SEC Strategic Plan Aligns Closely with the Industry

Just last week, the SEC published a new strategic plan covering 2018-2022. It’s focused on making the agency more effective in an ever-evolving market and provides an effective roadmap to areas of regulatory focus in US asset management for the foreseeable future.

With a fully functioning five-person commission, four years to carry out the plan, and three lofty policy goals to advance, the Securities and Exchange Commission (SEC) has plenty to occupy itself between now and 2022. While the strategic plan doesn’t contain any surprises, the industry was pleased to see all three initiatives align closely with the business plans or strategic planning documents of the asset management firms it regulates. The three common themes are:

  1. Investor experience
  2. Harnessing technology
  3. Talent acquisition and retention

Whether a regulator or the regulated, in the asset management industry we are all dealing with the same challenges and trying to grasp the same opportunities. It’s just a question of perspective.

Goal 1: Focus on the long-term interests of Main Street investors.

Increasingly, US investors have more personal responsibility for investing to fund their own retirements through 401k accounts than previous generations. Fewer companies offer pensions, making that retirement funding tougher to come by. Additionally, as people live longer, those retirement savings are stretched over longer periods of time. It’s also becoming increasingly difficult for Main Street investors to invest in early stage companies, as the trend is for newer companies to source financing from the private debt and equity markets rather than raise capital from the public securities market as they once did.

Now, the SEC is targeting five specific initiatives aimed at boosting retail investor education in hopes of increasing their participation in the US investment markets.

  • Understand better how retail investors access the US capital markets
  • Engage better with retail investors and small businesses on guidance and consultations
  • Dedicate more resources to examine and enforce actions against misconduct and fraudulent activity which harms retail investors
  • Use technology to make information easier to find and understand for retail investors
  • Assess how to reinvigorate capital formation in the public securities market which has shifted toward large institutions in the private markets

Goal 2: “Recognize significant developments and trends in our evolving capital markets and adjust our efforts to ensure we are effectively allocating our resources.

The SEC goals acknowledge that technology trends and advancements are having discernible impacts on the US markets and that the commission must make necessary adjustments themselves to ensure they remain effective. Global regulators are trying to keep up with technology as it changes financial activities, business models, and emergent threats. They outlined:

  • Cyber security risk has never been higher
  • Usage of data analytics, algorithms, and robo-advice over human advice is increasing
  • Initial Coin Offerings need rules and a framework in which to operate
  • Increased knowledge of these evolving areas is required to regulate effectively
  • Revisit existing regulations to ensure they remain fit for purpose and address innovations since initial rulemaking

Goal 3: Elevate the SEC’s performance by enhancing analytical capabilities and human capital development.

The SEC does not exist in a vacuum and is impacted by the same market forces and shifts as the entities it oversees. As such, the SEC must similarly react to organizational challenges and opportunities. The report addresses issues such as big data, technology and required skills, and diversity of its workforce. Issues most firms regardless of industry are currently working on.

  • Workforce diversity, inclusion, and equality – attracting and retaining the best and brightest talent is not easy
  • Data governance and the use of data analytics to improve operational efficiency
  • Greater use of data and technology tools for examinations and enforcement actions
  • Commit to adding cybersecurity resources including a new Chief Risk Officer