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Piwowar Concerned About Regulation by Enforcement

SEC Commissioner Michael Piwowar opposed using enforcement as an alternative to rulemaking in a speech at the Securities Enforcement Forum last week. While acknowledging the difficulties inherent in the rulemaking process, he stated “[n]evertheless, I have significant concerns when Commission orders – especially in settled administrative actions – create new interpretations of the laws or regulations or impose new regulatory requirements.  When Commission actions create such results, we fail in our duty to uphold due process.”  Piwowar argued that enforcement actions should be “closely aligned with the priorities developed by [the SEC’s] policy-making divisions” rather than a source of policy.

In his view, the ultimate goal of enforcement “is not achieving regulatory compliance,” but rather achieving “a healthy, robust, and resilient capital market.” Therefore, enforcement effectiveness should neither be measured by the number of actions brought, nor the amount of monetary sanctions. Piwowar pointed to “increasing complexity” in securities laws and rules as an impediment to the Commission’s goals, noting that securities-related regulations span three volumes of the 2014 version of the Code of Federal Regulations, which is expanded by Commission and staff positions in other contexts such as no-action letters, alerts, and administrative orders. According to Piwowar, such complexity requires a focused approach to enforcement because “[i]f every rule is a priority, then no rule is a priority.”