The Symbols of Government, SEC Edition

SEC Commissioner Kara Stein “played an integral role in drafting and negotiating significant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.” She was Staff Director for the Senate Banking Subcommittee of primary jurisdiction over the SEC. She’s a very well-respected professional with extraordinary experience in the law of financial regulation. And here’s what she had to say today on the SEC’s 3-2 vote to “overturn the automatic disqualification of Royal Bank of Scotland Group from eligibility as a “Well-Known Seasoned Issuer:””

Among the many disqualification and bad actor provisions enacted by Congress and the Commission, loss of WKSI status may have the fewest ramifications. Nevertheless, when, as here, a subsidiary of a large financial institution is convicted for committing a crime that helped skew the value of trillions of dollars’ worth of financial instruments and contracts worldwide, we still grant relief. Say what you will about how isolated or insignificant this conduct was within the context of the entire institution, it still managed to wreak havoc on financial markets across the globe. Yet we provide our implicit “Good Housekeeping Seal of Approval,” and tell the investing public that this issuer is still deserving of reduced Commission review and subject to fewer investor protections.

If we are going to abrogate our own automatic disqualification provision on these facts, then we should consider discarding these disqualification and bad actor provisions entirely, along with the pretense that they have any real meaning.

Various agencies in American history have slipped into “vestigial” status. The ICC, for instance, had little reason for being after shifts in policy reduced its regulatory role. One has to wonder how much “Seals of Approval” from the SEC are worth if they can persist in cases like this.

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