The Conduct Chronicles – SEC Renegotiation? Not a chance!
Regulators are reviewing and revising regulations by creating a less intense process for financial services looking to comply with the rules, and while the SEC has refused revisiting past settlements, FINRA seems to be on the case.
Written by a human
With continued economic headwinds, every government is pursuing growth, and they are tasking their regulators to find ways to do the same. Quick to act, regulators around the world – including the U.S., UK and Australia – are swiftly issuing statements outlining their strategies to simplify their rule books and outlining how this will support the growth agenda.
The UK Financial Conduct Authority (FCA), for example, has released its 5-year strategy to “support growth and improve lives”. It sets out that it “will change how it supervises to be more efficient. This includes taking a less intensive approach for those firms seeking to do the right thing, significantly streamlining how it sets its supervisory priorities, and reviewing whether it can stop requiring certain data returns.”
Australian regulator ASIC meanwhile has released a statement outlining its ambitions and plans for regulatory simplification. It emphasizes that “simplicity enhances our ability to take regulatory action. It’s good for consumers, investors and businesses, and it is in line with government aims to reduce the regulatory burden throughout the economy.”
Underscoring the importance of its strategy, ASIC highlighted that its focus is “on making the most difference as quickly as possible for consumers and investors, for businesses and directors. ”Supporting its ambitions, ASIC has launched a Simplification Consultative Group, as well as an Expert Advisor Panel.
However, in amongst the regulatory upheaval, financial services firms are watching with interest to ascertain which regulations will be simplified, which rolled-back, and indeed wondering whether some will be abolished altogether.
We need only look to the U.S. to see how this is playing out in real-time, often accompanied by spectacular media headlines. With the U.S. regulatory pendulum swinging wildly, there’s fallout, and in some cases, unintended consequences, across The White House, regulators and financial services firms.
The U.S. Regulatory Pendulum
On 9 May 2025, U.S. President Trump issued an Executive Order “Fighting Overcriminalization in Federal Regulations” the opening line of which proclaimed that “The United States is drastically overregulated. ”Setting out the case for change, the Order outlines that “The Code of Federal Regulations contains over 48,000 sections, stretching over 175,000 pages — far more than any citizen can possibly read, let alone fully understand. Worse, many carry potential criminal penalties for violations… This status quo is absurd and unjust.”
With the U.S. regulatory pendulum swinging ferociously, we are witnessing rapid change and especially within the SEC. In fact, since Trump entered the White House, the SEC has lessened its climate-change requirements, shelved its anti-crypto lawsuits, and reduced its enforcement division.
It’s clear that the SEC’s new leadership team envisage the regulator having a much narrower role. Indeed, according to Commissioner, Mark Uyeda, “the SEC has gone back to its traditional roots.”
The ambition for a leaner and more simplified approach to regulation in the context of the growth agenda makes good economic sense. However, the U.S. administration’s chaotic approach may create headwinds that hinder, or indeed serve to undermine, the aim.
A Chance to Renegotiate?
In amongst the regulatory turmoil, some U.S. firms have questioned whether there will be an opportunity to renegotiate more favorable terms in their settled agreements. In a case of wondering whether “all bets are off” post President Trump’s new order, U.S. firms with recordkeeping violations involving off-channel communications settlement orders have already submitted motions to the SEC to have them modified arguing that newer settlements were notably less burdensome.
The firms were seeking to remove the requirement to engage an independent compliance consultant for an iterative process and replace that requirement with a one-time internal audit; as well as to remove the requirement to report employee discipline regarding off-channel communications to the Commission for two years.
The response from the SEC? Not a chance! – with the SEC noting in a legal statement released in April that none of the parties demonstrated “compelling” or “extraordinary” circumstances to modify the settled orders.
SEC Fines but FINRA Consequences
Whilst the industry has been focused on the SEC recordkeeping fines, FINRA has now highlighted that there have been severe and perhaps unforeseen consequences to the SEC enforcement actions.
As previously discussed, from 2021 to 2024, the SEC enforced recordkeeping violations against 77 FINRA member firms. These imposed uniform settlement terms, including independent compliance consultants and disciplinary reporting.
However, whilst FINRA had no role in influencing the settlements, it’s now become evident that the SEC’s enforcement actions triggered significant collateral consequences. It’s touched upon briefly in the SEC’s April legal documentation, however FINRA has specifically highlighted that the firms became “statutorily disqualified” and have had to apply for membership continuance with FINRA under heightened supervision plans.
Concerned by this turn of events, and keen to resolve the situation, FINRA plans to consult with the SEC, and other self-regulatory organizations, to evaluate the consequences and find a solution. It’s aim? To balance fairness with investor protection.
Bonfire of the Regulations
Back to the growth agenda, regulators and indeed governments, will be weighing-up and wanting to seize the first-mover advantages of simplifying their rule books. It’s not just growth at stake. There’s also the reputational upside of being seen as a jurisdiction that is agile, innovation-friendly, and that, critically, is less complicated and hence less costly to do business with.
Regulatory asymmetry already drives firms to undertake significant due diligence on jurisdictions as they evaluate where best to establish their headquarters, or into which markets they expand first (or indeed last!). They don’t just consider market demand, and availability of local talent, but also whether they can do business without having to engage an expensive team of lawyers. The current capital listings battle between New York and London is a prime example.
There are, of course, some risks to regulatory reviews and revisions. Get it wrong and the consequences can be severe. Hence, whilst regulators are taking the red pen to their rule books to simply and reduce complexity, they will clearly be hoping that a bonfire of the regulations doesn’t lead to a new financial crisis!
