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Board and Fraud is a blog that aims to bring a practical approach to issues facing the board of directors and the audit committee specifically in the area of governance, risk management, compliance, and internal audit, with a strong focus on fraud, ethics, and internal controls.

Board Members Take Note: SEC Chair Clayton Speaks on 2019 Initiatives and Market Risks

On December 6, 2018, in New York City, the Securities & Exchange Commission (“SEC”) Chair Jay Clayton delivered his speech, where he outlined where the SEC stands on its rule-making agenda, as well as a few priority items for 2019, and some market risks.

Clayton’s words are his own and do not necessarily reflect the views of his fellow Commissioners or the SEC staff.

Significant Initiatives for 2019

Long-Term Investment and Reporting – We need to consider ways to encourage long-term investment in our country. There is an ongoing debate regarding the adequacy and appropriateness of mandated quarterly reporting and the prevalence of optional quarterly guidance, and whether our reporting system more generally drives an overly short-term focus.

Read an interesting article from CFO.com here.

Initial Coin Offerings or ICOs – An initial coin offering or initial currency offering is a type of funding using cryptocurrencies that are sold at a discount or “token”. Unlike in the stock market, though, the token does not confer any ownership rights of the offerer, or entitle the owner to any sort of cash flows like dividends. The SEC will continue its efforts to protect investors.

Ownership and Resubmission Thresholds for Shareholder Proposals – Consideration of other factors in addition to the amount of money invested and length of holding period that would reasonably demonstrate the shareholders’ interests are aligned with those of long-term investors. Note: The current $2,000 ownership threshold was adopted 20 years ago, and the resubmission thresholds have been in place since 1954.

Proxy advisor reforms – This includes transparency, conflicts, whether certain matters should be analyzed on a company-specific basis (rather than market-wide), and investor access to issuer responses to reports.

Proxy “plumbing”– The focus will be on improvements to the current system, rather than a major overhaul – with consideration for how technology, including distributed ledger technology, could improve the proxy plumbing.

Capital formation and access to investment opportunities (Jobs Act) – Making Regulation A available to public companies. Note: Regulation A contains rules providing exemptions from the registration requirements, allowing some companies to use equity crowdfunding to offer and sell their securities without having to register the securities with the SEC.

Market Risks

Clayton also discussed market risks they are monitoring, which are highlighted below.

Brexit – the impact to reporting companies of the United Kingdom’s exit from the European Union.

LIBOR – the transition away from LIBOR as a reference rate for financial contracts.

Cybersecurity – something the SEC is looking at from a number of perspectives. Such as, disclosure controls and procedures, insider trading policies, and risk factor disclosures.

Clayton stated that it’s important investors are sufficiently informed about the material cybersecurity risks and incidents affecting the companies in which they invest.


Clayton closed by stating that he was pleased with the SEC’s accomplishments in 2018, but much remains to be done and we are facing new challenges—some known and some that we will come to know.

Jonathan T. Marks, CPA, CFE


SEC Speech

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