The Committee on Capital Markets Regulation (the “Committee”) is concerned with the June 1 statement by the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the “SEC”) clarifying that it would not recommend an enforcement action against a proxy advisor that fails to comply with certain recently adopted rule amendments governing proxy voting advice (the “2021 non-enforcement statement”).

In our view, rules adopted by the SEC should be enforced until they are changed through a new rulemaking that follows the Administrative Procedure Act’s (the “APA’s”) public notice and comment process.2 We therefore recommend that the SEC Division of Corporation Finance withdraw its 2021 non-enforcement statement.

We begin by briefly reviewing the SEC’s recent proxy advisor reforms and then summarize the 2021 non-enforcement statement by the SEC’s Division of Corporation Finance. Next, we contrast the 2021 non-enforcement statement with the SEC no-action letter process. Then we explain key differences between the 2021 non-enforcement statement and non-enforcement of the SEC’s conflict minerals rules in 2017. We conclude by summarizing our concerns as to the potential impact of the 2021 non-enforcement statement on the regulation of U.S. capital markets.

The report can be accessed here.