Biden has stated his intentions to foster a regulatory regime that will “promote the public interest,” which could bring new rules and guidance on climate-related investments and social equality, experts said.
Meanwhile, Gary Gensler, Biden’s nominee to head up the U.S. Securities and Exchange Commission, is expected to bring the same “no-nonsense” approach he brought as chairman of the Commodity Futures Trading Commission.
“Compliance departments will need to step it up and be proactive, making sure not only that their policies and procedures are in place but that employees are adequately trained on those requirements,” said Elizabeth Lan Davis, a Murphy & McGonigle partner and former chief trial attorney in the CFTC’s enforcement unit under Gensler who called him a “no-nonsense force of nature.”
The SEC and other top regulators will likely bring higher fines against public companies and Wall Street firms, a greater emphasis on individual accountability, and more money returned to harmed investors in the way of remediations and disgorgement, experts said. A shift from the principles-based rulemaking agenda championed under former SEC Chairman Jay Clayton to a more prescriptive one under Gensler is also likely, noted John Lukan, a managing director with New York City-based SEC Compliance Consultants Inc., or SEC3.
“We could go back to a system that involves more dotting of the I’s and crossing of the T’s,” Lukan said.
As the pressure on the industry heats up, experts recommend that compliance departments across banks, brokerages and investment advisers bolster resources, staff up where possible, and review policies and procedures to make sure they are thorough and being followed.
“Look at written policies and procedures and review them against actual firm functions within operations,” urged Amy Lynch, a former SEC examiner and founder of FrontLine Compliance, a regulatory consultancy.
“Chairman Gensler will be very busy because he’s inheriting an agency that has been in limbo for the past four years and not able to fulfill their goals,” Lynch added, noting that the prior administration had taken a largely “deregulatory” approach.
Firms should also make sure their disclosures are accurate while considering the creation of new disclosures on climate-related investments in line with Biden’s policies, experts told Law360.
“Firms may want to start showing they are being more proactive in this area,” said Lukan, of SEC3. “You have to look critically at your branding, marketing materials and other disclosures and be sure those aren’t being interpreted in a way that you didn’t intend.”
Biden’s day-one order for “modernizing regulatory review” called on the Office of Management and Budget to craft a new set of regulatory recommendations that “promote the public interest,” addressing issues such as public health, racial justice and climate change.
Lynch said she believes that fair staffing procedures will become particularly important, noting that “firms should begin to check what the numbers look like from a staffing perspective as it relates to women and minorities.” That could require more coordination between compliance and HR departments, she noted.
Fair lending is another area that will likely see increased scrutiny in line with Biden’s agenda to promote racial equality, said Rachel Rodman, a Cadwalader Wickersham & Taft LLP partner who focuses on consumer protection issues and a former senior counsel in the Consumer Financial Protection Bureau.
“This was very much deemphasized in the prior administration,” Rodman said of the CFPB under Trump. “The Biden administration has made it a priority to address racial inequity and I expect the agency to be much more forward-leaning.”
Investor protection advocates hope that the stronger regulatory stance under Biden and Gensler will force the compliance changes that are needed to prevent some of the gravest abuses on Wall Street.
Stephen Hall, legal director and securities specialist at Better Markets, said the organization is “optimistic” that the new chairman will push three main areas to protect against Wall Street abuses: higher monetary sanctions, more disqualifications of firms and individuals, and individual accountability of executives and upper management.
Hall, a former senior trial attorney and associate director in the CFTC’s enforcement unit, called compliance “key to avoiding or mitigating the need for enforcement,” but said upper management has often failed to offer the proper support to compliance teams and their chief compliance officers.
“In many cases, senior management marginalizes the role of CCOs, fails to give them the resources and the authority they need to do their jobs, and even scapegoats them,” he said. “Leadership needs to make sure compliance officers are independent and are not just largely ignored officers, because they really can make a difference.”
“But if you don’t have a meaningful threat from enforcement, you’re not going to get the type of response from compliance that you really need,” he added.
–Editing by Emily Kokoll and Alanna Weissman.
