RI Interview: New SEC Commissioner Hester Peirce (Part 1)

The securities regulator discusses capital formation, Dodd-Frank reform and the potential for regulatory harmony

Hester Peirce was sworn in a Commissioner of the Securities and Exchange Commission (SEC) in January this year and her term ends in 2020. She is a former staffer at the US Senate Committee on Banking, Housing, and Urban Affairs and the SEC. This is the first of a two-part series; the second part will cover MiFID, the rising secondary market in private share sales and blockchain.

I began by asking Commissioner Peirce about her priorities as an SEC Commissioner. “The priorities are dictated by events at the SEC, so if something major occurs it can push them in a different direction.
“That said, I share the Chairman’s interest in capital formation and looking at ways in which we can make it easier for companies to go public and remain public and looking for ways in which we can expand possibilities for investors to participate in initial public offerings. I’m also very interested in making the SEC more responsive to the needs of individual investors,” she continued.
“We are also not done with Dodd-Frank rulemaking, and I’m specifically focused on moving the derivative rules forward in a way that takes into account how markets work and how other regulators have approached these markets. Other areas of interest for me are some of the bread-and-butter things that have not received a lot of attention – because there have been so many mandates, from Dodd-Frank – such as transfer agents and market structure.”
Peirce was last at the SEC, as a staff member, in 2008. I asked her how the agency had changed since she left? “Under Chairman Clayton there’s a real enthusiasm at the agency. He takes a really practical approach to running the agency and has brought a very helpful perspective. He’s had a long legal career working with companies, so he understands where companies are coming from and the challenges that they are facing in trying to raise capital. That, to me, is really helpful. His focus on retail investors has also been very positive. He believes in having a strong enforcement programme, but also in taking a look at the rules to make sure the rulebook makes sense. He’s also shown leadership in determining whether our cyber defenses are strong enough.”
I conducted the interview only a few days after Congress had approved rolling back some of the Dodd-Frank regulations governing small and medium-sized banks. While in Washington, Peirce worked closely with Sen. Shelby, then the chair of the Senate Banking Committee, on implementing some of those regulations. I asked if she viewed the rollbacks positively. “When I was on the Hill, and the Democrats were adopting Dodd-Frank, we pointed out areas where there could be unintended consequences. They said: ‘Don’t worry, we will do a technical amendment’.Eight years later, there have been no Dodd-Frank reforms. Everyone knew that it would have to be amended, so the fact that it’s being amended now is not a surprise. One of the areas of focus has been small banks, and worrying how small banks are functioning under regulatory burdens. So it wasn’t a surprise that reforms were designed to make it easier for small community banks to provide services in their communities. I also wouldn’t be surprised if there are additional changes in the future. Many, including Democrats, have been generally supportive of many of the rollbacks that were implemented.”

“We recognise the value of one another’s regulatory regimes”

I said that there were still concerns that some of the rollbacks went too far, especially those medium-sized banks that are still large enough to be an issue if something happened to them, nearly-too-big-to-fail banks, so I asked how she viewed the reforms of the top end of that asset bracket? “In general, I think Dodd-Frank took a very dangerous approach to regulation, namely trying to concentrate decision-making in Washington, as opposed to in financial institutions. And not only concentrate decision-making but also concentrate the responsibility when losses occur, that again Washington would rush in to the rescue. That, from my perspective, is opposite to what we should be doing. One thing I like about the capital markets is that decisions are made and you are rewarded if they work, and, if they don’t work, you are out of business.”
In late May, Peirce made a speech at the 2018 Symposium on Building the Financial System of the Twenty-first Century, in which she said that the world did not need cross-border regulatory uniformity but that some areas would benefit from harmonisation. I asked what areas those would be? “On derivatives regulation, for example, it’s not that harmonisation is the answer but that we recognise the value of one another’s regulatory regimes, that our regimes are trying to achieve the same objective.

“These markets are not isolated to one country, so you want to have a framework that enables companies to do business wherever it’s best for them and their customers, as opposed to only thinking about regulatory structure when they decide where to do business. I want a system where regulators can work together as productively as possible.” Are there any other areas that might benefit from regulatory understanding? “I think it’s useful for us to be talking to each other about lots of different areas of regulation. Accounting is another area where we need to understand each other’s approaches. There is a lot of attention on cryptocurrencies, and ICOs [initial coin offerings], and I think it’s helpful for us to understand one another’s approaches in that area as well. We don’t have to be uniform, but we should understand.”