Securities and Exchange Commission Focuses on Impartiality in Decision Making

The idea of a truly independent agency has always been aspirational. However, it is essential that independent agencies strive to maintain neutrality in their operations.

Established in 1932 during the Great Depression, the Securities and Exchange Commission (SEC) was created to regulate financial markets and prevent economic crises like the one in 1929. Led by prominent lawmakers, the SEC was designed to be an independent federal body insulated from political influence. Despite this, the SEC, with its commissioners appointed by the President, has always been vulnerable to political interference.

Research by Professor Reilly S. Steel of Columbia Law School revealed that a company aligning itself with the SEC’s board following a change in White House leadership significantly decreased the likelihood of facing enforcement actions. This alignment also led to reduced penalties for regulatory breaches. Political bias within the SEC has been evident in various instances, including interventions on diversity metrics and discontinuing enforcement actions on cryptocurrency platforms to align with political promises.

Addressing political bias at the SEC is challenging. Simply passing laws or regulations to prevent political interference may not be effective, as decisions to pursue enforcement actions can have political implications. Judicial oversight has led to a significant number of enforcement-related cases, resulting in circuit splits and regulatory inconsistencies. Congressional intervention through inquiries or impeachments of biased decision-makers has shown limited effectiveness in curbing bias within independent agencies.

To promote neutrality, the SEC could develop guidance documents outlining factors for third-party review to identify potential political motivations behind agency actions. These factors could help distinguish between politically motivated actions and neutral enforcement decisions. By showcasing transparency in their decision-making process, the SEC can strive to maintain neutrality and limit political bias in their operations.

In conclusion, while achieving complete neutrality may be difficult, efforts to promote transparency and guidelines for independent review can help mitigate political bias at the SEC. As an essential regulatory body, the SEC must uphold its mandate to protect investors and maintain the integrity of financial markets without succumbing to political influences.