SEC chair instigates proxy rule change reversal

June 4, 2021

The Securities and Exchange Commission (SEC) has begun the process of reversing rule changes brought in under the Trump administration.

Enforcement actions relating to amendments to the proxy voting advice rule are unlikely to be recommended after Gary Gensler, the new SEC chairman, told staff to revisit changes made under the previous chair.

It follows an executive order signed by President Joe Biden last month instructing financial regulators to review rules brought in during the past four years that may limit investors' ability to incorporate environmental and social concerns into their decisions.

The proxy rules under scrutiny at the SEC introduced a series of requirements and changes relating to the oversight of proxy advisory firms.

Gensler instructed staff to focus on rules regarding the definition of solicitation, which under the 2020 rule change codified proxy voting advice.

Further rule changes included the requirement for proxy advisory firms to disclose all conflicts of interests to clients, and the obligation for proxy advisory firms to seek company responses to voting advice prior to any client vote.

Gensler also directed staff to investigate the SEC’s guidance, interpretation and application of the regulator's proxy rules to proxy advisors.

Gensler said in a June 1 statement: "The staff should consider whether to recommend that the commission revisit its 2020 codification of the definition of solicitation as encompassing proxy voting advice, the 2019 interpretation and guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 rule amendments, among other matters."

In a separate statement, the SEC Division of Corporation Finance announced that it will not recommend enforcement action on the 2020 rule changes "for a reasonable period of time" even if the rule amendments and interpretations are left as they are by the SEC.

However, commissioners Hester Peirce and Elad Roisman jointly announced their opposition to the plan declaring that it was "challenging, if not impossible" for the SEC to have had enough time to understand the practices and implications of the amendments in practice.

Despite becoming effective in November 2020, relevant proxy advisory businesses are not obliged to comply until December 2021.