It won’t likely come as big news to Elisse Walter, the new interim head of the Securities and Exchange Commission (SEC) who is replacing Mary Schapiro, that the securities industry will be significantly transformed in 2013. For Walter, it’s going to be a continuing baptism by fire.
The transformation will be more decisive, perhaps, than anything we’ve seen during the last four turbulent years, in large part because of the Dodd-Frank rule-making and implementation that now confront the SEC. As Christopher Garcia observes, there are an “obscene” number of rules yet to be proposed, finalized, and implemented – hundreds of them, with many having potentially significant implications for the banks. The Volcker Rule is only the most obvious example, adds Garcia, a partner at Weil, Gotshal & Manges, LLP.
No doubt this looming sea change, along with the high drama of the post-2008 era, prompted a more focused evaluation of Schapiro than typically greeted her predecessors upon their departures. Indeed, there has been a penchant among the pundits to focus on the shortcomings of Schapiro’s tenure; on the Commission’s failure to address and solve the systemic problems that were exacerbated by the economic crisis.
Much of that criticism could not, in fact, be more shortsighted.
The litany of criticism ranges from policy to enforcement. The Commission on Schapiro’s watch was blamed for failing to address the dangers of High Frequency Trading and under-regulated Money Market Mutual Funds. Even now, as critics begrudgingly admit that Schapiro tightened the rules on those funds in 2010, they complain that the impact of the reform has been eroded by industry lobbyists. The pernicious influence of money and power in Washington, DC? Blame that on Schapiro too.
Frankly, it’s all a little like criticizing Roosevelt because he did not end the Great Depression in his first term nor achieve real prosperity until the war boom. In the same way, the jaundiced assessment of Schapiro lacks historical perspective. Interestingly, it’s the lawyers working closely with the SEC in recent years who have apparently maintained the more enlightened perspective and done Schapiro the most justice – on and off the record – in their comments on her star performance.
In fact, she probably saved the SEC or, at least as Garcia says, “steered it through its most dangerous period.” One lawyer reminds us that the full-impact of the SEC’s whistleblower program won’t be felt until 2013, and that the success of those dramatic incentives will then be proven. Yet that’s only one initiative. In 2011, the Commission set a new agency record for enforcement actions (735) and collected $2.8 billion in penalties. And, at a time of obsessive budgetary constraints, Schapiro played her political cards to secure ample funding from Congress.
Again, though, 2013 is the year the rubber meets the proverbial road and, to extend our historical metaphor, Walter will play Truman to Schapiro’s Roosevelt. The Dodd-Frank rulemaking is the most important challenge but a host of other issues are also decisive. Flash crashes will naturally be a hot-button topic. Also “of particular interest will be how the SEC deals with the loosening of the historical restrictions on general solicitation and advertising under Rule 506 of Regulation D as well as the implementation of exemptions for crowdfunding,” says Robert Steinberg,” a partner at Jeffer Mangels Butler & Mitchell LLP.
“From a political perspective,” adds Steinberg, “the Commission will have to deal with the possibility of a 2-2 deadlock between the current Republican and Democratic Commissioners until the Obama administration can name another to the Commission.”
That’s not the only political issue brewing. The SEC must grapple with some stiff inter-agency competition as the Consumer Financial Protection Bureau (CFPB) and the U.S. Commodity Futures Trading Commission (CFTC) both expand their Inside-the-Beltway profiles. That gauntlet has already been thrown down. As one Schapiro detractor wrote, the SEC’s “finalizing…the Dodd-Frank derivatives provisions was painfully slow, in stark contrast with the dynamism of the CFTC under Gary Gensler, which had far broader derivatives jurisdiction to deal with.”
Given all these exigencies, it is painfully obvious that the choice to replace Schapiro is crucial. Here, many of the same lawyers who praise Schapiro for salvaging the SEC from obsolescence are likewise keen in their support for Walter.
“She makes a lot of sense as a successor as there will not be a lot of getting up to speed necessary, given her experience, not only as a Commissioner of the SEC, but also as a senior executive at FINRA and on the SEC staff,” says Thomas McGonigle, chairman of the SEC Enforcement Practice Group at Murphy & McGonigle.
Yet the new SEC chairman will need a particularly rare combination of distinct leadership skills. First, the job will require tireless managerial oversight of the many daunting and multifaceted tasks at hand, especially the Dodd-Frank rule-making. As Dennis Kelleher, President and CEO of Better Markets, advises, the chairman “must [also] get serious about regulating high-frequency trading, payment for order flows, abusive practices, consolidated audit trails, and market transparency."
Second, the job will require vision, the kind of vision that sees beyond the multiple crises of the day to a higher purpose; namely, the enactment of an agenda that tightly regulates a marketplace demonstrably in need of aggressive regulation – even as it encourages investment, growth, and job-creation.
Tall order. It’s our guess that, by December 31, 2013, Walter may be in for some of the same kind of criticism that has faced Schapiro. And it will probably be just as unfair.
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Richard Levick, Esq., President and CEO of LEVICK, represents countries and companies in the highest-stakes global communications matters — from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church. Mr. Levick was honored for the past four years on NACD Directorship’s list of “The 100 Most Influential People in the Boardroom,” and has been named to multiple professional Halls of Fame for lifetime achievement. He is the co-author of three books, including The Communicators: Leadership in the Age of Crisis, and is a regular commentator on television, in print, and on the most widely read business blogs.
