HOUSE FINANCIAL SERVICES COMMITTEE
SUBCOMMITTEE ON CAPITAL MARKETS
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On February 4, the House Financial Services Committee Subcommittee on Capital Markets held a hearing, “A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence.” Witnesses in the hearing were:
- Peter Chan, Partner, Baker McKenzie
- Alexander Cohen, Partner & Co-Chair of the National Office, Latham & Watkins
- Chris Iacovella, President and Chief Executive Officer, American Securities Association
- Ben Schiffrin, Director of Securities Policy, Better Markets
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
- Committee Chairman Hill (R-AR) referenced concerns about regulation by enforcement and bureaucratic overreach at the Securities and Exchange Commission (SEC) under the Biden administration, crediting Chairman Atkins with returning the SEC to its core mission. He outlined how restoring accountability requires adherence to notice-and-comment procedures, rigorous cost-benefit analyses, and a reexamination of the enforcement process.
- Subcommittee Chair Wagner (R-MO) highlighted that lasting reform requires congressional action, including ensuring that rules are not rushed or stacked without clarity or economic justification, notice and comment is treated as foundational and not a procedural formality, cost-benefit analysis is rigorous, and the end of regulation by enforcement as a substitute for policymaking.
- Subcommittee Chair Wagner raised concerns about SEC structural drift, with too much authority delegated to staff-level decisions and a lack of transparency. She cited targeted legislative proposals and reforms needed to strengthen economic analysis requirements, reinforce meaningful public comment periods, clarify enforcement standards, and modernize the SEC structure for accountability and statutory bounds.
- Representative Casten (D-IL) said a tokenized stock should retain its regulatory status as a security, regardless of blockchain representation or derivative structure. Iacovella stated that the American Securities Association would oppose creating any loophole that would exempt such assets from SEC jurisdiction solely due to tokenization.
- Representatives and witnesses called for codifying reforms like the SEC Regulatory Accountability Act and establishing a statutory sixty-day minimum comment period, with ninety days for complex rules, to prevent rulemaking that is rushed, stacked, or justified by speculative benefits while real costs are ignored. They outlined how such would address bipartisan concerns that thirty-day windows undermine meaningful public participation, with longer timelines helping to improve the quality of stakeholder feedback, and shift notice and comment from a check-the-box exercise.
- Discussions recommended aligning the SEC’s cross-border broker framework with the CFTC’s substituted compliance and equivalency regimes to reduce friction and provide U.S. institutional investors with better access to global liquidity.
- Iacovella referenced the SEC’s unauthorized delegation of the Consolidated Audit Trail (CAT) to self-regulatory organizations (SROs), citing how industry is required to fund a surveillance regime that collects sensitive information outside the appropriations process.
SUMMARY
Opening Statements and Testimony
Committee Chairman French Hill (R-AR)
During the Biden administration, many market participants raised concerns about the bureaucratic overreach of that administration, particularly regulation by enforcement. Accountability must be restored at the SEC by ensuring the Commission follows the proper notice-and-comment procedures, produces rigorous cost-benefit analyses, and re-examines its enforcement process. These actions will restore public confidence, create transparency, and increase stakeholder engagement. Under Chairman Atkins, we have seen significant progress in returning the SEC to its core mission of facilitating capital formation, protecting investors, and maintaining fair, orderly, and efficient markets.
Subcommittee Chair Ann Wagner (R-MO)
For several years, the SEC drifted away from the principles that have long made our capital markets work. Rulemaking accelerated without sufficient economic analysis. Enforcement actions increasingly replaced clear rules. This is not about relitigating the past, but ensuring the future of the SEC is grounded in the rule of law and respect for due process. Under Chairman Atkins, the SEC has begun righting the ship, restoring internal discipline, and reentering the agency back to its core statutory mission. Lasting reform requires durable guardrails, and that is where Congress must lead. Rules should not be rushed, stacked on top of one another, or justified by speculative benefits while real costs are ignored. Notice and comment is not a box to check, but a foundation of administrative law. Rigorous cost-benefit analysis is not optional or cut and paste, but essential to ensuring rules serve investors and markets rather than undermine them. The SEC is a civil enforcement agency, not a policymaking substitute for Congress. Enforcement should target fraud and clear violations of established rules, not serve as a substitute for notice-and-comment rulemaking or expand regulatory authority beyond what Congress has authorized. We must address the SEC’s structure and internal decision-making, as over time, authority drifted away from the SEC itself toward staff-level actions that lack transparency and accountability.
