On June 19, 2018, the Securities and Exchange Commission (the “SEC") published a draft strategic plan outlining the SEC's priorities through 2022 (the “2018 Plan"). In the 2018 Plan, the SEC elected to pursue three goals, emphasizing investors, innovation and performance, each of which is summarized below. The 2018 Plan focuses on the “Main Street" investor, responds to new market developments, such as the growth of cryptocurrencies, and improves the regulator's use of data and analytics.
In his cover letter, SEC Chairman Jay Clayton stated, “The Plan provides a forward-looking framework for making the SEC even more effective, focusing on the most important goals and initiatives that will best position the SEC to fulfill our mission.... For the investing public and the various market participants and regulatory authorities who interact with the SEC, we hope this Strategic Plan will inspire your full confidence in our ability to innovate in response to evolving markets."
The 2018 Plan was drafted pursuant to the Government Performance and Results Modernization Act of 2010, "which requires federal agencies to outline their missions, planned initiatives, and strategic goals for a four year period." The SEC has opened the public comment period for investors and other market participants to share their concerns and suggestions. Comments on the draft 2018 plan are due July 25, 2018 and may be submitted by e-mail to PerformancePlanning@sec.gov, or through written correspondence to Nicole Puccio, Branch Chief, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549–2521.
Focus on Retail Investors
The SEC's first enumerated goal in the 2018 Plan centers around preserving long-term investor interests. Primarily, the SEC acknowledges the challenges associated with retirees' increased life expectancy and their reliance on investments as a source of income. Additionally, the SEC highlights common problems faced by investors such as a lack of clarity in deciphering the difference between investment professionals who merely sell securities and those poised to give advice, as well as the decline in companies raising capital through securities. In order to combat decreased opportunities for investors, the SEC proposes five initiatives:
(1) Access. The SEC plans to enhance its understanding of channels used by retail and institutional investors to access capital markets in order to tailor access initiatives.
(2) Diverse Guidance. Because not all investors, businesses and markets are the same, the SEC plans to enhance its outreach efforts to diverse investors.
(3) Misconduct Deterrence. With an increasingly connected market comes an increased opportunity for securities abuse, which the SEC hopes to deter, specifically singling out problems with securities custody and penny stock trading.
(4) Modernize Information Content and Delivery. Because of an increase in individuals responsible for their own investments, the SEC plans to reexamine and potentially modernize disclosure requirements and information delivery via EDGAR.
(5) Investment Opportunities. In order to expand investment options based on personal financial goals, the SEC plans to identify ways to increase long-term and cost-effective investment options.
The SEC's second enumerated goal in the 2018 Plan is fueled by the evolution of investing style. Main Street investors rely on analytics executed via algorithms on electronic platforms rather than personalized advisory services. Although new technology comes with benefits (e.g., decreased transaction costs, efficiency and fairness), it also exposes markets to risk—technology brings with it cybersecurity threats, and the interconnectivity and interdependence of international markets and traders exposes the U.S. market to foreign regulations as well as foreign entities which might wish to avoid or evade U.S. securities laws. Because of new concerns, the SEC proposes four initiatives:
(1) Market Knowledge and Oversight. The SEC plans to monitor and adapt to changing market environments.
(2) Rules Update. The SEC plans to analyze and seek feedback from the public in order to update rules that might not be functioning as intended.
(3) Cybersecurity Risks. Because of the increase in scope and severity of cyber threats, the SEC plans to focus on mitigating and managing data vulnerabilities.
(4) Emergency Preparedness. So that the SEC can appropriately respond to market emergencies, it plans to provide regular training to its personnel, who will be tested periodically.
The SEC's third enumerated goal in the 2018 Plan focuses on strengthening its human capital management program, using its technology effectively and conducting activities efficiently by implementing the following five initiatives:
(1) Diversity. The SEC plans to promote diversity, inclusion and equal opportunity among staff.
(2) Risk and Data Analytics. In order to use SEC resources most effectively, it plans to advance risk analytics and data management programs.
(3) Enforcement Programs. Because data analytics are important tools for detecting wrongdoing, the SEC plans to invest in enforcement and examination programs to aid in uncovering and prosecuting securities violations.
(4) Chief Risk Officer. By creating a new Chief Risk Officer position, the SEC hopes to further promote network security.
(5) Collaboration and Communication. The SEC plans to promote collaboration among its offices in order to improve functionality in various areas such as rule compliance and drafting.
The 2018 Plan's outline of missions, initiatives and strategic goals over the next four years was prepared in compliance with the Government Performance and Results Modernization Act of 2010. Chairman Clayton commented that the 2018 Plan is presented “in a more concise and readable format this year, which we hope will further encourage investors – particularly our Main Street investors – and market participants to share their views on how we can meet and exceed their expectations of our agency." While the 2018 Plan condensed three goals in 12 digestible pages, the SEC's 2014-2018 Strategic Plan (the “2014 Plan") included four strategic goals in a 56 page document: (1)establishing and maintaining an effective regulatory environment; (2) fostering and enforcing compliance with federal securities laws; (3) facilitating access to the information investors need to make informed investment decisions; and (4) enhancing the SEC's performance through effective alignment and management of human, information and financial capital. While the 2014 Plan elaborated on the specifics of implementation, the 2018 Plan's format is concise and simple, highlighting the SEC's awareness that its audience has shifted increasingly toward common investors and partially away from sophisticated parties.
Along the same vein, although both plans similarly emphasize diversity and efficiency within the SEC's offices and its plans to further enforcement, the 2018 Plan tackles modern concerns. Both plans emphasize equity and accessibility of palatable information among investors, but the 2018 Plan acknowledges that technological advances have changed the way that investors are processing information (as well as the needs of those investors), providing greater equity and opportunity, while also bringing challenges and risks that are pushed to the forefront of the SEC's mind—primarily cybersecurity considerations and an increase in alternative investment means, which threaten traditional markets. Relatedly, the 2018 Plan represents a shift in the enforcement priorities of the SEC from institutional investors to “Main Street" investors. For example, in the 2018 Plan, the SEC said it would center its enforcement activities on addressing misconduct that impacts retail investors, including areas like securities custody and penny stock trading. In all, the 2018 Plan is consistent with driving principles articulated by Chairman Clayton and other SEC commissioners and personnel over the last 10 months.
Formulating the revised plan was the easy part for the SEC. The much more difficult challenge for them is to see if they can deliver on these aspirational standards.
Our thanks to summer associate Mari Vila who assisted with this article.