clayton delivered remarks containing noticeably little detail, instead laying out his regulatory philosophy on running the SEC. Clayton noted his staff to be hard at work preparing proposals aimed at reforming the rules on disclosure.

It was a speech marked by sweeping calls for the need to reduce unnecessary corporate disclosures, further shield retail investors from basic frauds, lessen the burden of compliance for smaller companies and take advantage of hindsight to review SEC rules to ensure that outcomes align with original intentions.

Clayton also used numerous terms to refer to “ordinary investors,” in a way recommitting the agency to protect the “long-term interests of the Main Street investor.” He frequently referred to these investors as “Mr. and Mrs. 401(k)” in an apparent nod to the resting place of the bulk of American savings.

He continued, “increased disclosure and other burdens” may be contributing to companies deciding to remain private as opposed to filing for initial public offerings. “I have been vocal about my desire to enhance the ability of every American to participate in investment opportunities, including through the public markets. I also want American businesses to be able to raise the money they need to grow and create jobs. Ordinary investors should not be shut out from participating in the capital formation of the country’s growing companies.”

While these gentle moves towards the softening of some disclosure rules may smell like “de-regulation,” it is more likely we are seeing an embracing of the Disclosure Effectiveness Initiative, which saw increased activity generated by the previous SEC leadership team spearheaded by Mary Jo White. The extent to which the SEC, and Clayton himself, feel that cybersecurity overlap with the need to make things easier on Main Street investors remains to be seen.

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