Talking With Hester Peirce; FDIC's Union Troubles; Ex-SEC Chief Jay Clayton: `Thank God for the Courts'
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The Supreme Court’s takedown of the administrative state dominated what could have been a sleepy week in Washington. We looked at how the financial regulators may fare in an era when judges no longer give deference to agencies’ interpretations of the law. And we explained what the the decision in SEC v. Jarkesy means for the SEC’s enforcement powers. Turning to a federal district court in Dallas, we checked in on the litigation seeking to overturn the FTC’s non-compete ban.
In non-court news, the FDIC has a union problem on its hands — courtesy of the chairman’s demand that employees return to the office twice a week. Nobody is quite sure why Martin Gruenberg is taking on this fight on his way out the door. Meanwhile, ex-SEC Chairman Jay Clayton was in town, and had some thoughts about his successor’s packed agenda. For our Friday interview, we sat down with a Republican SEC commissioner who’s been the loyal opposition to Gary Gensler’s aggressive rulemaking push.
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Friday Q and A: Most predicted it would be a very busy summer at the SEC, as Chair Gary Gensler worked overtime to enact as much of his to-do list as possible before the election. But the agency has been pretty quiet – unnerving market participants who have been expecting a slew of final rules in areas ranging from market structure to mutual funds to artificial intelligence.
Looking for some insight, we went over to the SEC’s headquarters earlier this week to talk with Republican Commissioner Hester Peirce. Suffice it to say, she hasn’t seen much evidence of a slowdown. A former agency staffer who has also worked on Capitol Hill, Peirce has often been the loyal opposition to the hard-charging Gensler. She’s a free-market believer who argues that the SEC has a limited, but important, role to play in oversight. Her views, usually articulated in dissents these days, have given Peirce a large – and appreciative – following in the financial world.
Read on to learn more about how Peirce sees her role as a minority commissioner and what she thinks might change at the agency if it was led by a Republican. Of course, we also asked if she was interested in the job. What follows is our (lightly edited and condensed) conversation.
Capitol Account: There’s a lot of rules still in the pipeline at the SEC, but there hasn’t been an open meeting for a while. Are things finally slowing down?
Hester Peirce: No. People have been working very hard. I don't think that's changed. There's a lot of work between open meetings…Chair Gensler still has a busy agenda.
CA: There’s an election coming up and the Congressional Review Act deadline looming. You don’t see the chair taking his foot off the gas at some point?
HP: When he's in a job, he works hard. That's going to continue…We've done a lot of rulemaking, and I think Chair Gensler is still intent on doing more. I look at his regulatory agenda as my guide, and it's pretty chock-full.
CA: What’s it like being in the minority on the commission? Can you have an impact on a rule if you’re voting against it?
HP: Hope springs eternal...One can hope that either the rule will change, or we'll re-propose, or we'll take a different course…I'm hopeful that we can change minds.
CA: Gensler recently indicated that two of his most controversial rules, one on financial advisers' use of artificial intelligence and another on safeguarding customer assets, will be re-proposed. What do you think?
HP: That kind of thing is exactly what I'm talking about…I had concerns about both at the proposing stage. We got a lot of comments, a lot of negative comments, on both. If we can take a fresh look at them, I think that's a really positive step forward.
CA: You’ve gotten a lot of attention for your dissents. Do you see that as an important part of your job?
HP: I think it's incumbent upon each of us to take a look at whatever it is, whether it's a rule or an enforcement action, and bring our own experience, our own insights, our own perspective, to thinking about these issues. That's exactly what I try to do…And if that leads me to say, I am supporting this, I want to explain to you why I'm supporting it. If it leads to me saying, no, I can't support this, I think people have a right to know why.
CA: Does it hearten you that your statements have made it into a lot of legal briefs in cases that are challenging the rules you opposed?
HP: What would hearten me is if we were more deliberate here, and thinking about what Congress has asked us to do. Can we stay within the bounds of what they've asked us to do? That would make me happy at the end of the day to see that.
CA: Business is now much more likely to sue to overturn rules. What do you think of the trend?
HP: If you do the rulemaking process right, you really use the notice and comment…You take into account what people say. You go back to the drawing board, when you need to do that. I think you can be in a place where litigation isn't always forthcoming. That said, the stakes are high on a lot of these rulemakings, the costs are really high. It's not surprising to me that people think about litigation.
CA: Lawmakers can’t seem to pass a crypto bill. What should the SEC do?
HP: The reality is that we're designing the policy through an enforcement process, which is not a good way to do it. There are things that we could have done using the authority we already have, that I think would be within our remit that Congress gave us.
CA: Anything in particular?
HP: Draw some lines. Tell people this kind of stuff is going to be securities activity, this stuff isn't. Trying to just use the Howey test to gobble up as much jurisdiction as possible – it's not really a very effective approach. I think that's why Congress is looking over here and thinking, `Ok, we’ve got to get involved here and bring some order to this.’
CA: The Howey test is laid out in a 1946 Supreme Court case. Is that appropriate for a new technology like digital assets?
