Regulators perform an indispensable task as the literal police officers of free economies. Their patrolling of markets to root out force and fraud creates stability and surety, allowing private actors to do business in peace and safety. This is not an undertaking that consists of central planning. The scope of well-crafted law is modest; well-crafted law endeavors not to plan economies but to outline broad boundaries within which individuals may chart their own courses.
An agency that one might think a paradigm of this sort of focused and limited government is the Securities and Exchange Commission (SEC), with its tripart mission “of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.” However, in recent years — and particularly in the Biden years — the SEC has acquired a taste for ordering industry about. Chair-nominee Paul Atkins will soon lead a Republican majority, and with his arrival, the SEC should abandon its ideological crusades, its arbitrary enforcement tactics, and its antagonism towards those it regulates. It should return to performing its core tasks — and only those tasks — and to performing them well.
Of late, the agency has trespassed into prescription, refashioning itself into a partisan for sundry interest groups. Disclosure regimes, in particular, have become a favorite tool of rent-seekers. As Commissioner Hester Peirce put it, the agency’s “role is to ensure that investors have the information they need to channel funds to the companies that can put that money to the best use,” all “while leaving decision-making to the investor.” It is emphatically not the province of the agency to decide for the investor. In other words, a mission-focused SEC works to ensure investors know what is, not to advocate any conception of what ought to be.
“An effective disclosure regime for public companies is a tempting target for people who want information from companies for reasons other than deciding whether to invest,” Peirce said. Tax-hikers, environmentalists, labor activists, and others have sought to mold reporting requirements to benefit their pet causes. Most egregiously, the SEC in 2024 finalized a emissions-related disclosure rule, which, as was unmistakable at the time, did nothing to improve the climate; the rule did, however, impose startling compliance costs on regulated businesses and threaten to bend their emissions-related decision-making leftward.
Similarly, current guidelines concerning shareholder proposals facilitate activist investors’ campaigns to subordinate profitability to social causes. Many publicly traded companies have consequently endured a storm of such ideologically driven proposals, unable to quash the insurgent activists.
These interest-group-advocated disclosure regimes and activist-facilitating shareholder rules do nothing to aid executives working to maximize their companies’ profits or investors their returns. In such cases, the SEC finds itself saddled with a profoundly unsexy task: saying No. When confronted by outraged parties, deploring some purported “market failure,” the agency must simply demur. Declining to act rarely excites bureaucrats — and it certainly generates few glittery headlines — but the integrity of American capital markets is not something to be thrown around to fluff the egos of technocrats or to appease activists.
The Atkins SEC must also eschew regulation-by-enforcement-action. In recent years, instead of delineating clear, comprehensive, and sure rules, the agency has taken to revealing its will piecemeal through enforcement cases. Industry must then assemble the scattered clues and guess at what practices regulators might find fault with next. As explained by the Cato Institute’s Jennifer Schulp, “enforcement actions may provide long lists of examples — often a bit light on relevant details — about what a market participant should not do, but they rarely provide a pathway for understanding what to do.” This quite predictably breeds confusion and uncertainty, the deadly foes of wealth-creation.
The enforcement approach lacks one of the most vital traits of any regulation: the ability of the regulated to understand and comply. Its practitioners resemble toddlers who won’t say what’s wrong, but who nonetheless burst out periodically into fits of screaming and tears. This leaves industry bewildered, without a way to soften or avert the inbound regulatory ire. In the worst instance, the Biden-era SEC deluged the cryptocurrency industry with enforcement cases, badly crippling its operations. Making matters worse, regulated companies found the Biden agency hostile and aloof, its outreach typified by “stilted communication, half-hearted engagement…and limited transparency” (per Peirce).
Good, orderly, and competent governance this is not. Companies and investors must have clear rules and good information, and regulators ought to content themselves with furthering those ends. Regulation, no matter how indispensable it may be to prosperity, does not create that prosperity — private businesses and investors do. Officials who forget this fact invite exactly the sort of economic havoc that typified the Biden era.
The SEC has a simple job. It should refocus its attention on doing that, and nothing else. With the departure of Biden-appointed Gary Gensler and Atkins inbound, there is a not-to-be-missed opportunity for better governance at the SEC.
