When you hear “SEC”, your first thought might be about a powerhouse college football conference. But there’s a different SEC — the Securities and Exchange Commission — that plays a critical role in the financial system and overall economy. And the agency could be in for some changes under the incoming Trump administration.
To the average person, the SEC’s policies may seem obscure or irrelevant. But even if you don’t work in finance, the agency can have a significant impact on your life.
Anyone who invests in securities such as stocks or bonds — the majority of Americans, especially when accounting for retirement investments — arguably benefits from the SEC’s rules and enforcement. Born out of the Great Depression, the SEC’s mission includes ensuring fair and orderly financial markets.
If companies try to manipulate investors with false information, for example, the SEC can put an end to this practice and punish bad actors. The SEC’s mission also extends to areas such as facilitating capital formation by startups and other businesses — such as through initial public offerings (IPOs) — which ultimately can help create jobs and economic growth.
While opinions differ on how the SEC should regulate financial markets, in general most agree that having some level of regulation promotes investor and business confidence in the system. However, under the Trump administration, the scales could tilt toward lighter oversight.
“What you’d likely get with almost any kind of more conservative or Republican-leaning administration is less of a grip of regulation enforcement,” said Jonathan E. Groth, partner at DGIM Law.
Initially, that could bring down costs and enable more widespread investment — especially for crypto and other digital assets. But in the long run, deregulation arguably increases risk throughout the financial system — such as what was seen leading up to the Great Recession — and leaves individuals more on their own to figure out what’s a legitimate investment.
A crypto-friendly SEC
In early December, Trump tapped Paul Atkins for SEC Chair to replace outgoing Biden nominee Gary Gensler. Atkins, an SEC commissioner under President George W. Bush’s administration whose current roles include being co-chair of the Token Alliance, is expected to embrace more crypto-friendly practices as opposed to Gensler’s emphasis on cracking down on crypto fraud.
Crypto falls into sort of a gray area in terms of how the SEC can regulate it, as it’s not a traditional security like stocks. It remains to be seen how friendly the SEC will be if Congress passes legislation that gives the agency clearer authority over these assets.
“Right now, with a lack of a stronger regulatory framework with respect to digital assets, really what you’re relying on is a mishmash of rulings from U.S. district courts throughout the country,” Groth said. “That opens a book for potentially conflicting rulings from different courts. And it’s hard to kind of grasp what direction you can take.”
The SEC could provide “a framework so that for businesses and groups that are trying to bring more tokens and more coins to the market, or are trying to allow for wider adoption and use of digital assets, it makes it easier for them to understand what’s expected of them,” Groth said.
This could bring confidence to these companies that if they’re offering digital assets in compliance with a clear regulatory framework. “They’re not going to be subject to enforcement actions or subject to lawsuits for potential fraud, which we see a lot of right now,” he added.
That’s not to say the SEC will stop prosecuting crypto scams like pump-and-dump schemes, but the number of enforcements might lower, in part because of regulatory clarity and rules that give more leeway to issuers.
Any new regulatory framework will be likely to include some form of investor and consumer protection, but “as digital assets and cryptocurrencies proliferate under this administration, it’s important to be smart. It’s important to not just hitch your wagon to this train that’s coming into the station without being as educated as you possibly can,” Groth said.
Lighter disclosure
In addition to taking a more crypto-friendly stance, the SEC will also likely take a lighter approach to disclosure requirements for public companies, financial advisers and others that fall under the agency’s purview.
“At minimum, I do think we’re going to see a rollback on active rulemaking, in particular with respect to ESG-related issues”
“At minimum, I do think we’re going to see a rollback on active rulemaking, in particular with respect to ESG (environmental, social and governance)-related issues,” said Jennifer Lee, partner at Jenner & Block and a former assistant director in the SEC’s Division of Enforcement.
In March 2024, for example, the SEC adopted rules that would require public companies to make climate-related disclosures, but these might not come to fruition. Well before Trump’s reelection, the SEC issued a stay, meaning these rules were put on pause until further judicial review.
“I expect those to either be not enforced or rolled back entirely,” Lee said.
Other areas like cybersecurity and artificial intelligence could also face less active rulemaking and enforcement than during the Biden administration.
In some ways, lighter disclosure requirements could be free up time and money for corporate activities beyond compliance. For example, the SEC’s climate disclosure rules are estimated to cost registrants $628 million per year.
For investors, however, not having standardized disclosures — such as how companies are addressing cybersecurity risks — makes it “harder to do an apples-to-apples comparison,” Lee said.
Overall, public companies and others regulated by the SEC will likely have more leeway under Trump. A relaxed regulatory environment “can be very good for the market,” Groth said. “People can see their portfolios grow more quickly and more substantially.”
However, that can mean people are on their own to understand risks and ensure they’re choosing reputable financial products and service providers.
“That’s not to say that they’re stripping away all consumer protection efforts by any means, but naturally, a higher focus on free markets and relaxing regulation certainly means it’s got to come at the cost of somewhere. And that generally will likely mean consumer protection measures,” Groth said.
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