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SEC alters waiver policy to remove 'too big to fail' concern

By Sarah N. Lynch

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission recently removed language from an agency policy on granting regulatory waivers after an SEC official raised concerns it implied some companies are "too big to fail."

In an interview with Reuters, SEC Republican Commissioner Michael Piwowar said he convinced the agency to alter the language in April after he threatened to vote against approving a waiver for the Royal Bank of Scotland Group Plc .

The bank had requested the waiver to retain certain regulatory privileges, some of which make it easier for companies to raise capital, after one of its units struck a criminal plea deal in connection with the Libor bench mark interest rate manipulation case.

But Piwowar said he feared voting to approve it without first changing the policy language could lead the market to believe the bank was too big to fail.

That is because the policy originally called for the SEC to consider a company's "significance to the markets and its connectedness to other market participants" as a factor when deciding whether to deny a waiver.

The SEC quietly made the change he requested on April 24.

Afterwards, commissioners voted to approve the RBS waiver in a split 3-2 vote, with Democrats Kara Stein and Luis Aguilar voting against it.

"The policy removed 'too big to fail' as an explicit factor," Piwowar said in an interview late on Monday. "I am not comfortable having 'too big to fail' entrenched in a commission policy to grant waivers to anyone."

Lawmakers and multiple regulatory agencies have taken steps to minimize the perception that some companies are "too big to fail" after taxpayers were forced to bail out mega banks during the 2007-2009 financial crisis.

The interconnectedness language is only one part of the SEC's regulatory waiver policy that has come under fire in recent months.

Most of the controversy has been focused on questions raised in April by Stein, who issued a scathing dissent on the RBS waiver.

Stein said she felt granting a waiver to RBS following a severe criminal violation was creating a "too big to bar" policy that rewards banks with regulatory privileges despite their bad behavior.

The main type of waiver at the heart of the debate is known as a "well-known seasoned issuer" or "WKSI" waiver.

A WKSI is a coveted tag that lets companies raise money immediately through securities offerings without having to wait for SEC approval. Companies that break criminal laws or civil anti-fraud laws can lose the status, unless they apply for a waiver from the SEC.

Stein's comments have since touched a nerve among Democratic lawmakers and some of her fellow SEC commissioners with differing views on the subject.

Some of Stein's concerns were addressed in one other change made to the agency's internal policy on April 24 after language was added requiring companies with criminal or civil fraud violations to show "good cause" for why they should get a waiver.

(Reporting by Sarah N. Lynch. Editing by Andre Grenon)

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