FOR ALL the talk about deregulation under President Donald Trump, when it comes to the financial industry the word used by many is “tailoring”—meaning trimming the loose threads of tangled rules, rather than unpicking them. An exception is Hester Peirce, who in January became one of the five commissioners at the Securities and Exchange Commission (SEC), America’s most important financial regulator. Since her appointment she has given a series of speeches with a polite tone and blunt message about the downsides of government intervention.
Though she has yet to gain a large following, her words have not gone unremarked. Her “arrival at the SEC is genuinely exciting”, writes Steven Lofchie, a securities lawyer who runs a popular (within the small world of regulation) blog. It is probably the first time the word has been used in connection with the SEC in years.
Ms Peirce is not partisan, criticising both the centralising trend under President Barack Obama and structural aspects of equity markets which date from Republican administrations. A common theme is the harms of over-regulation. She cites Nobuchika Mori, until recently Japan’s top financial regulator, on the proliferation of international financial overseers. Surveying 140 projects by the Basel Committee on Banking Supervision, the International Organisation of Securities Regulators, the Financial Stability Board and the International Association of Insurance Supervisors, Mr Mori warned that “too much medicine might make the patient sick”.
Her first speech, in March, concerned the impact of a rule drafted by the Financial Stability Oversight Council, which was set up in 2009. Its aim was to improve mutual funds’ liquidity; in reality, she says, it has increased providers’ costs and requires them to produce numbers that are useless, even misleading. She is similarly critical of the “fiduciary” rule, another Obama-era regulation intended to ensure that financial advisers act in their clients’ interests. The reams of legalese required to produce an operable definition, she says, are “wonderful for marketing purposes but potentially misleading for investors”, and provide “a false sense of reassurance”.
In May she took issue with the Obama administration’s conception of the SEC as primarily an enforcement agency. That encouraged it to bring as many cases as possible—indeed to inflate their number by double-counting. The increasingly opaque structure of America’s equity markets, with their stew of dark pools and bilateral trading platforms, has also drawn her attention. In another speech she noted “the strange role that the commission plays in directing—and often determining” this structure, and asked if it had “lost its way”.
In September she took issue with the notion that governments should mandate representation of certain groups, such as women, on company boards. “Policymakers might be tempted to get this or that favoured group included,” she said, thus introducing “uncertainty and political influence into corporate operations”. And in a talk to law students at the University of Michigan, she challenged them to include in their concept of the “public interest” helping companies in the “hunt for profit”, which drives them to “meet people’s needs using as few resources as possible”.
Such positions may seem radical. In fact they would mean the SEC refocusing on its main historical role, says Mr Lofchie, namely to ensure disclosure of material facts and then to step aside. When Mr Trump took office, the SEC had only two commissioners. It now has a full complement and a mixture of views is starting to emerge. A debate about its purpose—and that of financial regulation more broadly—is overdue.
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