By Extending Compliance Deadlines, is the SEC ‘Deregulating by Delay?’

Recently, the Securities and Exchange Commission delayed the compliance date for a handful of regulations. It’s happened often enough lately that it could appear to some that the agency is engaging in “deregulation by delay.”

For example, the SEC last month announced a two-year extension of the effective and compliance dates for amendments adopted in August 2024 that require certain registered funds to report portfolio-related data more frequently to the SEC on Form N-PORT.  In March, the commission granted a six-month extension for companies to comply with the Investment Company Act “Names Rule,” which deals with investment funds’ names that could be considered misleading when it comes to their holdings and risks. The agency also delayed implementation of a rule related to the covered clearing of U.S. Treasury securities. In January, the SEC extended the compliance date for amendments to Form PF, which covers confidential reporting for certain SEC-registered investment advisors to private funds, including those also registered with the CFTC as commodity pool operators or commodity trading advisors.

More notably, SEC Acting Chairman Mark T. Uyeda in February announced that he was directing SEC staff to request a pause in the Commission’s climate disclosure rule litigation, a key regulatory initiative of the previous presidential administration. According to Uyeda, the agency is deliberating its position on the rule, which he called “deeply flawed and could inflict significant harm on the capital markets and our economy.”

The SEC had adopted the final rules in March 2024 to enhance and standardize climate-related disclosures by public companies. Several states and energy companies immediately filed court petitions seeking judicial review of the disclosure rules, charging that the SEC had overstepped its authority in issuing them. In April 2024 the SEC stayed the final rules pending the conclusion of the litigation, so they did not go into effect.

Several of the legal challenges were consolidated as State of Iowa vs. SEC in the U.S. Court of Appeals for the Eighth Circuit. Within weeks of the announced litigation pause, the SEC officially voted on March 27 to end its defense of the climate disclosure rule that Uyeda called “costly and unnecessarily intrusive.”

However, the SEC’s decision to end its defense of the rule does not mean the end of the rule itself. The Eighth Circuit could decide to uphold the rules either in whole or in part, or remand them to the SEC for further consideration, according to a memo from law firm Eversheds Sutherland. The eighteen states – along with the District of Columbia – that supported the SEC’s defense of the climate disclosure rules “generally have the same right as the SEC to defend the rules and will presumably continue to do so,” the firm said.

Also, the climate disclosure rule is still final and has yet to be repealed. Any attempt to change or repeal the rule must still comply with the Administrative Procedure Act, which “requires justification of the change with substantial facts and legal analysis in an administrative record that is sufficient to withstand scrutiny,” Eversheds Sutherland said.

In an ironic twist, the recent Supreme Court decision Loper Bright Enterprises v. Raimondo may make it more difficult for the SEC to repeal rules that its current leadership does not support. But practically speaking, Eversheds Sutherland said the agency does not need to repeal the rules to prevent them from taking effect: “The SEC can simply prolong the stay of the rules’ effectiveness.”

Uyeda signaled publicly in remarks delivered in March that a strategy of deregulation by delay was on the table for the SEC. He mentioned that he would prefer to see the agency “act like a super-sized freighter, not a speed boat” in future rulemaking to promote a more stable regulatory environment.

With federal activity essentially on pause, could state agencies step in to fill the void? Attorneys at the law firm Katten make that case in a new article, which pointed out that in states like New York and Pennsylvania, the attorneys general are making moves to enforce cryptocurrency laws. Additionally, the analysis singled out some states that are banding together to take over functions of the Consumer Financial Protection Bureau, which some observers argue has been significantly weakened under the current administration.

Meanwhile, states are exploring strategies for taking on matters like white-collar crime and antitrust enforcement. Keep an eye on this hodgepodge of state-driven efforts to make up the regulatory gap. If any find success, their strategies could inform approaches adopted by other state agencies facing similar regulatory challenges.