Subcommittee Ranking Member Brad Sherman (D-CA)
I agree we should not have regulation by enforcement because if you actually write a regulation, it is clear, reflects public input, applies to everyone, and is pretty stable across Chairs. What we have now is deregulation by non-enforcement, capitulation, and pardons. Now we have TrumpCoin, investigations dropped, and convicts pardoned. The SEC has cut its enforcement staff by about twenty percent. In 2024, the SEC levied $8.2 billion in fines and returned $3.2 billion to investors. What we have seen in 2026 is one-tenth the fines and less than half the average amount of fines over the last ten years. We have a unipartisan SEC, because when a Democrat leaves the SEC, no Democrat is replaced. We have always had the minority party with two seats.
Peter Chan, Partner, Baker McKenzie
In recent years, the SEC has lost its way when it comes to fairness and engaged in regulation by enforcement by setting de facto rules through enforcement actions without fair notice. There was a well-documented attempt to use enforcement actions to stifle innovation in digital assets and blockchain technology. To pressure parties to settle cases where the SEC may not prevail in court, the enforcement staff has also engaged in unfair practices, such as threatening burdensome investigative requests or unwarranted outreach to customers if parties do not agree to settle. Enforcement staff have been incentivized in recent years to pursue cases involving esoteric theories and large penalties that generated headlines, such as the off-channel communications initiative. The SEC should be focusing on getting rid of burdensome regulations that no longer make sense. Instead, the past SEC engaged at a breakneck pace to promulgate rules, resulting in unfair process and bad rules. He has issued key policy statements to reform enforcement and launched initiatives to reduce unnecessary regulatory burdens, but there is no guarantee that future leadership will not deviate from the path of fairness. The SEC should therefore establish clear rules to hardwire fairness into its culture. An independent advisory committee of outside experts, a Wells 2.0 Committee, can help the SEC further identify methods to align staff incentives and revitalize the culture of fairness. Better yet, legislation can ensure that fairness will always be part of the SEC. More here.
Alexander Cohen, Partner & Co-Chair of the National Office, Latham & Watkins
U.S. securities laws have been remarkably successful in making the U.S. the gold standard of securities regulation. Since the passage of the Securities Act of 1933, the securities regulatory system has accumulated numerous features that, like barnacles on the hull of a ship, serve only to slow down progress. Congress now can sandblast some of these regulatory impediments, and I am grateful to the Subcommittee for the opportunity to add some sand to that undertaking. In the appendix of my testimony, I describe a package of ten improvements that Congress can make to SEC functioning and U.S. securities regulation, organized into four broad categories: modernizing the SEC’s structure; improving the SEC’s regulation of public company accountants; reining in SEC regulatory overreach; and eliminating regulatory inefficiencies and failed initiatives. My proposals range from the far-reaching to the quite technical, but I am convinced that all would help assure that the U.S. retains its position as a leader in global securities regulation. More here.
Chris Iacovella, President and Chief Executive Officer, American Securities Association
The pendulum on hot-button political and cultural issues has swung from administration to administration, turning a historically apolitical and technocratic agency into an unelected political actor. Congress can end the SEC’s mission drift by reasserting its policymaking prerogative over the agency. If Congress cannot agree on the details of a policy issue, then language about that policy should not be in legislation, and legislation should not include broad, opaque, or public interest language that allows unelected individuals to make policy decisions. Congress’s delegation of its power to the administrative state has gone too far for too long and is the central reason the SEC has become politicized. The SEC’s delegation of policymaking authority to career staff must end as such delegation is appropriate solely for administrative matters, not policy decisions. The public deserves a minimum sixty-day comment period for rule proposals and at least ninety days for complex rules. The SEC should publish a transparent fine schedule for administrative rule violations, such as recordkeeping, so the public understands how fines are calculated. Enforcement staff must be held to the same ethical standards as every other licensed attorney. Having staff sanctioned for lying to federal courts and dismissing dozens of cases due to improper conduct erodes public trust. Senior leadership in the enforcement division should have securities experience, not just prosecutor experience. SEC rules must respect the cost-benefit analysis required by Congress. Using random or unjustified costs is unacceptable and disregards a congressional directive designed to stop unjustified rules from harming the economy. The public should not be subject to a “comply or sue” scenario. Lawsuits are costly, and repeated court losses damage the agency’s credibility. The SEC’s unauthorized delegation of its core functions to self-regulatory organizations (SROs) must end. These delegations circumvent the appropriations process and impose open-ended costs on the industry that should fall within the agency’s budget. An example is the SEC’s delegation of the Consolidated Audit Trail (CAT) to SROs, requiring the industry to fund a multi-billion-dollar regulatory surveillance scheme that collects personal and financial information. Congress should revisit the current structure of the agency to insulate it from partisan political pressure. While there are many ideas, one option could be an evenly divided Commission with permanent Co-Chairs, one from each party. More here.
