SEC Poised for Slow Regulatory Unraveling Under Trump: Explained

Republicans are poised to dismantle corporate greenhouse gas emissions reporting requirements and other priorities of President Joe Biden’s SEC, after Donald Trump takes office next year.

Trump’s Securities and Exchange Commission is expected to start undoing the climate rules as soon as January, less than a year after their March release under Democratic Chair Gary Gensler. The regulations have yet to take effect; the agency paused them in April after companies, Republican state attorneys general, and others sued.

A Republican-led SEC also will have the ability to begin work to scrap registration and short-sale rules for hedge funds, as well as other regulations. The National Association of Private Fund Managers and other industry trade groups sued the SEC over the hedge fund rules after the agency issued them under Gensler. The cases are pending.

The process of unraveling SEC regulations, however, can take years. And court battles could be slow to wind down, especially in situations where outside parties like Democratic state attorneys general have intervened to defend SEC rules.

Here’s what would be involved should the Trump administration attempt to scrap SEC regulations:

1. Can an SEC chair dismantle agency regulations alone?

A new SEC chair, acting or permanent, only will have the power to initiate efforts to unwind the regulations. Any official rule changes would require the support of a majority of the agency’s commissioners and take months or years to finalize.

The commission chair can order agency staff to prepare a proposal that would weaken or eliminate the rules. The SEC’s commissioners then would need to vote to issue the proposal and would be required to solicit public feedback on the plan before they could vote to formally change the regulations. For the climate rules, the SEC took two years to turn a proposal into final regulations.

The SEC would be evenly split between Democrats Caroline Crenshaw and Jaime Lizárraga and Republicans Hester Peirce and Mark Uyeda, if Gensler departs. Trump would need to nominate a new Republican member to the SEC to advance any rule updates opposed by its Democrats.

Gensler relied on support from Crenshaw and Lizárraga to adopt the climate regulations and advance other rulemaking priorities over opposition from Peirce and Uyeda.

2. Is the agency’s chair able to stop it from enforcing rules?

Yes, the chair can instruct SEC staff not to pursue cases enforcing various regulations issued under Gensler.

Gensler ordered staff in 2021 to consider whether to recommend changes to proxy advisory firm restrictions adopted in 2020 under Trump SEC Chair Jay Clayton. The agency said it wouldn’t bring enforcement actions under the 2020 regulations while it considered updates. The SEC ultimately rolled back the rules in 2022, drawing lawsuits.

3. Can the SEC’s chair undo regulations by not defending them in court?

The SEC chair can direct the agency’s lawyers to settle suits over its rules. But the SEC likely would need to rewrite or scrap regulations in order to convince challengers to drop their cases, keeping litigation alive for months or years as the agency goes through its rulemaking process.

The SEC would need to overcome major hurdles to resolve the litigation over its climate rules, in particular. The agency would have to reach settlements with the US Chamber of Commerce, 25 Republican attorneys general, and others who filed nine lawsuits pending in the US Court of Appeals for the Eighth Circuit. The agency also would have to contend with 19 Democratic attorneys general, who joined the litigation in April to defend the climate rules.

The Eighth Circuit is looking to hold oral arguments in the litigation in the coming months.

4. Can Congress toss SEC regulations?

Republicans could use the Congressional Review Act to kill rules. That option—often called the “blunt tool” of Congress—eliminates rules and prevents agencies from proposing “substantially similar” regulations. That means the SEC wouldn’t be able to simply repropose the rules under a different administration.

Sen. Tim Scott (R-S.C.) and Rep. Bill Huizenga (R-Mich.) introduced a CRA resolution to scrap the climate rules shortly after the SEC finalized the regulation in March. The effort had a lot of hype, but fizzled out without a vote in the House or Senate.

Scott is next in line to lead the Senate Banking Committee and could revive the effort. However, lawmakers missed a cutoff to fast-track a CRA resolution through Congress with a simple majority vote and would need 60 votes in the Senate to clear a filibuster.

Republicans also could stop the agency from enforcing rules by attaching a rider to legislation funding the agency. The current appropriations bill expires in late March. There’s precedent for that path: Appropriations bills for years have included a provision that prevents the SEC from implementing requirements for companies to disclose their political spending, despite Democratic support for the reporting.

To Learn More:

• SEC Faces Rising Litigation Risk Over Rules, Watchdog Says (1)
• SEC’s Gensler Sees ESG Plans Thwarted as Biden’s Term Nears End
• House GOP Unveils Bill to Strike SEC Climate Disclosure Rule (3)
• SEC Freezes Climate Rules After Challengers Pushed for Pause (1)
• SEC Won’t Enforce Trump-era Restrictions on ISS, Glass Lewis (2)