• The SEC’s process for seeking a waiver from collateral consequences has become opaque, and unpredictable.
• SIFMA is urging the SEC to reform the waiver process and to tailor the scope of certain disqualification exemptions to ensure they only apply where intended.
• These changes would bring efficiency and transparency to waiver decisions and benefit market participants, investors, and the Commission by focusing resources on matters of true concern.

Federal securities laws impose disqualifications, or “collateral consequences,” that automatically attach following certain resolutions of enforcement actions. These disqualifications are often more significant to firms than the actual sanctions intended and imposed in a matter and can limit a firm’s ability to conduct ordinary business activities, such as serving as a well-known seasoned issuer (WKSI) or providing investment advice.

Very often, the collateral consequences triggered are unrelated to the conduct at issue in the underlying enforcement action. Nevertheless, firms seeking a waiver must engage in a lengthy and cumbersome process, the resolution of which requires the expenditure of substantial firm and Commission resources. Existing guidance on waivers is also outdated and incomplete, leaving both firms and investors uncertain about the factors the staff consider in evaluating waiver requests.

As we laid out in a recent letter to the SEC, SIFMA believes it is time for reform. This is not about reducing or limiting accountability but rather imposing it as intended. We are urging the Commission to adopt changes that will improve the efficiency, transparency, and fairness of the waiver process, while also restoring the intended application of certain exemptions.

The Case for Reform

As SEC Chairman Paul Atkins recently emphasized, regulation should be “smart, effective, and appropriately tailored.” Clear and well-designed rules benefit all market participants by reducing unnecessary friction that undermines capital formation.

Consistent with these principles, SIFMA makes the following recommendations for reform:

• Adopting a new regulation to govern the waiver process that sets forth the factors the Commission will consider in granting a waiver and provides for expedited consideration and presumptive waivers for certain requests.
• Refocusing the scope of the WKSI disqualification (Securities Act Rule 405) by amending the definition of “ineligible issuer,” including to limit to only the named party in an enforcement action (and not subsidiaries).
• Amending the Advisers Act Marketing Rule (Rule 206(4)-1) to provide more clarity as to the scope of its disqualification provisions by: (1) eliminating certain actions by regulators other than the SEC from even triggering the disqualification in the first place; and (2) clarifying the broker-dealer exception to the disqualification so it is sufficiently precise that broker-dealers can rely on that exception.

These changes would ensure that firms can engage in a transparent and efficient process when seeking waivers. They would also reduce the number of unrelated matters that trigger disqualifications under the provisions, allowing the Commission to appropriately focus its resources on the small number of cases that may warrant collateral consequences.

Looking Ahead

We commend the SEC for resuming its policy of considering settlement offers and waiver requests simultaneously—a welcome step toward fairness and efficiency. But lasting reform is needed.

By adopting a procedural framework to govern waiver requests and refining the scope of existing disqualification rules, the Commission can bring much-needed transparency and predictability to the waiver process, align collateral consequences with their intended purpose, and ensure that resources are focused where they matter most. This approach would also maintain full accountability—ensuring that bad actors face appropriate penalties while eliminating unnecessary and unintended barriers for firms acting in good faith.

Clear, consistent, and efficient regulation strengthens confidence in our markets, supports capital formation, and benefits investors and firms alike.

Author

Saima Ahmed is Executive Vice President and General Counsel at SIFMA

Related Resource

• SIFMA Letter

  Improving the Waiver Process and Rules Governing Certain Disqualifications Under the Federal Securities Laws