Uyeda promises stability amidst upheaval

Acting SEC chair Mark Uyeda told an industry audience last week that the agency will abandon the full-throttle, broad-scope regulatory approach instituted under former SEC chair Gary Gensler in favor of a slower more traditional approach to rulemaking.

Under Gensler the SEC cut corners to push as much regulation through the approval pipeline as possible in the shortest time, often without sufficient effort to explain either the problem being addressed or how a new rule proposal would solve it, Uyeda said during a March 17 appearance at the Investment Company Institute’s (ICI) Investment Management Conference in San Diego.

“During the past four years I have expressed my concern about the changes to the Commission’s rulemaking processes – which were not for the better,” he said. “I have described these changes as ‘rulemaking shortcuts’ often taken in the name of expediency…[which]have returned to haunt the Commission in subsequent litigation.”

Uyeda said the SEC will reverse the Gensler-era approach by developing a blueprint for securities regulation that allows more time for public comment on rule proposals, allows exemptive relief to encourage innovation not yet covered by regulations and make the agency more predictable and accessible to companies it regulates.

Uyeda’s long-term solution is to develop a blueprint that will slow the rulemaking process to allow more time for members of the public to comment on the proposal, offer solutions to reinforce its weak points and give the SEC staffers time to re-evaluate and re-write the result. Proposals with enough negative comment should be withdrawn for reconsideration and rewrite, Uyeda said, so they could be re-introduced later as new proposals that would have to go through the same comment-and-modification process as the original.

“One of my objectives will be to set forth a blueprint for restoring the Commission’s rulemaking processes to the “gold standard” among regulatory agencies,” Uyeda said.

Reassuring promises

The details and timing of Uyeda’s plan aren’t clear, but it is a relief to hear such a strong endorsement of the importance of public comment and a more predictable rulemaking process from the SEC, according to Carolyn McPhillips, president of the Mutual Fund Directors Forum (MFDF).

“He really emphasized a more methodical approach to rulemaking that would be more practical for funds to implement,” she said. “And the idea of extending the comment period, especially for complicated rulemakings where there are a lot of issues for people to unpack; that’s pretty significant after a robust and pretty speedy regulatory period.”

Uyeda’s approach is a “refreshing” change from the approach of the SEC during the past few years, according to Thomas Kim, managing director of the Independent Director’s Council – a fund-director-focused organization affiliated with the ICI.

“He is taking a thoughtful approach in terms of the SEC is role within the asset management ecosystem,” Kim said. “He cares for the investor but at the same time understands the importance of engagement with stakeholders, including both parties and the independent-director community, but also the asset management industry overall.”

Industry wishlist

There is considerable overlap between the goals Uyeda described in the speech and a blueprint of regulatory reform the ICI released shortly before Uyeda’s appearance at the conference.

The blueprint Reimagining the 1940 Act was hammered out during a three-year effort by an ICI working group that shifted into high gear following a 2024 ICI conference that marked the high point of conflict between the industry and Gensler’s SEC. At the conference, at which Gensler made no appearance, included a keynote from ICI president and CEO Eric Pan, who accused the SEC of rulemaking that was not only ineffective, but actually harmful to both the industry and investors.

The goal, according to the ICI, is to update ’40 Act rules to foster rather than restrict the growth of ETFs, expand retail-investor access to private markets, defend the role of closed-end funds and reinforce the oversight and independence of fund directors.

Emphasis on the importance of public comment “would also hopefully extend to how the Commission thinks about the role of directors in rulemaking or exemptive relief,” she said.

Exemptive relief

Uyeda’s focused most of his talk on what he saw as the weaknesses of the Gensler-era SEC and the benefits of a more rigorous regulatory framework, but attendees reacted much more strongly to his promise that the SEC would reverse the SEC’s reluctance to provide exemptive relief to companies developing innovative products that are not fully covered by existing regulations.

Uyeda offered few details, but did cite as an example a product that could give retail investors access assets in real estate, private equity and private credit without losing the protection available through fund providers.

“One of the real knocks on the Gensler administration was that there wasn’t a lot of exempted relief granted,” McPhillips said.

