As the new director of the Enforcement Division at the Securities and Exchange Commission, Gurbir S. Grewal hopes regulators and registrants alike will convince investors that the deck is not stacked in favor of the powerful and that the markets work equally for all, according to early statements.
From scrutinizing compliance with Regulation Best Interest to potential enforcement of erroneous claims around ESG investments, the division looks to have a busy 2022 under Grewal and new SEC Chair Gary Gensler.
Grewal served as New Jersey’s attorney general from January 2018, where he headed the Department of Law and Public Safety and pushed for a uniform fiduciary standard for brokers and advisors that was stricter than the national standard before joining the SEC in July. Before his work as attorney general, Grewal was prosecutor for Bergen County, the premier law enforcement officer in the state’s most populated county, and boasts a long resume prosecuting economic crimes and securities fraud as an assistant U.S. attorney in New York and New Jersey.
In one of his first speeches as enforcement director, Grewal said he was worried that the public saw the country’s capital markets as a “game” rigged against investors and argued that firms must consider how their businesses are impacted by emerging risks and enforcement priorities.
“This requires proactive compliance, and this type of approach has never been more important than today—a time of rapid and profound technological change,” he said. “This change is exciting; it can help amplify the dynamism of our markets and increase access for investors. But at the same time, it also creates new avenues for misconduct, and new responsibilities for compliance.”
Now, enforcers will likely interpret the Trump-era Reg BI rules with a wider lens, according to James Lundy, a partner with Faegre Drinker and a member of the firm’s Best Interest Compliance Team.
“I also think the new director and his team are going to take time to really get an understanding of what the Reg BI prospective matters are in the pipeline,” Lundy said. “What are the one, two or several that they’re going to start with and prioritize, because that’s going to be a big message for the brokerage industry.”
This month, the SEC’s Division of Examinations revealed that it would incorporate Reg BI questions into its standard exams and has been requiring firms to go further than merely “good faith” compliance efforts. Other enforcement actions concerning Reg BI could follow. The commission also announced an enforcement task force on ESG and climate-related issues.
Since Grewal joined the commission, the Enforcement Division’s charged several registrants with mutual fund share class violations and more for failures in their cybersecurity policies and procedures. On the same day Grewal was appointed, the SEC charged 27 firms for failing to file their Form Customer Relationship Summary (CRS). He called the actions a reminder that firms must meet the commission’s filing and disclosure obligations.