Ben Schiffrin, Director of Securities Policy, Better Markets
Chair Atkins views the SEC as an arm of the administration, and his SEC exists to protect the financial industry, turning its back on the SEC’s historic mission of investor protection. The SEC has spent the last year curtailing the rights of investors and public companies, endorsing the sale of risky and expensive private market assets to retail investors, promoting the crypto industry relentlessly, reducing enforcement to its lowest levels in a decade, dismantling the database it uses to catch crooks, and revisiting, delaying, or abandoning rules designed to protect investors. The SEC’s determination to prioritize the interests of Wall Street and corporate management comes at the expense of investor protection and has fundamentally altered the relationship between public companies and investors. This transformation of the SEC’s priorities and its broad-based attack on disclosures, rights, and remedies will hurt all investors. At the same time as the SEC is making it harder to be an investor in public companies, it is making it easier for private market firms to solicit retail investors. Private market assets have long been considered risky for retail investors because they lack the disclosures required of companies that publicly offer securities. Even so-called accredited investors complain about the lack of transparency in private markets. Under the guise of democratizing access to these securities, the SEC is steering retail investors into the private markets at the same time institutional investors are pulling back from assets that offer greater risk and lower returns. Our capital markets are the envy of the world, and our competitive because they are well-regulated and well-policed. As investor rights and protections are stripped away, investors will look elsewhere to invest their money. More here.
DISCUSSION
Representative Wagner (R-MO): What are the benefits of mandating a sixty-day comment period? Cohen: Sixty days is a very good idea and would be very helpful. The comment process yields a lot of really interesting and important feedback; Iacovella: The comment period really harms small businesses that do not have an army of lawyers or a large legal budget to be able to outsource to comment on a complex rule in a thirty-day time span. That is why it is necessary to be at least sixty days.
Representative Wagner (R-MO): Would codifying the SEC Regulatory Accountability Act, which requires definitive problem identification before rulemaking, provide the guardrails needed to make a materiality-based approach permanent? Chan: Having statutory guardrails to make sure that there is actually a material problem or an issue that needs fixing would very much assist the SEC in focusing on fairness and going after fraud. It will help prevent regulation by enforcement, but one of the problems is that when there are guardrails on rulemaking, that is when the temptation to regulate by enforcement is the greatest.
Representative Wagner (R-MO): How can Congress write clearer, more durable securities laws that constrain regulatory overreach while still giving the SEC sufficient authority to respond to material market risks? Iacovella: Congress did just that with the JOBS Act in Title I. It was self-effectuating, and as soon as it was passed, companies started to IPO using that. What did not happen in the rest of the JOBS Act were the other titles that took a lot of time with SEC comment, and they were watered down in a way that was not negotiated in a bipartisan way by Congress. Having language that takes effect immediately upon being signed by the President is very important because it bypasses the rulemaking process. You can then give time to review that after a two- to three-year period to see if there are corrections that are necessary to improve processes.
Representative Waters (D-CA): Do you consider the SEC independent? Is the lack of resources and funding an issue of concern, and has the SEC traditionally been understaffed? Shiffrin: It should be and has historically been an independent agency. Chairman Atkins seems to view it more as an arm of the administration. The SEC needs resources in terms of funding and staff so that it can do its main job, which is to be the cop on the Wall Street beat. The SEC has to regulate a $100 trillion capital market, and it has always been underfunded and understaffed in that respect. The recent staffing cuts at the SEC only exacerbate the already difficult task that the SEC has in regulating the size of those markets.
Representative Sherman (D-CA): Why is it important, given that Congress structured the SEC as an independent, bipartisan regulator, to have two Democratic Commissioners on the SEC and a fully bipartisan Commission? Shiffrin: You need a diversity of viewpoints on the Commission. That is going to not only make the SEC’s rules better, but also more durable, in the long run. If another administration comes in, it is going to be much harder to undo something.
Representative Vargas (D-CA): How do you carry out responsible regulatory reform without eroding investor protections? Shiffrin: The SEC is seemingly eliminating core investor protections. Chairman Atkins has talked about revising Regulation S-K, which includes core disclosures and material information that investors rely on. Disclosure is the bedrock of securities regulation, and we cannot just be doing away with that; Cohen: The success of U.S. securities regulation does not mean that we have to regard the system as static, and that we should be open to making changes. One of the proposals that I made was to add a Vice Chair to the position of the Chairman. The Chairman has too many direct reports and too many statutory responsibilities, and that this impedes their ability to be effective and we all would like the SEC to be run on an effective basis.
