SEC commissioner Walter to take helm at agency in sign of continuity as Schapiro departs

President Barack Obama signaled that his administration would not radically change course on financial regulation with his designation of U.S. Securities and Exchange Commission member Elisse Walter to head the agency, after Chairman Mary Schapiro announced her departure on Monday.

The choice of Walter, a career regulator, to replace Mary Schapiro, signals Obama is playing it safe, and not using the flexibility of a second-term to install an outsider.

As an existing SEC commissioner, Walter can become chairman without the need for a Senate vote. While Schapiro was unanimously confirmed in 2009, a new candidate may not have gotten past a gridlocked Congress, where the SEC’s record has been subject to partisan attacks. Walter’s term ends at the end of 2013, and the administration hinted that it is considering a new longer-term nominee who would take over by then. Obama could also re-nominate Walter again at the end of 2013, but she would need reconfirmation.

After Schapiro’s departure on December 14th, there will be only four SEC commissioners, two from each party. Until a new commissioner is seated, a divided commission may have a hard time passing substantive rules.

“Given the potential 2-2 split, I think there is a real likelihood that the SEC will place even heavier emphasis on enforcement, as opposed to rule writing, for the purpose of developing new standards,” former SEC Chairman Harvey Pitt told Compliance Complete. “It is easier to get agreement that certain conduct constitutes a fraud than it is to write a rule that everyone can immediately embrace,” he said.

Obama designated Walter as the next SEC chairman just minutes after Schapiro’s announcement. “I’m confident that Elisse’s years of experience will serve her well in her new position,” he said.

Play by the rules

When Obama talked regulation in the campaign, it was focused on consumer issues. He committed to make Wall Street play by the rules, with tough enforcement of violations. Obama said prior to the election “the single biggest thing that I would like to see is changing incentives on Wall Street and how people get compensated.” Shareholder influence on compensation and governance are within the ambit of the SEC.

Schapiro highlighted the SEC’s enforcement record in her departure statement. “Over the past four years we brought a record number of enforcement actions, and engaged in one of the busiest rulemaking periods,” Schapiro said. In each of the past two years, the SEC says, it has brought more enforcement actions than ever before.

However, the SEC was also criticized for not being tough enough on Wall Street leaders and focusing too much on smaller players, and there will be pressure to continue strong enforcement.

“Mary has helped turn around the agency’s enforcement program,” former SEC Chairman Harvey Pitt told Compliance Complete. “I’m confident that her departure will not have any adverse consequences for the enforcement program.”

The choice was welcomed by industry group Investment Company Institute, which has sparred with Schapiro on overhauling mutual fund regulation. “As the next SEC chairman, Elisse Walter brings an extraordinary record of accomplishment in service to investors at both the SEC and FINRA,” institute CEO Paul Schott Stevens said while noting the disagreement with Schapiro over mutual funds.

Schapiro was unable to get the votes to issue a rule to limit systemic risks on money market funds. Despite stating the rule was a priority, and having support from the Treasury and Fed, Schapiro pushed the issue to other regulators. The Financial Stability Oversight Council (FSOC) of government regulatory chiefs has since issued recommendations to take the rule forward, based on similar proposals to the SEC.

“The SEC was placed under enormous pressure,” former Federal Reserve Chairman Paul Volcker said the sidelines of a conference in response to the appointment. “I don’t think the money-market fund issue was the factor, and Schapiro was on the right side of the debate,” he said. Volcker has long called for rules to protect against systemic risk of fund sell-offs.

Dodd-Frank agenda

The SEC is still working to implement the 2010 Dodd-Frank financial regulation overhaul. Among the SEC’s outstanding Dodd-Frank tasks are deciding how to implement fiduciary standards for broker dealers and investment advisers, and limit conflicts of interest on asset-backed-securities. Walter aims to adopt final municipal-advisor registration rules in the early part 2013.

