Regulators should not aim to prevent all corporate failures, but should focus on managing the consequences and maintaining a balanced regulatory framework that is neither disproportionate nor overbearing, according to US Securities and Exchange Commission (SEC) Commissioner Hester M Peirce.

Sharing her perspectives on regulation, innovation and sustainability in a conversation with ICAEW CEO Alan Vallance at a recent ICAEW event, Peirce said:

“We can put measures in place to try to cushion the concept of failures, but we shouldn’t try to eliminate failures altogether.”

The role of regulation in corporate failures

Peirce, whose role is to enforce the law against market manipulation, said the relationship between regulation and innovation meant there were challenges and trade-offs involved.

“Entrepreneurship and innovation do not have the happiest of relationships with regulators,” she said, referencing a 2019 speech on the regulation of innovation. Peirce advocates a model of “permissionless innovation” where individuals can experiment without excessive regulatory barriers.

She praised the concept of a regulatory sandbox, which allows companies to test new ideas in a controlled environment, and expressed interest in cross-border collaborations between the US and UK on innovations such as cryptocurrency trading platforms.

The dual role of AI in regulation

AI’s role in regulation was another critical topic tackled by Peirce at the ICAEW event. She acknowledged both the potential and challenges of AI, warning against setting up overly restrictive frameworks that could hinder AI development. “We need to make sure that we’re not stifling it in its infancy,” she warned.

AI offers significant potential to enhance regulatory efficiency, particularly in tasks such as reviewing registration statements. However, she cautioned against turning a regulatory body into a surveillance state through excessive data collection.

Meanwhile, support for initiatives relating to sustainability and climate disclosures was stronger in the UK compared with the US, she said. Amid substantial opposition and legal challenges to the SEC’s climate disclosure rule, Peirce expressed concerns about the expansive data requirements seen in other jurisdictions, including Europe, which she believes could lead to excessive costs and inflexibility for companies.

“The number of topics keeps getting added to: its biodiversity, its water use, its human capital issues,” she said, warning against overburdening companies with reporting obligations.

Accountant shortage in the US

Peirce said the shortage of accountants in the US was a concerning trend. She identified the length of time it takes to qualify as a possible factor, but also acknowledged the attractiveness of the profession to the next generation of accountants. “We need to do a better job of marketing this to young people who are looking for ways to serve their fellow human beings,” she said. She also called for a review of the regulatory framework governing the profession to ensure its effectiveness.

Peirce also commented on the regulatory approaches to cryptocurrency in different jurisdictions. She praised the UK and EU for their proactive stance, contrasting it with the US’s more cautious and indirect approach. “Both have tried to look at crypto productively,” she observed, hinting at the potential benefits of a more direct regulatory framework. It’s a viewpoint echoed by ICAEW in its response to a government consultation urging the UK to keep the cryptoasset reporting framework simple.

ICAEW and US relations

ICAEW President Malcolm Bacchus also spoke at the event and revealed how the paths of ICAEW and SEC first crossed. “My predecessor, Mark Rhys, visited Washington and New York in April with Iain Wright, ICAEW Managing Director for Reputation and Influence, and Mary Simpson, ICAEW Director for International Member Engagement.

“They met Commissioner Pierce then. That event and today’s event are part of our ongoing engagement between the US and UK professions and business,” he said. ICAEW has nearly 2,500 members in the US in senior roles, many working with US businesses in the UK across various industries. Bacchus added: “We always look forward to strengthening the relationship between our two economies.”

Watch the full recording of the ICAEW event (password: 354657), which took place on Thursday 27 June 2024.