Representative Casten (D-IL): Do you share the SEC’s view that a tokenized stock remains a security regardless of whether it is represented on a blockchain or structured as a derivative? Would you oppose legislation that would create a loophole allowing companies to avoid SEC jurisdiction solely because a security is tokenized? Iacovella: Yes. It should take the form of whatever it tokenizes from a regulatory standpoint, and it is subject to Regulation National Market System (NMS) if it is an equity. We would oppose creating that loophole.
Representative Lucas (R-OK): Can you speak to the enforcement side of the SEC, and how would you characterize the changes in the capital markets under Chairman Atkins’ leadership? Chan: It has been dramatic, and it is going back to common sense. If you take a look at the enforcement cases since Chairman Atkins appointed Judge Ryan to be Director of Enforcement, you will notice that the majority of the cases involve going after intentional fraud. The SEC under the previous administration spent the entire resources of the SEC going after people who might have, by an interpretation, violated the law. I worry about how much was missed in terms of failure to detect intentional fraud. I applaud the Chairman for returning the SEC back to its core of going after intentional fraud from an enforcement perspective.
Representative Lucas (R-OK): What are the benefits of using the process established under the APA to regulate market behavior rather than relying on staff bulletins, as the previous administration did? Cohen: Notice and comment rulemaking is an extremely effective tool because of the complexity of our financial markets. It is very difficult, even for knowledgeable regulators, to be able to get a full understanding of the importance of the actions that they are taking. There is always room for interpretation and staff action. You need that as a safety valve, but notice and comment ought to be the preferable way.
Representative Davidson (R-OH): How could Congress reform the Wells process to require disclosure of specific legal theories or evidence so Wells notices cannot be weaponized? Chan: It would be very helpful, consistent with what Chairman Atkins has done, to reform the Wells process to make sure that if I am getting sued, I should know what I am getting sued for and I should know what the evidence is against me. Having clarity as to the evidence, the legal theory, and exactly what is going on is important. Transparency will be very much needed.
Representative Davidson (R-OH): What guardrails can Congress put in place to ensure enforcement actions, including Wells notices, cannot be weaponized in the future, especially against DeFi? Chan: Oversight by this Subcommittee is important. In terms of guardrails, it goes back to hardwiring fairness and clarity in the enforcement process. One of the things is the problem of the SEC making up standards through enforcement, even with new technology.
Representative Stutzman (R-OH): How important is it for the SEC to evaluate the total economic impact of its rulemakings, and what happens when regulators move too fast without fully understanding the consequences? Iacovella: It is extremely important to fully evaluate and ask the public for information to quantify the real costs to everyone. You cannot aggregate those costs and then extrapolate them onto the industry. People need to understand at what levels they are going to be impacted. The unfortunate part is that when this is not done properly, you are left with one scenario, which is either to comply with a rule that is faulty and that you know could potentially put you out of business or could constrain competition, or to sue. That is not good for the industry nor our economy.
Representative Downing (R-MT): What was the harm caused to U.S. capital markets by rushing through so many rules, with the SEC finalizing 34 substantive rules under Chair Gensler? Iacovella: When you do not have the time and opportunity, and when you have one complex rule, it takes a long time and a lot of resources and manpower. In the case of market structure there were four of them, and we did not understand exactly how they were going to work intertwining together to change the entire market structure. That was very problematic because it started to make people nervous about what the changes were going to look like, and instead of actually putting comment together, people were contemplating whether to just sue.
Representative Downing (R-MT): How can the SEC’s current organizational structure be improved so that it operates more efficiently? Cohen: I think there could be value in creating a Vice Chair position and in folding the PCAOB into the SEC.
Representative Downing (R-MT): How should the SEC properly conduct analysis of a rulemaking’s impact on capital formation? Cohen: Rigor in economic analysis is extremely important.
Representative Garbarino (R-NY): Given that the SEC’s cross-border broker framework requires foreign brokers to operate through a registered U.S. intermediary, creating costs and friction compared to the CFTC’s equivalency approach, are there areas where the SEC could allow U.S. institutional investors more efficient access to global liquidity through well-regulated foreign broker-dealers, such as equivalency regimes with major jurisdictions? Chan: Absolutely. I call this the four corners of global interoperability. The SEC can do a better job on ensuring that investment products can be accessed seamlessly and internationally. Professional licensing can easily be clarified and simplified. The reporting regime and also the examination process are areas where a lot of work can be done with other regulators globally that can make international trading and investment in securities much easier. The key is the SEC understanding what else is going on in the rest of the world.
Representative Garbarino (R-NY): How should the SEC or staff address and unwind Chair Gensler’s rulemaking excesses consistent with the goal of reducing unnecessary burdens and facilitating capital formation? Cohen: Chairman Atkins articulated the concern about too much disclosure overwhelming people, and that is a long-standing concern that many SEC Chairmen have articulated.