The US Securities and Exchange Commission (SEC) has been battering out rules and updates faster than one can say “cryptocurrency regulation” in the last few days and weeks, and it has been hard to keep up.
During the last month alone, the regulator announced new climate disclosure, SPAC and cybersecurity rules, and introduced three landmarks proposals, each of which has wide ramifications for markets both in the US and abroad.
For securities lawyers, this has likely been a tough week, following an intense first quarter of rulemaking from the SEC. One source told IFLR that much of 2020 involved putting together marketing and sourcing material for a burgeoning SPAC market – something they said would be an area of growth for law firms across the US and, subsequently, the world – but that it would appear that this trend could now end at any point.
The SEC’s proposed rulemaking has cast an enormous shadow on the SPAC market and could end up damaging it severely. As result, the global systemically important (G-SIB) bank Citi has already suspended all of its work on SPACs.
Given the rapid ascension of SPACs last year, this has the potential to be an equally erratic decline. Another source last week told IFLR that there would likely be a rush to get SPACs that are yet to de-SPAC across the line before the 60-day comment period on the new rules is up.
This will certainly cause unwanted and unnecessary volatility to a market already spooked by inflation, the pandemic, and the ongoing Russian war in Ukraine. The SEC should be more cognisant of this.
The regulator has also released its long-awaited climate disclosure rules, which had been long in the making and will have an equally significant impact on markets both in the US and abroad. While widely encouraged, the rules have been met with opposition – from the likes of Joe Manchin – and are likely to cause extensive litigation risk. Others have claimed that the rules would fundamentally change private markets.
Just in case that wasn’t enough, the SEC also proposed last month a rule to address cybersecurity risk management, strategy, governance and incident disclosure – an area that continues to be the most critical statistically for in-house counsel and chief legal officers, according to the Association of Corporate Counsel’s 2022 report. There too, critics suggested that the new rules would undermine the authority of the US Congress and would go against the recently passed and Cyber Incident Notification Act.
Finally, and while this has not come directly from the SEC – but is very much their wheelhouse, the announcement from ranking member Pat Toomey and the Senate Banking Committee this week of a discussion around the Jumpstart Our Business Startups Act (JOBS Act). At first glance, this promises to be a considerable overhaul that will look to cement the US’s position as a global leader in “active and efficient” capital markets.
It seems clear that this raft of proposals is coming as the shadow of a potential loss in the mid-term congressional elections this year for the Democratic party, which would bring with it a toothless government largely unable to enact new legislation. Whether or not one supports these changes, the speed at which they are being rolled out is likely to cause more problems for US capital markets.
Each of these proposals has already sparked significant concern from market participants and has been met with swift pushback from both sides of the aisle. For securities lawyers, the raft of changes will likely lead to compliance issues, which in turn will undermine the effects of the rules themselves.
With further legislative proposals incoming, including a set of joint proposals with the Commodity Futures Trading Commission on crypto regulation, revisions to government debt, executive compensation and capital raising rules, the situation may only get worse from here. It might be fitting for the SEC to take a deep breath, pause, and think about the impact-to-market of its decision-making. Else, it will run the risk of damaging the very things it is trying to safeguard, like Elon Musk’s tweets.
