Six key SEC priorities in 2022

Gensler has indicated that he will prioritize completing the required rulemakings under the Dodd-Frank Act. The Dodd-Frank Act was a top priority during Gensler’s tenure from 2009 to 2014 as Chairman of the Commodity Futures Trading Commission, a role he occupied when the act was passed. Expected actions in 2022: 

1. Consideration of comments on reproposed proxy vote reporting requirements: 

In September 2021, the SEC reproposed a Dodd-Frank Act rule originally issued in 2010 to address proxy vote reporting requirements for mutual, exchange-traded and certain other funds. The update would require institutional investment managers to disclose their votes on executive compensation, or so-called “say-on-pay” matters and use of structured data language to facilitate investor analysis of their proxy votes.

2. Consideration of input from reopened clawback rule proposal: 

In October 2021, the SEC reopened the comment period for a Dodd-Frank Act-mandated clawback rule introduced in 2015. The rule would direct national securities exchanges to require listed companies to take back incentive-based executive compensation in certain circumstances when material errors are found in recent financial statements.

3. Consideration of input from reopened pay-versus-performance rule proposal: 

In January 2022, the SEC voted to reopen the comment period for a 2015 Dodd-Frank Act mandate known as “pay versus performance,” which would require companies to disclose the relationship between executive compensation and the company’s financial performance.  

4. Reproposed rule on compensation that incentivizes risky behavior at financial institutions:

By October 2022, the SEC — alongside other financial regulatory agencies — plans to repropose a rule to restrict the ability of large financial institutions to provide compensation that encourages inappropriate risks. 

5. Proposed amendments to final rule regarding disclosures by resource extraction issuers: 

There may be amendments to a finalized Dodd-Frank Act-mandated rule, which took effect in March 2021, that requires resource extraction issuers to make annual disclosures about payments to foreign governments or the US federal government for the commercial development of oil, natural gas or minerals.

Gensler has expressed concerns about possible risks to investors from mainland Chinese and Hong Kong companies that are publicly traded in the US. The SEC is expected to take several steps to address these concerns. Expected actions in 2022: 

1. Continued implementation of the Holding Foreign Companies Accountable Act (HFCAA): 

The HFCAA was passed in December 2020, requiring the SEC to identify and mandate disclosures from non-US companies trading in US markets whose auditors cannot be inspected or investigated completely by the Public Company Accounting Oversight Board (PCAOB). In 2021, the SEC and the PCAOB approved rules to identify auditors and companies that fall under the HFCAA. The PCAOB also determined in December 2021 that it cannot inspect or investigate registered audit firms that are located in mainland China and Hong Kong.

2. Ongoing SEC staff scrutiny of disclosures by China-based issuers: 

The SEC likely will continue monitoring whether disclosures by China-based companies that are publicly traded in the US sufficiently capture perceived investment risks. In December 2021, the Division of Corporation Finance posted a sample comment letter highlighting expected areas of disclosure for China-based companies. Under another expected disclosure, these companies and their auditors would not be subject to SEC or PCAOB oversight and may be delisted in the US because of the HFCAA.

While Gensler has recognized the potential of the digital asset market, he also has referred to it as the “Wild West” and observed the need for appropriate regulatory treatment. At this time, however, no digital asset-related rulemaking is listed on the Commission’s regulatory agenda. Expected actions in 2022:  

1. Ongoing utilization of the SEC’s existing authority to pursue digital asset-related enforcement actions: 

Consistent with Clayton’s approach, Gensler has expressed that many digital assets are securities or investment contracts and thus within SEC jurisdiction. Accordingly, the SEC’s enforcement agenda is expected to continue to prioritize investigations of companies that issue or trade digital assets that do not comply with the SEC’s registration and other rules.  

2. Continued debate and possible regulatory action on digital assets:

The SEC will continue considering whether and how to bring the digital asset market further under the financial regulatory umbrella. Gensler has expressed concerns about a lack of protections for investors who trade on crypto asset trading platforms and insufficient regulatory requirements for digital assets to further other public policy goals. While Gensler has asserted SEC authority over many types of crypto asset-related activity, he and other financial regulators also have appealed to Congress requesting additional authority to regulate a broader range of digital asset-related activity.

Gensler has stated that he views vigorous enforcement as an important part of the SEC’s mission and has articulated several principles to guide the SEC Enforcement Division, including: consistent regulation of economic activity; heightened accountability; a focus on “high-impact” cases; and timeliness. Since joining the SEC in June 2021, SEC Division of Enforcement Director Gurbir Grewal has reinforced these messages and indicated that the SEC will conduct robust enforcement “without fear or favor.” Expected enforcement activity in 2022: 

1. Focus on gatekeepers:

Both Gensler and Grewal have emphasized the important role of gatekeepers in the capital markets. Grewal has also observed the role of gatekeepers in restoring and maintaining trust in the financial markets. He views their role as “the first lines of defense,” especially when companies want to test the limits of rules.

2. COVID-19-related disclosures: 

The SEC staff has stated that registrants should continue to consider the pandemic’s effects on financial reporting, internal controls over financial reporting (ICFR) and disclosure controls and procedures; this includes ensuring changes due to the remote working environment are effectively incorporated.

3. Environmental, social and governance (ESG) disclosures: 

In March 2021, the SEC announced its creation of the Climate and ESG Task Force in the Division of Enforcement to identify errors in issuers’ climate risk disclosures and analyze compliance issues regarding ESG investment strategies.

4. SPACs: 

While the SEC staff considers a SPAC rule proposal, Gensler has directed the Enforcement Division to take action to protect SPAC investors in the meantime.

5. Crypto assets and initial coin offerings: 

The Division of Enforcement’s Cyber Unit, established in 2017, continues to address allegedly fraudulent and unregistered initial coin offerings and scrutinize other digital asset market participants for compliance with securities laws.