Industry officials are looking to the stability council to exert its influence. “There is an obligation on FSOC to take charge, sort out the current unruly mess, set priorities and move forward,” Tim Ryan, chief executive of the Securities Industry and Financial Markets Association, said before the election. He said on Monday SIFMA was looking forward to working with Walter, with a priority being to complete uniform standards for brokers and advisers when providing personalized advice on securities.

Walter became an SEC commissioner in 2008, after being nominated by President George W. Bush. In January 2009, President Obama designated her as acting chairman, until Schapiro was confirmed by the Senate. Walter was previously an official at the Financial Industry Regulatory Authority, an industry self-regulatory, where she served as executive vice president for regulatory policy & programs, with responsibility for investment company regulation. Before that, Walter was SEC deputy director of corporate finance.

Walter’s most recent public speech, in mid-November, warned about risks tor investors from the JOBS Act, which removes a ban on general solicitation for private offerings of securities and relaxed other rules to make it easier for smaller companies to raise capital. She suggested protections that included limiting the forms of solicitation that are exempt, revising the accredited investor definition, and including in the rule specific methods that the issuer company can use to verify that investors are accredited.

FINRA chief executive Rick Ketchum congratulated Walter on the appointment. “Her depth of knowledge of securities regulation and the markets and abiding concern for American investors will provide her a sound foundation as she leads the agency forward,” he said. Ketchum was at the SEC for 14 years, with eight years as director of the Market Regulation division, and will likely work well with Walter.

Walter’s FINRA background may influence her position on authorizing one or more self-regulatory organizations (SROs) to oversee and examine investment advisers, one of the issues facing the SEC. FINRA seeks to become such an SRO, which would replace current SEC oversight, under which only 8 percent of all investment advisers are examined each year. Funding for the new SROs would be from member firm fees, rather than SEC appropriations from Congress.

Walter headed an SEC municipal securities task force for two years, and will push for implementation of recommendations in a task force report issued in July. This includes powers to set muni disclosure standards and require municipal issuers to have audited financial statement. Rulemaking by SEC and the Municipal Securities Rulemaking Board, would improve pre and post-trade price transparency, and require best execution by muni bond dealers for customer orders.

“Commissioner Walter has shown a deep interest in the municipal market,” said MSRB Chairman Jay Goldstone. He said Walter’s appointment “will promote continued dialogue on the regulation of the municipal market, since Commissioner Walter led the SEC’s review of the municipal securities market and has long been an advocate for improved disclosure.”

Walter has been a reliable ally for the administration, consistently voting with Schapiro over the last four years. The nomination of the fifth commissioner, who would fill a Democratic slot, can influence the commission’s future course of regulation, be it reformist or business-friendly.

“When the fifth person gets to the SEC, everybody on Main Street needs somebody in that position who understands those issues and is focused on protecting the taxpayers’ pockets rather than Wall Street profits,” said Dennis Kelleher, CEO of the public advocacy group Better Markets Inc.

“As the first female Chairman of the SEC, Mary steered the agency through the turbulent and historic aftermath of the financial crisis” said Senate banking committee chairman Tim Johnson.

The appointment of Walter helps maintain a woman’s presence amid predominantly male Stability Council. The only other exception is Debbie Matz, chairman of credit-union regulator.

“I am intrigued by research concerning the effects that a critical mass of women can have on a corporate board in terms of performance,” Walter said in a September conference on women in the boardroom. “As a commissioner who experienced the first[ever SEC with a ‘critical mass’ of women, I can proudly say that that commission was one of the most engaged and effective commissions in the agency’s history.”

(Additional reporting by Emmanuel Olaoye of Compliance Complete)

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus ( . Compliance Complete ( provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. Follow Accelus compliance news on Twitter at: )

Nick Paraskeva is principal of Reg-Room LLC (, which provides regulatory information and consultancy. He covers various facets of the banking and securities industry and delivers exclusive analysis through Thomson Reuters. He can be contacted at (212) 217-0403 and Follow Nick on Twitter@regroom.