“That does provide a kind of laboratory where you can see how something might work in practice before a formal rulemaking,” she said. “I think it is an evolution in the regulatory process, but it’s important because, right now, the main kind of exemptive relief people are concerned about is for ETF share classes.”

The promise of exemptive relief is a good sign because “capital formation wasn’t discussed very much during the last several years,” Kim said. “It appears to be a more balanced conversation about all elements of the SEC’s mission.”

Attracting capital isn’t a core responsibility of fund directions, but fund directors will need to keep up with the kind of innovation that could be possible if exemptive relief were more commonly available, he said.

Making alternative assets available through registered products overseen by fund boards could also address the higher level of risk many of those assets carry, McPhillips said.

“If you’re going to give retail investors access to some of those more volatile assets, it absolutely should be in a registered-fund wrapper carrying the protections of the ’40 Act,” she said. “Having a fund board there to look out for the interests of shareholders would be critical.”

Cleanup or chaos?

Industry leaders reacted positively to the approach Uyeda described, but largely avoided comment on the dichotomy between his promises of a shift to a slow-and-steady regulatory process, and the reality of his the chaotic first two months of his tenure as acting SEC chair, during which he has relied on command decisions rather than discussion to affect a large-scale reversal of many of the highest-profile changes under Gensler.

The Executive Order requiring that the SEC and other federal agencies seek approval from the Office of Management and Budget (OMB), the constant threat of mass firings and requirement that officials of independent agencies take their marching orders directly from the White House represents the advance of authoritarianism, not a return to a reasonable approach to regulation, according to a March 13 analysis in which Columbia Law School professors John Coates, John Coffee Jr., James Cox, Merritt Fox and Joel Seligman compared the cutbacks and restrictions by the current Trump administration to “watching the SEC face a death by 1,000 cuts.”

Within days of Gensler’s resignation Uyeda announced a large-scale reversal of the SEC’s skeptical approach to crypto investing, including an overhaul and replacement of the enforcement unit responsible for crypto litigation and the creation of a new task force whose goal was to encourage the development of crypto products rather than deter them.

Shortly afterward Uyeda announced that the SEC would delay or abandon its defense of its heavily litigated climate-risk disclosure regulation, effectively eliminating the chance of survival for a rule that became the focal point of controversy during Gensler’s time as SEC chair.

The SEC has also announced it would shift authority to launch significant enforcement investigations to the commission itself, rather than relying on decisions by senior Enforcement Division officials leading those investigations.

The SEC responded to controversial White House orders to cut costs and reduce headcount by announcing it would eliminate leadership positions in a number of regional offices, offered high-dollar retirement incentives to SEC staff and announced plans to give up the leases of office buildings in a number of regional-office locations.

Staffing and office-cost reductions follow Trump administration orders requiring cost-cutting in all federal agencies but also represent, according to some sources, an effort to get ahead of and reduce the potential impact of a predicted onslaught of the controversial Department of Government Efficiency (DOGE), whose cost-cutting efforts revolve around mass firings that continue despite a growing list of strident rejections by federal courts that have ordered the rehiring of many of those displaced by DOGE.

Uyeda skipped most of those issues during his talk at the ICI conference. He did, however, defend the effort to reverse Gensler-era policies on crypto and climate disclosure as part of a fabric of fast, sloppy rulemaking that left investment advisers struggling to keep up with rapid changes while also fighting back against rule proposals that generated opposition became so intense during the SEC’s defense of its effort to mandate swing pricing that fund boards stood up en mass to decry and ultimately defeat it.”

“We are aware that some SEC skeptics have argued that the SEC brought this pending loss of independence on itself through the energy and independence that have long characterized the agency. Others claim that the SEC can operate with less resources by reallocating its troops, moving them from less active offices and departments to more active ones. Both claims are erroneous. As experienced securities counsel are aware, the SEC’s role is statutorily required and works best when counsel and the SEC staff work cooperatively. Nor, under current law, can the SEC itself shift the appropriations that Congress gave it,” the five wrote.

“There has never been anything this dramatic or far-reaching as what you’re seeing now,” Joel Seligman, a law professor at the University of Washington in St. Louis and SEC historian, told Bloomberg.