The SEC's Strategic Blueprint for 2022-2026: A Summary and Perspective
The SEC announced its proposed strategic blueprint for the period of 2022-2026 on August 24, 2022, and invited the public to comment on the proposal. The plan reveals three primary objectives: (i) safeguarding working families from fraud, manipulation, and misconduct; (ii) devising and enforcing a comprehensive regulatory system that stays current with dynamic markets, business structures, and technology; and (iii) fostering a competent, diverse, equitable, and inclusive workforce to drive agency goals.
To accomplish these objectives, the SEC plans to harness market and industry data to deter, detect, and bring to justice illicit conduct. They are also focusing on the modernization of investor disclosures' design, delivery, and content to provide investors with consistent, comparable, and material information to guide their investment decisions.
Despite their broad nature, these declarations make it apparent that the SEC's focus has shifted from its last plan, published in 2018. Previously, the primary goals were: (i) prioritizing the long-term interests of Main Street investors; (ii) adapting to significant changes and trends in developing capital markets and optimizing resource allocation; and (iii) enhancing the SEC’s performance through improved analytical capabilities and human-capital development.
Beginning with a comprehensive introduction about the SEC, the Strategic Plan sheds light on the Commission's unchanging mission to protect investors, ensure fair, orderly, and efficient markets, and encourage capital formation. The Strategic Plan also highlights how the SEC:
Engages with the investing public via various means, such as investor roundtables, education programs, and SEC.gov alerts; Oversees an annual trading volume of approximately $118 trillion in U.S. equity markets, $2.8 trillion in exchange-traded equity options, and $237 trillion in the fixed income markets; Reviews the disclosures and financial statements of about 5,248 exchange-listed public companies with a total market capitalization of $51 trillion; Supervises the activities of over 29,000 registered entities, including investment advisers, mutual funds, exchange-traded funds, broker-dealers, and transfer agents, who collectively employ at least 1 million individuals in the U.S.; Oversees 24 national securities exchanges, 9 credit rating agencies, 7 active registered clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), and the Financial Accounting Standards Board (FASB); and Offers crucial market information via technology systems, like the more than 70 million pages of documents available on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The SEC's Strategic Plan sets out the following goals, along with an action plan for each:
Protection of working families against fraud, manipulation, and misconduct:
In its commitment to shield families from fraud, manipulation, and misconduct, the SEC is focusing on enforcement, continuing a trend from the past two years. The strategic plan refers to actions regarding deceptive conduct by registered or private funds, offering or accounting frauds, insider trading, market manipulation, failures to safeguard retail customers' best interests, reporting violations, best execution, and fiduciary duty violations.
While a wide variety of actions can be pursued, the SEC's emphasis lies on misconduct impacting individual investors. Part of the mission includes examining "the economic realities of a given product or arrangement to ascertain its compliance with securities laws." While the plan does not specify cryptocurrency, the statement implies it as a potential target.
The SEC's fundamental goals in these actions are accountability and deterrence. We have undoubtedly seen a surge in deterrence-focused enforcement actions and their resolutions. These deterrence-based actions complement the concept of regulation by enforcement, a topic that has been attracting increased attention under the current SEC administration.
As has been the case for years and through multiple administrations, the evolution of technology demands that the SEC stay abreast of modern markets and tech-driven schemes. The SEC maintains its continuous endeavor to optimally utilize technology and data analytics to supervise markets, foster competition, and enforce laws.
The strategic plan underscores the need to enhance the SEC’s systemic risk detection capabilities. Systemic risk pertains to actual market operations. Strategies to execute this include expanding disclosure and analytical tools, increasing the use of machine learning and artificial intelligence, developing long-term risk analysis tied directly to policy development, and focusing on more strategic and cooperative analysis across all regulated activities.
Finally, to further its goal of protecting families from fraud, the SEC plans to continue revising public disclosure obligations. In this context, the strategic plan cites the contentious climate risk disclosure rules, cybersecurity policy disclosures (to be discussed in a future blog), and human capital disclosures.
Developing and implementing a robust regulatory framework that keeps pace with evolving markets, business models, and technologies:
Innovation and technology pose challenges to the SEC, particularly regarding cybersecurity risks and the interconnectedness of international markets operating round-the-clock. To achieve its goal of keeping regulation up to speed with the markets, the SEC plans to devise regulations to boost transparency over private markets. Notably, FinCEN has already introduced beneficial ownership reporting requirements for certain private market participants. Additionally, the SEC plans to collaborate with international regulators to expand supervisory responsibilities, including data flow.
Per the Strategic Plan, the SEC intends to explore strategies to address the systemic and infrastructure risks faced by capital markets and its participants, including those associated with digital assets and cryptocurrencies. Accordingly, the SEC will continue lobbying Congress for expanded regulatory authority on this subject. The SEC will also enhance its outreach programs for input from market participants on novel and changing products including crypto, derivatives, and fixed-income instruments.
Supporting a skilled workforce that is diverse, equitable, inclusive, and is fully equipped to advance agency objectives:
The final objective in the Strategic Plan is to support a skilled, diverse, equitable, and inclusive workforce to drive agency goals. To achieve these objectives, the SEC will focus on recruitment, training, and retention of staff. This will involve updating workforce policies and practices. Moreover, the SEC plans to encourage collaboration within and across its various offices, including through staff rotation and telework programs. Lastly, as with other goals, the SEC plans to leverage technology, including software and security program upgrades, to enhance workforce efficiency.