By David DiMolfetta
Analysts expect that various American financial regulatory bodies, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Department of Justice (DOJ), and Consumer Financial Protection Bureau (CFPB), will continue enacting standard procedure in regulating American financial activities amid a new presidential administration. However, they anticipate novel developments in cryptocurrency and environmental, social, and governance (ESG) matters.
Speaking at a March 16 webinar hosted by Patomak Global Partners, a financial services consultancy headquartered in Washington, DC., the analysts from both economic and legal backgrounds conversed on the financial services regulatory and enforcement outlook in 2021 and beyond.
“The SEC has a very broad landscape that it’s required to cover, and it covers that landscape regardless of who’s sitting in the chair’s office,” said Steven Peikin, a partner at Sullivan & Cromwell, when asked by Patomak CEO Paul Atkins about new enforcement trends within the agency.
“Under Chairman Clayton, there was a focus on retail investor protection and a lot of attention paid to digital assets and initial coin offerings,” Peikin added. “I think we can also predict a lot of attention on ESG matters.”
Clayton served as SEC chair from May 2017 until December 2020. Allison Herren Lee replaced him under U.S. President Joe Biden.
“During my time as Commissioner, I have focused on climate and sustainability, and those issues will continue to be a priority for me,” Lee said in a prepared statement from January.
Jessie Liu, a litigation partner focusing on white-collar crime at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, opined similarly to Peikin’s input, saying that she expects “active enforcement” of environmental affairs to come from the Treasury Department.
The SEC has recently stepped up its examinations of company ESG practices, implementing a new task force focusing on the area.
“Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC’s mission,” said Acting Deputy Director of Enforcement Kelly L. Gibson, who will lead the task force.
Peikin did not say whether or not he is against the SEC’s new task force but stressed that it must be practical and produce results for any stakeholders involved in ESG matters.
“If you’re going to announce publicly that you have a task force focusing on a particular area, you’d better have some cases in the pipeline because you don’t want to announce with fanfare that you’re going to focus on a particular area and then not produce anything,” said Peikin.
When discussing cryptocurrency in the webinar, the experts did not have any specific predictions of where the space regulation will go in the future. However, they stressed that such financial regulatory bodies are already primed to deal with any crypto calamities.
“The question is essentially what role will the [SEC] agency play and what role will the agency’s enforcement division play in the spot markets,” said Jamie McDonald, another partner from Sullivan & Cromwell.
“The CFTC has been bringing enforcement actions in the spot crypto space really since late 2017 or 2018,” McDonald said, saying that the recent Coinbase fiasco where the crypto exchange had to pay $6.5 to the SEC was not the first of its kind.
He added that an “expansion of agency authority” would mean examining the transaction activity of other types of tradable currencies outside of prevalent crypto assets like Bitcoin or Ethereum.
“At this point, the CFPB is taking complaints related to crypto but has not brought enforcement actions,” said Paul Watkins, the managing director at Patomak. “It will be very interesting to see how this builds out, especially in a defiant, decentralized finance space where there are now products being developed that are looking more like consumer products.”
Watkins cited crypto flash loans as an example, where one can instantly borrow without collateral provided they pay back the loan within a given time window.
“That is the definition of short-term credit right there,” he said. “I don’t know how you get more short-term than that.”
All told, the analysts said that all people and regulatory bodies involved in these matters should keep an eye out for new disputes that come with these developments. This also includes action from Congress.
“I think there’s gonna be a lot of rulemaking and a movement back towards even more regulation,” Peikin said.