02.05.25
Banking On a Lighter Touch: Anticipated Deregulation During Trump's Administration
by: Rich Blake
At the Federal Reserve, the central bank's top banking regulator, Michael Barr, a champion of stricter rules, has said he plans to step down. Meanwhile, the Securities and Exchange Commission (SEC) has already changed guard, bidding adieu to Chair Gary Gensler, known for his aggressiveness in terms of enforcement and rulemaking policies. Paul Atkins, a Republican and past commissioner, has been nominated by President Donald Trump to replace Gensler.
For the banking and advisory industry at large, there is optimism that the dawning of Trump's second administration will bring a softer touch to policing relative to the Biden administration.
Questions remain about what exactly the SEC will prioritize under its new leadership, said a team of attorneys at White & Case, a law firm, writing a recent year-end overview of SEC actions. "It seems likely that many of Gensler's enforcement priorities will be rolled back in the coming years," they shared.
A Champion for Small Advisors
On Jan. 21, one day after his inauguration, Trump designated Republican Commissioner Mark Uyeda as acting chairman of the agency. Uyeda in general has expressed sympathy for reducing the burdens and costs of compliance. He has specifically, and staunchly, advocated for relief for small investment advisers.
Another rising force at the agency (while Atkins, a past commissioner, awaits Senate confirmation) is Hester Peirce, a current commissioner and also a Republican. Peirce has been tapped to run a newly formed task force dedicated to developing a regulatory framework for crypto assets. It’s a role that received much attention as the crypto industry awaits a return on its investment of tens of millions of dollars in support of the Trump campaign. Trump has vowed to be a pro-crypto president.
Regarding the Peirce-led crypto task force, Uyeda, setting a tone on his first day at the helm, had this to officially say: "To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way. Clarity regarding who must register, and practical solutions for those seeking to register, has been elusive; and the result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better."
Sweeping changes?
Certainly, advisors can expect some changes — but what kinds? It's difficult to determine where Atkins will choose to focus his efforts in leading the agency, White & Case said. From the industry's standpoint, some sore spots do cry out for a balm.
Last year, the SEC continued to enforce the “marketing rule,” which regulates how investment advisers can market their services, and in doing so settled charges against more than a dozen investment advisors.
Firms were charged with violations such as advertising hypothetical performance to the public — but without implementing policies and procedures to ensure the relevance of that hypothetical performance to the ad's intended audience. One firm was specifically charged in connection with misleading performance advertising, according to White & Case.
Another area of focus for the Gensler-led SEC was "off-channel" communications. Tracing back to 201, the SEC's sweep of securities industry employees' text messages and social media messages via personal devices has resulted in more than $2 billion in penalties. The enforcement program started with the largest broker-dealers but quickly expanded in scope, said a team of authors at Morgan and Lewis.
More than 100 entities have settled off-channel recordkeeping charges, including broker-dealers, dually registered broker-dealer/investment advisors, standalone investment advisors, credit ratings agencies and municipal advisors, the Morgan and Lewis authors pointed out.
"The vast majority of settling respondents have also been required to retain independent compliance consultants (ICC) for multiyear engagements, a further significant expense," they added.
“Additionally, in nearly all the settlements to date, the respondents were required to admit to the alleged conduct, typically a rarity in SEC settlements."
In the past, Peirce and Uyeda have come out against the SEC’s off-channel cases. In statements following recent SEC settlements involving firms that self-reported off-channel communications, the two commissioners were critical of the approach and urged colleagues to reconsider it.
SEC Chair ‘Not Operating in a Vacuum’
With Atkins as the new chair, the SEC will comprise a Republican majority for the first time in four years. However, Atkins has not been a member of the commission for more than 15 years.
“During that time, the markets have changed, and SEC enforcement has perhaps changed even more,” said a team of attorneys at Gibson Dunn & Crutcher, referring to the division’s size and scope as well as the subjects prioritized. “And significantly, Atkins will not operate in a vacuum,” they added.
In other words, figures such as Peirce and Uyeda will help guide the agenda.
Uyeda has laid down markers about his priorities. He specifically rallied to the side of private funds — generally only available to sophisticated investors and including vehicles such as private equity, private credit and venture capital funds as wells as hedge funds — and that has big implications for small advisors.
In his 2023 statement regarding rules for private fund advisors, Uyeda called the requirements "far more burdensome and restrictive than those products for retail investors," amounting to an inconsistency resulting in the rules being "arbitrary and capricious."
His primary concern: that the rules will disproportionately impact smaller advisory firms. Uyeda, for example, has advocated for later compliance deadlines for smaller advisers in situations for which exemptions are inappropriate.
Do you have feedback on this topic? Which specific regulations merit overhaul or relief the most? Contact the Portfolio editors at portfolio@bisanet.org to share your thoughts.