SEC Chairwoman Mary Jo White has failed to protect investors, senators said during recent contentious and accusatory Senate Banking Committee testimony.
"Your job is to look out for investors," Sen. Elizabeth Warren, D-Mass., said, "but you have put the interests of the Chamber of Commerce and their big business members at the top of your priority list. A year ago, I called your leadership at the SEC extremely disappointing. Today I am more disappointed than ever."
In one of her sharpest responses during their exchange, White retorted, "I'm disappointed with your disappointment and could not disagree more with your characterization of what we are trying to do."
Several senators, including Warren, questioned why White has not moved forward on 20 mandatory rules that the Dodd-Frank Wall Street reform legislation directed the SEC to put in place six years ago.
They also pressed her on the commission's failure to adopt its own fiduciary rule that would require brokers and advisers to put their clients’ financial interests before their own. And they asked why her agency has not required public corporations to disclose when they are using money for political purposes, among other issues.
In her opening remarks, White said the commission has adopted 66 rules mandated by Dodd-Frank, "the majority since I became chair." She later described these accomplishments as "a historic level of regulatory activity of great complexity."
"I'm highly committed, deeply committed to getting the congressional mandates … done as promptly as I can," White said.
However, that avowal and the commission's track record thus far failed to tamp down much of the ensuing criticism.
'SEC HAS FAILED THE PUBLIC'
One of the "most egregious" practices leading up to the Great Recession, Sen. Jeff Merkley, D-Ore., said, came when firms sold securities and bet against them at the same time – a practice that continues today.
"Here we are six years later," Merkely told White. "We don't even have a draft rule. Why not?"
The amount of work involved has been unwieldy, White said.
"It's proved to be much complicated than certainly our experts in the agency envisioned," White responded.
Merkley expressed dissatisfaction with her response. While Wall Street "desperately wants this legislation never to happen," consumers do not buy the explanation that reining in this practice is too complex, he said.
"The SEC has failed the public on this issue and allowed this type of conflict of interest practice to continue, and I think it's absolutely unacceptable," he said.
Instead of working on critical investor protections, the SEC has devoted years to its disclosure effectiveness review program to determine if investors are suffering from "information overload" from too much disclosure, Warren said.
Warren repeatedly asked what evidence the SEC has that investors are being overloaded with information.
'FACT-FREE' WHINING REPORT
The issue is one that the commission has been examining "for decades," White said, adding that the review “is meant to make disclosure more meaningful to investors.”
Yet only corporations, not investors, want less disclosure, Warren said. The Chamber of Commerce "produced a fact-free report whining about this nonexistent information overload problem in 2014 shortly after you launched your initiative."
To the contrary, several senators expressed support for the SEC taking a hands-off approach to Wall Street. Committee Chairman Sen. Richard Shelby, R-Ala., opened the hearing by warning about detrimental effects of unnecessary regulation on U.S. financial markets and cited the Department of Labor's new fiduciary rule, released in April, as an example.
Sen. Jon Tester, D-Mont., struck a conciliatory tone, saying he believed the commission would have accomplished much more were it not so severely underfunded, a point with which White seemed to agree.
"The SEC is a significantly under-resourced agency," White said. "We are so outspent on the IT side by the people we regulate."
'I CAN'T GIVE YOU THAT COMMITMENT'
Tester asked if the commission would be able to finish its own fiduciary rule before the Obama administration’s tenure ends.
"I'm committed to moving it as fast and as well as I can, but I can't give you that commitment, no," said White, who repeatedly emphasized that while she strongly backs such a standard she is just one vote among the agency's three commissioners. "It's a longer route than that."
SEC MUST NOT 'UNDERCUT' DOL
At this particular point in time, it's not necessarily a bad thing that the SEC hasn't acted on its own fiduciary rule, Barbara Roper, director of investor protection at the Consumer Federation of America, said in an interview following the committee meetings.
The industry has pushed the SEC to get out in front of the Labor Department on the fiduciary issue, believing that the commission would produce a weaker standard.
This "wouldn’t be a good thing for investors," Roper said. She added, "Our first priority at the moment is that the SEC do nothing that would undercut the strong rule adopted by the DoL."
Roper also said her organization believes the commission has been misguided in focusing its resources on disclosure rather than more important matters.
Fiduciary protection for investors "is at the top of a long list of retail investor protection priorities that have gotten no attention at the SEC in this administration," Roper says. "I think we and Senator Warren and others share a broader frustration over what looks to us like the commission’s misplaced priorities."
An SEC spokeswoman countered that, "Chair White has moved a number of transformative rules through the commission that have significantly strengthened investor protections and critical aspects of the market, including restructuring money market funds, building a new regime for the asset management industry, and enhancing the governance and operations of credit ratings agencies and asset-backed securities."