The Securities and Exchange Commission has "lost its way" by focusing too much time on Dodd-Frank mandated rules, Commissioner Daniel Gallagher said in a recent speech, and instead should be focusing on issues related to the agency's core mission, such as changes to the fixed-income markets and capital formation for small businesses under the JOBS Act.
"The incredible burden imposed on the Commission by Congress through the Dodd-Frank Act has handcuffed and politicized what is supposed to be — indeed, must be — an independent agency," Gallagher, a Republican, said during an Oct. 24 speech to the Los Angeles County Bar Association titled "The Importance of the SEC's Rulemaking Agenda — You Are What You Prioritize."
"Rather than tending our regulatory garden, so to speak, by focusing on policy issues that are core to our mission, the Commission has spent much, if not most, of its time and resources for nearly half a decade shoveling manure, in some cases for no discernable purpose whatsoever," Gallagher said. "Even after all this effort, of the 100 rulemakings mandated to the SEC by Dodd-Frank, we still have more than half left to finalize."
The Commission, Gallagher said, "is at a precipice, teetering on the edge of irrelevancy as we devote a wildly disproportionate amount of resources to implementing an agenda that is no less political than other, more widely discussed pieces of single-party legislation."
Gallagher said that he "often" tells people that the SEC won "the Dodd-Frank 'booby prize,' and we are still paying the price over four years later." The financial reform law is "packed with roughly 400 mandated rulemakings and studies for the federal regulatory agencies, with approximately 100 assigned to the SEC — far and away the most of any of the agencies involved," he said.
Meanwhile, the fixed income markets need the SEC's "immediate attention," Gallagher said. Two areas of the debt markets, he said, "should concern us all."
First, "the heavy exposure of retail investors to products and trading practices that are little understood by and all too opaque to the average investor," including asset-backed securities, where there is approximately $11.3 trillion of debt outstanding in the corporate bond markets.
Approximately 45% of that, he continued, "is held by retail customers, and nearly a quarter of that is held directly. Retail participation is even more pronounced in the municipal debt markets, where nearly 75% of the $3.7 trillion in outstanding debt is held by retail investors."
Those numbers "should be a wake-up call to us all that such a staggering percentage of our fixed-income markets rests in the hands of ordinary investors who often do not understand the product they hold or the accompanying risks, including the devastating effect an inevitable interest rate hike could have on their investment."
