With the selection of Jay Clayton to head up the SEC, President-elect Trump has tapped a high-profile attorney with a deep résumé of representing some of the biggest firms on Wall Street and shepherding mergers, acquisitions and corporate public offerings.
What he has not chosen is a government veteran or an attorney with a long record of investor advocacy. Instead, Clayton is someone who some expect to scale back enforcement activity and unlikely to race toward major new rulemakings.
"It's certainly going to be a major departure from a generation of appointing hard-core enforcement regulators to the SEC. This is a dramatic change," says Bill Singer, a securities attorney who runs the Broke and Broker blog and doesn't anticipate that the Trump-administration commission is likely to act on issues such as establishing a uniform fiduciary standard of conduct for brokers and advisers.
"Do I expect that he's going to advance a fiduciary standard? Absolutely not," Singer says.
"We are going to see far less activism from the SEC and far more of an effort to cultivate regulatory relationships with business," he adds. "We're not going to expect anything remotely bordering on sharp-elbowed enforcement."
Clayton, a partner at the law firm Sullivan & Cromwell, has spent a career representing heavyweights such as Goldman Sachs, Barclays and Bear Stearns, which he counseled during its sale to JP Morgan at the outset of the 2007-2008 financial crisis. Clayton has also advised on the IPOs of firms such as the Chinese ecommerce giant Alibaba and Ally Financial.
Clayton's corporate pedigree is well-established, but there is little in his track record to suggest how he might approach some of the issues at the SEC that are of greatest concern for investment advisers, chief among them efforts to increase adviser exams and the uniform fiduciary standard.
"I have no idea where he stands on any of these issues," says Barbara Roper, director of investor protection at the Consumer Federation of America. "On the positive side, he obviously has deep securities law expertise, and he does not appear to have staked out a public position in opposition to important investor protection priorities."
The Trump transition team did not immediately respond to a request for comment on how the appointee could approach adviser regulation.
In response to an email to Clayton, Sullivan & Cromwell Chairman Joseph Shenker provided a statement praising the nominee as "an outstanding person and lawyer with deep public market, transactional and regulatory experience."
Quote"We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers." - President-elect Trump
In a statement announcing the selection of Clayton to head the SEC, Trump praised the nominee as "a highly talented expert on many aspects of financial and regulatory law" who "will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time."
Trump added: "We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers."
The nominee drew sharp criticism from some Democrats on Capitol Hill, including Sen. Elizabeth Warren (Mass.), who blasted Clayton's close ties to big financial firms.
"Mr. Clayton's selection is great news if you happen to run a big bank or manage a hedge fund -- but you're out of luck if you want to see tough rules on Wall Street and bankers held accountable when they break the law," Warren said in an email. "Mr. Clayton has dedicated his career to defending Wall Street firms and other big companies, and there's nothing in his track record to suggest that he'll push the SEC to stand up to those kinds of companies and protect the interests of ordinary investors."
RIAs SUBJECT OF INCREASING INTEREST
Duane Thompson, senior policy analyst at the fiduciary training firm fi360, observes that the fast-growing RIA sector has been the subject of increasing interest among securities regulators, and holds out the possibility that that focus could continue under Clayton, should he win confirmation by the Senate. Then again, he also points out that Clayton has spent his career working with firms that are far larger than the typical RIA.
"Notwithstanding the overall growth, it still remains an industry comprised of mostly small businesses," Thompson says. "It would be nice to see that segment have a voice on the commission, but it's not clear that it will be coming from Mr. Clayton, based on his résumé."
Singer amplifies that point, noting that Clayton is "somebody who works on deals that involve billions of dollars — not millions."
"I just don't think that Mr. Clayton is geared for worrying about some RIA that's doing $22 million in assets under management or even $100 million in assets under management," he says. "I don't think that's something that's within his realm of immediate concern."
More broadly, whereas outgoing SEC Chairwoman Mary Jo White, a former federal prosecutor, touted a "broken windows" policy of enforcement — indicating that no infraction would be too small to escape the commission's notice — Singer sees Clayton serving as a "counterpoint to what Trump and his colleagues view as excessive regulation by the SEC and other regulatory organizations."
Quote"We'll most likely see a wave of resignations of staff that's involved in enforcement activities, because I suspect that one of the things that Clayton is going to do is attempt to rein in prosecutions" -
"We'll most likely see a wave of resignations of staff that's involved in enforcement activities, because I suspect that one of the things that Clayton is going to do is attempt to rein in prosecutions," Singer says.