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SEC Braces for More ‘Virtual’ Votes as Virus Lingers (1)

April 21, 2020, 9:31 AM; Updated: April 21, 2020, 2:26 PM

The SEC’s first-ever public vote during a “virtual” meeting earlier this month likely won’t be its last during the coronavirus pandemic, Chairman Jay Clayton said.

Clayton told Bloomberg Law in a recent interview that the Securities and Exchange Commission will continue working on regulatory matters that aren’t related to the coronavirus. That could mean more virtual meetings like the one held April 8 to approve streamlined offering rules for business development companies and other closed-end funds.

“We’re going to allocate our resources in the way that’s best for investors and our markets,” Clayton said of the agency’s rulemaking efforts. He said he didn’t know when he and his colleagues may gather again remotely to vote publicly.

SEC staff began planning for the possibility of a virtual open meeting around when most agency employees began teleworking March 10, said commission Secretary Vanessa Countryman, who helped set it up. The agency had several dry runs as part of its preparations, she said.

Countryman said she and SEC Chief Information Officer David Bottom aimed to make the experience comfortable for the commissioners, staff, and the public.

The meeting followed the same format as past ones, and the participants didn’t need to be in the same room as they normally do during public votes. They could call in from wherever to take part in the meeting, which had its audio played live on the SEC’s website.

It wasn’t clear where all the people who talked during the virtual meeting were. But Clayton was in his office at SEC headquarters in Washington, while Commissioner Allison Lee was in her kitchen at her Bethesda, Md., home.

“Many of our actions need to be taken by public meeting, and I thought the virtual public meeting went very well,” Lee said.

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The SEC’s short-term agenda still has several unfinished items, including work related to proxy advisers. The agency has faced pushback from activist investors and investor advocates over how it plans to add more restrictions on proxy advisory firms Institutional Shareholder Services Inc. and Glass, Lewis & Co., which the business community has argued have too much sway over corporate governance.

The Republican-leaning SEC is running out of time before the Congressional Review Act would help Democrats roll back commission actions if they take control of Congress next year. Republicans previously used the law to reverse some regulations agencies issued in the waning months of the Barack Obama administration. The law is expected to give the SEC and other agencies until about mid-May to adopt rules before they face a greater risk of losing their work, according to Bloomberg News.

The agency’s commissioners aren’t united on Clayton’s desire to act on some matters that don’t stem from Covid-19.

Lee, the SEC’s only Democratic commissioner, voted against the regulations adopted at the last meeting. The rulemaking was a “particularly ill-timed additional rollback of protections for retail investors,” she said during the meeting. The vote was 3-1.

Lee told Bloomberg Law in a recent interview she doesn’t oppose all rulemaking work that isn’t connected to the coronavirus. But the SEC must consider whether new rules or proposals during the pandemic may unfairly burden those it affects or wants input from, she said.

“We must drill down very deep and thoughtfully on everything we do that is not Covid-related,” Lee said.

Like Lee, congressional Democrats have urged the SEC to focus its regulatory actions on the coronavirus. The agency should “postpone non-critical rulemaking until the full public health and economic impacts of COVID-19 are understood,” Democratic Sens. Sherrod Brown of Ohio and Chris Van Hollen of Maryland said in a March 17 letter to Clayton. The senators both sit on the Senate Banking Committee, where Brown is the top Democrat.

Clayton has pushed back some rulemaking work due to the virus. The SEC doesn’t plan to finish a half-dozen pending regulations before May, according to its website. The items include rules related to a new accredited investor definition and resource extraction payment disclosures under the Dodd-Frank Act.

“We’re going to respond to the Covid-19 effects as promptly as we can and as forward looking as we can,” Clayton said. “Otherwise, we’re going to continue about our mission.”

Both Clayton and Lee said the virtual meeting worked as it should, despite their differences on whether to complete the BDC rulemaking during the pandemic.

(Updates with details of virtual meeting.)

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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