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US Securities and Exchange Commission

Senate Democrats Have Harsh Words for Departing SEC Chairman

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Bill Flook

The top Democrat on the Senate Banking Committee lambasted outgoing SEC Chairman Jay Clayton for implementing “one bad rule after another” during his tenure, kicking off what was most likely Clayton’s last appearance before the panel.

“As you prepare to leave the commission, you’ve changed the rules so much even you will need to relearn fundamental elements of security laws when you return to what I assume will be a lucrative private practice,” Sen. Sherrod Brown of Ohio said during the during the November 17, 2020, hearing.

Brown was among members of the party’s liberal wing who had harsh words for the outgoing SEC chief, while Republicans largely praised his record, with one GOP senator, John Kennedy of Louisiana, calling Clayton “one of the best SEC chairmen our country has ever had.”

Clayton earlier this week announced plans to step down as chairman at the end of the year after three-and-a-half years in the role, a widely expected move that sets up the incoming Joe Biden administration to name its own nominee to lead the commission.

The hearing, conducted as part of the banking panel’s oversight of financial regulators, provided one final occasion for Clayton to spar with Sen. Elizabeth Warren, a Massachusetts Democrat who, like Brown, has been vocally critical of Clayton’s deregulatory agenda. The two argued over the SEC’s climate risk disclosure regime, or lack thereof, with Warren pressing the SEC chairman on the commission’s failure to implement a standardized reporting framework for climate-related risks.

“So right now, we’ve got these huge gaps in the SEC’s disclosure rules that basically allow a company either to conceal or to downplay climate risk from investors,” Warren said, pointing to efforts by institutional investors and others to convince the SEC to mandate the disclosures.

Clayton leaned, as he has previously, on the concept of materiality as a guidepost for climate disclosures, arguing that “to the extent that climate-related risks are material to the company’s performance and prospect, they have to be disclosed.”

The SEC last issued climate guidance in 2010 in Release No. 33-9106Commission Guidance Regarding Disclosure Related to Climate Change. In the guidance, the commission said companies should inform investors about the risks they face from climate change, including lawsuits, business problems, regulatory supervision, or international treaties. The significant effects of climate change, such as severe weather, rising sea levels, loss of farmland, and the declining availability and quality of water, have the potential to affect a public company’s operations and financial results and should be disclosed.

The SEC, during the COVID-19 pandemic, has rattled off a series of rulemakings that have rankled Democrats, investors, and activist groups. Those include the July rules in Release No. 34-89372Exemptions from the Proxy Rules for Proxy Voting Advice, which impose new requirements on proxy advisory firms and the September rules in Release No. 34-89964Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8, which raise the bar for shareholders to both submit and resubmit proposals at a company’s annual meeting. Also, at the end of June, the SEC’s 2019 Regulation Best Interest (BI) went into effect, setting out a new anti-conflict-of-interest regime for broker-dealers, which remain deeply unpopular with Brown, Warren, and other Democratic lawmakers who say the rules are too weak to protect investors.

Republicans, by contrast, sent off Clayton with a round of praise. Sen. Pat Toomey of Pennsylvania, who is slated to replace Senate Banking Committee Chairman Mike Crapo in the next Congress, lauded Clayton for his “excellent work,” and said he particularly appreciates the commission’s effort to expand investment opportunities for average investors and make it easier for companies to go public.

Toomey, who does not plan to seek reelection in 2022, is expected to have a two-year stint as chairman, should Republicans maintain control of the Senate after the Georgia runoff elections in January. If Democrats take control of the chamber, Brown is expected to become chairman.


This article originally appeared in the November 18, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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