Firing Regulators, Market Expansion & More

This month in the DC Insider, a House bill could mean an influx of capital and investors for private markets moves to the Senate, an Executive Order aimed at increasing oversight of the proxy advisory industry, an FTC workshop on noncompete agreements, and more. Get insights and analysis about developments in Washington that could have an immediate and long-term impact on your business.

Supreme Court

Congress

SEC

• Proxy Advisors Oversight Sought– President Trump signed an Executive Order (EO) aimed at increasing oversight of the proxy advisory industry, charging that top firms often “advance and prioritize radical politically-motivated agendas.” The EO directs the Securities and Exchange Commission (SEC) and other agencies to review if top proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis had violated rules or antitrust law. Specifically, the SEC was tasked to review rules and guidelines regarding the proxy advisory industry, including revising or rescinding any related to DEI and ESG. The EO also directs the agencies, including the Federal Trade Commission (FTC) and the Labor Department, to consider steps such as new regulations. Indeed, the first sentence of the EO makes clear the President’s positioning: “Unbeknownst to many Americans, two foreign-owned proxy advisors, Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC, play a significant role in shaping the policies and priorities of America’s largest companies through the shareholder voting process.”
• “Make IPOs Great Again” and Other Changes for the Future – In a wide-ranging speech at the New York Stock Exchange (NYSE), SEC Chairman Paul Atkins articulated a series of initiatives, including a need to update corporate disclosure rules to help more companies go public. Atkins addressed the need to refine the Commission’s reporting requirements, offer more companies relief from certain disclosure rules, extend the IPO on ramp for new issuers, and reform disclosures on executive pay, among other topics. He noted that: “If we want the next generation of innovators to choose our public markets, we need disclosure that is calibrated for a company’s size and maturity.”
• Rules on Auditor Conflicts of Interest Considered – SEC Chief Accountant, Kurt Hohl, is evaluating whether to change rules around conflicts of interest for auditors and their clients, how the Public Company Accounting Oversight Board (PCAOB) handles inspections of accounting firms, and the cost for companies of complying with requirements. Echoing a familiar theme from the SEC over the last year, he said, “What we don’t want to happen is essentially a high compliance cost to dissuade companies from accessing the public market.”
• Short Sale Rule Delayed Again – The SEC delayed for the second time this year the deadline for hedge funds and other big investors to comply with much-watched disclosure rules for short selling and related stock lending. Investment managers will now have until January 2, 2028, to comply with the short-sale rules, and until September 28, 2028, on the related stock lending disclosures.
• Analyst Restrictions Eased – The SEC lifted some restrictions on financial institutions with respect to conflicts of interest involving investment banks and their research analysts. The Commission agreed to modifications requested by financial institutions to release them from some requirements imposed under settlements in 2003 and 2004. A 2015 rule adopted by the Financial Industry Regulatory Authority (FINRA) addresses conflicts of interest between investment bankers and research analysts who work for the same company so there is no need for the duplication.
  
• Short Sale Rule Delayed Again – The SEC delayed for the second time this year the deadline for hedge funds and other big investors to comply with much-watched disclosure rules for short selling and related stock lending. Investment managers will now have until January 2, 2028, to comply with the short-sale rules, and until September 28, 2028, on the related stock lending disclosures.
• A Republican-Only Commission – With the departure of SEC’s lone Democrat Commissioner, Caroline A. Crenshaw, three Republican Commissioners remain atop the SEC. No nominations to fill the two Democrat seats have been made at this time.

FTC

CFTC

• New Chairman Takes Office – Pro-crypto regulator Michael Selig is now the Chairman of the Commodity Futures Trading Commission (CFTC). Previously, Selig was chief counsel for the SEC’s crypto task force in addition to advising SEC Chairman Paul Atkins. As a result, the CFTC will deepen coordination with the SEC and other agencies on crypto market structure, safe harbors, and cross-market rulemakings.
• Rules of Practice Amended – Earlier in December, then-Acting Chairman Caroline D. Pham announced the Commission had amended its Rules of Practice and its Rules Relating to Investigations. The amended Rules of Practice enhance the transparency of the Commission’s enforcement actions, including changes to ensure an accurate and complete administrative record by improving internal memoranda to the Commission when the Division of Enforcement recommends an enforcement action. The amended Rules Relating to Investigations enhance due process when the Division of Enforcement notifies persons who may be named in an enforcement action (Wells process), ensuring that notice of potential charges and relevant facts supporting the allegations are provided.

DOJ

China

• Outbound Investment Restricts Enacted – A key provision in the annual National Defense Authorization Act (NDAA) that President Trump signed in December give the U.S. new powers to screen and restrict domestic investment in Chinese technology firms. The outbound investment provisions cites entities in China and other countries of concern (including Cuba, North Korea, Venezuela, and Russia) that develop “dual-use” technologies with commercial and military applications. The legislation cements a Biden Administration Executive Order by codifying and expanding the ability to monitor and, in some cases, block S. financing of Chinese work on emerging technologies, including artificial intelligence, quantum computing, and advanced semiconductors.
• SEC Action on Chinese Companies Urged – House Select Committee on China Chairman John Moolenaar (R-Mich.) and Sen. Rick Scott (R-Fla.) sent a letter to SEC Chairman Atkins urging decisive action to enforce existing laws, request information on any legislative action needed to protect investors, and remove Chinese companies from U.S. stock exchanges. The two continue to push the SEC to delist Chinese companies that pose serious national security and investor protection risks. They previously wrote to Atkins in May and July last year.