We’ve nearly rounded out the first month of 2025…and it’s already been one for the books (and records). From a new Acting SEC Chair to a Crypto taskforce and beyond.
Recently, COMPLY co-hosted a webinar with the Investment Adviser Association (IAA), featuring COMPLY Chief Regulatory Officer, Jamila Mayfield; COMPLY VP, Private Fund Advisory Consulting, Mederic Daigneault; and the IAA General Counsel and Head of Public Policy, Gail Bernstein.
So, what exactly did our audience walk away learning? And what questions were posed during the discussion?
Watch the full webinar on demand.
Key Takeaways: Commentary on How the New Administration Can Effectively Support Regulatory Compliance Professionals Serving Financial Institutions
The Need for Regulatory Certainty
While advisers may have substantive and operational concerns with many new regulatory requirements, what they often want most is regulatory certainty. They find the flip-flopping we’ve seen in recent years (specifically as administrations change) to be particularly challenging for regulatory change management, planning, and budgeting.
Right-Sizing New Rules
Critics of SEC enforcement, who often and openly condemn SEC enforcement actions which penalize firms for practices not previously understood to violate securities laws/regulations – i.e., “regulation by enforcement” – are often the same persons who criticize regulation for being overly prescriptive. The right balance will undoubtedly involve “right-sizing” any newly adopted rules and frontloading adoption with regulatory guidance, FAQs, Risk Alerts, and interpretations in advance of any aggressive enforcement.
FAQ: Questions on the Evolution of the Regulatory Compliance Landscape in a New Administration
During the webinar, audience members had the opportunity to submit their questions to our expert panel…and now we’re sharing those questions (and more importantly) the answers with you.
Is it true that the Executive Order signed on Monday 1/20 has put all rulemaking for the SEC on hold?
Yes, as a practical matter. While the law is not completely clear as to whether this particular order applies to independent agencies, like the SEC, these agencies have traditionally complied with these types of orders.
Per the executive order put out by the White House:
- Do not propose or issue any rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule.
- Immediately withdraw any rules that have been sent to the OFR but not published in the Federal Register, so that they can be reviewed and approved as described in paragraph 1, subject to the exceptions described in paragraph 1.
- Consistent with applicable law and subject to the exceptions described in paragraph 1, consider postponing for 60 days from the date of this memorandum the effective date for any rules that have been published in the Federal Register, or any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.
What rules are least likely to be rescinded?
It’s very likely that the following SEC rules adopted over the last few years will not be rescinded (although they may be subject to review and refinement at some point):
- Advisers Act marketing rule
- Beneficial ownership reporting
- T+1 (shortening the trade settlement date)
- Form N-PX (disclosure of votes on executive pay)
The fate of more recently finalized rules is less clear, and we are more likely to see extensions of compliance periods, interpretive guidance, and possibly no-action relief rather than wholesale rescission of the rules. These include:
- AML for advisers and ERAs
- Regulation S-P (data privacy and breach notification)
- Fund names rule
- Form SHO (short sale reporting)
- Treasury clearing
Is this level of uncertainty in expectations common any time there is a change in administration?
Yes, following a change in administration there is often a level of uncertainty as to what the new Chair will prioritize and when. Also, since President Reagan, we have seen similar “regulatory freeze” executive orders.
However, despite this uncertainty, we do expect a few things to come to pass:
- While enforcement actions may not drastically change in numbers – and strong enforcement of misconduct will continue – we do expect a shift towards enforcement actions focused on intentional misconduct, investor protection, and prevention of harm. In the past few years, we have seen increasingly notable fines levied, often for violations that involve no misconduct or investor harm, which has led many to call for an end to “regulation by enforcement.” We expect the new Chair to shift away from this trend.
- Perennial focus areas like fiduciary obligation and program effectiveness will remain priorities for the SEC.
- Many proposed rules will either be completely abandoned or will be heavily adjusted for scope of impact and cost to the firm.
- Feedback from stakeholders will be prioritized before major rule-related actions are taken.
It should be noted, any new rule or any rescinding of a rule must still go through the same formal regulatory process, which means significant rule change will not occur immediately.
Do you expect the wait & see period to last weeks? months? Years?
We believe that shortly after the new Chair is confirmed by the Senate, we’ll have a pretty good idea of the new leadership’s priorities and direction.
Already, under the Acting Chair, we have seen certain actions, including the creation of a new Crypto Task Force, that indicate the trajectory of the new administration. Taking this into consideration, as well as the considerable alignment between the Acting Chair, the nominated Chair, and the other sitting Republican commissioner, we do not expect the wait and see period to last a significant amount of time.
How long will it take reform to trickle down to the staff?
The agency’s priorities are set by the Chair, and right now by the Acting Chair, and we expect that there has already been significant policy changes directed to the staff that may not yet be public. Some of these policy changes should quickly be made public, like the new Crypto Task Force, on which staff have already begun to work. We will likely see other policy changes reflected through speeches, even before a permanent Chair is in place. We are also likely to see reform reflected at the staff level through potential guidance and other less formal regulatory relief.
What does it say that the enforcement actions are trending down, but the monetary fines continue to increase?
While it can be tricky to draw firm conclusions from the annual enforcement statistics (for example, this past year, over 50% of the monetary penalties came from a single fraud case, skewing the numbers), we can make some informed observations about trends. For instance, the SEC has used enforcement sweeps to pull in a large number of firms for the same or similar actions and used significant fines as a means to send clear messages about the importance of compliance in specific areas, also often imposing significantly reduced fines for those firms who cooperate and self-report. We expect to see some shifts in this area.
Commissioner Pierce seems to have been the most vocal in the minority for the past few years. Was there any surprise that she was not elevated to Chair?
While she was certainly in the mix for expected Chair nominees, Commissioner Peirce has made her interest in working on a comprehensive framework for digital assets quite clear, so it is not surprising that now President Trump nominated Paul Atkins as Chair, giving Peirce the ability to focus on crypto.
Peirce will also likely push for many other reforms to rulemaking and enforcement agendas. Both Peirce and Acting Chair Uyeda worked as counsel to Atkins when he was an SEC Commissioner, so we expect their policies to be largely aligned.
Have more questions? Schedule time to speak with our regulatory and technology experts.