Shifting SEC priorities: A new era of enforcement under the Trump administration

On January 20, 2025, President-elect Donald Trump will assume office, ushering in significant changes across U.S. federal agencies, including the Securities and Exchange Commission (“SEC”). With the exit of SEC Chairman Gary Gensler, President-elect Trump’s new appointee, Paul Atkins, will be poised to reshape the SEC’s priorities. Although the precise contours of the SEC’s agenda under the Trump administration remain unknown, we expect a renewed focus on reducing regulatory burdens, adhering to established materiality standards, a curbing of perceived enforcement overreach, and an effort to adopt an enforcement agenda that, broadly speaking, will be more favorable to corporations.

The SEC under Trump: A pro-business shift

The Trump administration’s focus on deregulation and capital formation is expected to extend to the SEC. Historically, Republican-led Commissions have prioritized reducing compliance costs for public companies and enforcing rules more narrowly. Once confirmed, Chairman Atkins, alongside current Republican Commissioners Hester Peirce and Mark Uyeda, will likely promote a cohesive vision of streamlining enforcement and limiting regulatory expansion.

Uyeda and Peirce: Dissenting voices pointing the way forward

The anticipated changes to SEC priorities are reflected in the consistent dissenting opinions of Commissioners Uyeda and Peirce. Over the years, they have critiqued the SEC’s actions across a variety of contexts, arguing for a narrower, more disciplined approach to enforcement and regulation. Their dissenting statements provide insight into the regulatory philosophy that could shape the Commission under Republican leadership.

1. Climate-related disclosures: In their dissent to the SEC’s 2024 rule changes requiring public companies to provide certain climate-related disclosures in their registration statements and annual reports, Peirce and Uyeda underscored concerns about regulatory overreach. Uyeda argued that the SEC lacked statutory authority to mandate disclosures addressing broader climate policy, asserting that these rules interfered with the materiality standards established by securities laws, while Peirce criticized a perceived focus on political agendas, contending that the rules prioritized climate goals over the SEC’s core mission of investor protection. Both commissioners warned of undue compliance burdens and potential distortions to capital markets.
2. Stoner Cats NFT enforcement action: In the SEC’s 2023 enforcement action against Stoner Cats 2, LLC, Peirce and Uyeda expressed concerns over the application of the Howey test to NFTs. They argued that the SEC’s decision stifled innovation and imposed legal ambiguity on creators seeking to explore blockchain technology. The dissent emphasized the importance of providing clear guidelines for NFT creators rather than arbitrary enforcement actions, which could deter legitimate experimentation and innovation.
3. Asset manager regulations: In a 2023 enforcement action against DST Asset Manager Solutions, Inc., Peirce and Uyeda criticized the SEC for retroactively imposing new standards without proper notice or rulemaking procedures. They expressed concerns about the use of enforcement to establish regulatory norms, which they argued undermines transparency and procedural fairness. Their dissent also highlighted the risks of regulatory uncertainty for mutual fund service providers and the broader industry.
4. Cybersecurity guidance: Peirce and Uyeda also dissented from the SEC’s 2018 interpretive guidance on cybersecurity disclosures, citing concerns about its prescriptive nature. Uyeda argued that the guidance unjustifiably elevated cybersecurity risks above other corporate risks, creating disproportionate burdens. Peirce raised concerns that the guidance prioritized uniformity over flexibility, potentially leading to less meaningful disclosures for investors while exposing companies to new security vulnerabilities.
5. SolarWinds settlements: In dissenting from the SEC’s 2024 settlements with SolarWinds customers, Peirce and Uyeda argued that the Commission unfairly penalized victimized companies for their disclosures following a cyberattack. They emphasized that enforcement actions should focus on material financial impacts and avoid punishing companies for omitting immaterial details, such as the identity of threat actors or hypothetical risks. They also raised concerns that these enforcement actions, without clear guidelines, could set a dangerous precedent of second-guessing cybersecurity disclosures in hindsight. Commissioners Peirce and Uyeda advocated for providing clearer expectations to public companies regarding cybersecurity incident reporting, and expressed concerns that the SEC’s actions may negatively shape the regulatory landscape surrounding securities laws and encourage companies to file unnecessary disclosures, potentially overwhelming investors with immaterial information that may divert investor attention and result in mispricing of securities.

These dissents reflect Commissioners Peirce’s and Uyeda’s stated commitments to ensuring adherence to established materiality principles, promoting transparency, and minimizing the compliance burdens placed on public companies. As a result, they offer insight into how a Republican-led SEC might recalibrate its regulatory and enforcement approach.

Anticipated changes to enforcement priorities

Under the new administration, the SEC’s enforcement priorities are expected to shift in several key areas:

1. Digital assets and cryptocurrency: With Atkins, a known cryptocurrency advocate, the SEC is likely to adopt a more accommodating stance toward digital assets. This shift is anticipated to foster a more innovation-friendly environment, potentially leading to the approval of digital-asset exchange-traded funds and a reduction in enforcement actions against crypto projects – in turn, promoting market growth and innovation in digital assets.
2. Environmental, Social, and Governance (“ESG”) disclosures: The new leadership is expected to roll back initiatives mandating ESG disclosures, such as the climate risk disclosure rule. A Republican-led SEC is likely to relax requirements on disclosures related to diversity, equity, inclusion, and climate risks, viewing them as exceeding the SEC’s statutory mandate and imposing unnecessary compliance burdens.
3. Corporate disclosure and cybersecurity: The SEC may take a more conservative approach to corporate disclosures and cybersecurity cases, focusing on material financial impacts rather than speculative risks. This includes a potential re-evaluation of the SEC’s approach to cybersecurity disclosure enforcement, moving away from “regulation by enforcement” and providing clearer guidance to companies.
4. Retail investor protection: Despite the trend toward deregulation, the SEC is likely to continue emphasizing the protection of retail investors, targeting fraudulent schemes that directly harm individual investors – consistent with the priorities during the first Trump administration.

Preparing for the transition

As the SEC transitions to new leadership, public companies should:

1. Review and update compliance programs: Ensure that compliance programs align with the anticipated regulatory focus.
2. Monitor regulatory developments: Stay informed about changes in SEC policies and enforcement priorities to adapt strategies accordingly.
3. Engage with legal counsel: Consult with legal experts to navigate the evolving regulatory landscape and ensure adherence to applicable laws and regulations.

Above all, as the new administration begins, companies are well-advised to closely monitor and respond to enforcement and regulatory activity as it proceeds during the coming four years.