HP: It's right for some of them. We have to apply Howey consistently in crypto and in other areas, and we've been very aggressive with how we've applied it in crypto. Query whether if we did that in other areas, we'd be pulling in lots of things to regulate that might make people uncomfortable. It's a good moment for us and Congress and others to rethink. Is there a better way to think about investment contracts?…(Friday)
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Union Trouble: Add labor unrest to the long list of workplace troubles that Gruenberg is grappling with at the FDIC. His latest dustup with the National Treasury Employees Union, no surprise, involves getting staff back to the office. But in a sign of how far relations have soured, the chairman is coming under fire for a new plan that calls for less face time than he initially demanded.
While it might not seem as pressing as, say, fixing the pervasive harassment and bullying problems that forced him to tender his resignation, Gruenberg has been on a mission to bring workers back to the office. Last June, he touched off a mini-rebellion by setting a requirement of three days a week (pretty aggressive by government standards). The policy was set to begin Jan. 1, but was pushed back after the union mobilized against it and the toxic work environment scandal erupted.
The chairman’s office revived the order last Friday – with a few significant changes. Employees will now need to show up two days per week. And they will only have to be in the building at managers’ request during the “core hours” of 9:30 a.m. to 2:30 p.m. The directive goes into effect July 15.
Still, if Gruenberg was trying to make concessions, the union sure didn’t see it that way. In an interview, Steve Keller, a lawyer for the NTEU, says that an unfair labor practices complaint will be filed if the “illegal” dictate stands. The FDIC “pulled the rug out” from its employees, he stresses. “You can’t change things without bargaining with the union.”
Much of the ire stems from a separate (though related) fight over telework. As part of the effort to get staff into the office, the FDIC also re-opened a broader agreement that had been set by Gruenberg’s Republican predecessor. It allowed people to choose to work almost entirely from home – and some 80 percent of employees at FDIC headquarters opted for that arrangement after the deal was struck in 2022.
Unhappy with the agency’s decision to revisit the telework accord, the NTEU has been fighting back and the matter is now caught up in the byzantine government process for resolving labor disputes. The two sides were supposed to appear at a hearing on Monday before the Federal Service Impasses Panel, a body that has the authority to issue non-appealable decisions once bargaining reaches a stalemate.
The panel had agreed to issue its ruling before the July 15 return-to-office date. However, in a move NTEU President Doreen Greenwald called “the very definition of bad faith bargaining,” the FDIC pulled out last week.
“This step shows a lack of respect for the statutory process and FDIC employees,” Greenwald said in a statement. “The FDIC has much work to do in regaining the trust of its workforce and ignoring the bargaining process and illegally imposing new telework requirements will make that a much more difficult process.”
The union is now asking the impasses panel to force the agency back to the table – but it’s unclear whether it still has jurisdiction. A spokesman said it postponed the hearing “to review a change in circumstances.”
The FDIC declined to comment…(Wednesday)
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Speaking Out: Former SEC Chairman Clayton headlined an event this morning at the U.S. Chamber of Commerce that focused on how to “restore confidence” in the SEC’s rulemaking process. But the well-attended gathering also served as a bit of a preview of what financial regulation might look like if Donald Trump takes back the White House. And of course, there was a lot of talk about Gary Gensler’s packed agenda.
Clayton didn’t mention his successor by name but allowed that he was “very concerned” about the political bent of regulation over the past few years. “Thank God for the courts,” he said at one point, adding “I love Chief Justice [John] Roberts.”
The Roberts Supreme Court has “shed light” on one of the key issues today, Clayton noted: “Is Congress abdicating its responsibility out to an uncountable administrative state, and should that be reined in?” And the answer, he underscored, was self-evident. “I don’t know anybody who could look at the facts and say, ‘Oh, no, no, this is what our founders intended when they set up our three branches of government.’”
Clayton, of course, was preaching to the choir. The crowd of lawyers, financial lobbyists and trade association executives seemed to be on board with his assessment that the SEC should stick to the areas it knows best like markets and disclosure and leave matters like climate change in the hands of lawmakers. (The chamber is one of a number of groups that have sued to overturn the agency’s climate rule.)
The ex-chairman, who served under Trump and is thought to be in the mix for a top administration job if the former president wins in November, also indicated that he would be more than willing to come back to Washington. “Maybe a future president won’t want me, or a future Senate won’t want me,” he mused at one point as he explained his regulatory view as “stay in your lane.”
Clayton, who is now of counsel at Sullivan & Cromwell and the independent chair of the private equity firm Apollo Global Management, took a few thinly veiled shots at Gensler. For instance, he called the current chair’s stock buyback rule (which the chamber successfully sued to vacate) “something that was politically demanded.”
He also blasted critics on the left who have argued that the repurchases can harm long-term investors. “The greatest investor of our lifetime, Warren Buffett, tells people it is the most efficient way to return capital to shareholders,” Clayton stressed, noting that buybacks have been “a method that he has employed to the benefit of Berkshire Hathaway shareholders for 30 years – with incredible returns.”
Alluding to one of the industry’s biggest concerns about the Gensler SEC, Clayton bemoaned what he called a shift to “an adversarial, zealous” approach to oversight and rulemaking. “You’re not dealing with a car dealer where it’s haggling back and forth because it is the only time you’ll ever see each other,” he said. “Administrative agencies and the entities they regulate have an ongoing relationship, and to be effective it has to be a relationship of candor and respect. It cannot be a relationship of gotcha.”…(Tuesday)
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