Three Reasons Why the SEC May Temper Its Rulemaking Before the Election

In an election year, federal agencies often spend the final months of a President’s term rushing to push through pet projects and key objectives. The Securities and Exchange Commission is no exception. If you look back to 2020, for instance, the SEC under the leadership of Trump administration appointee Jay Clayton established a new rule aimed at curbing the influence of proxy advisory services.

Current SEC chair, Gary Gensler, claims he doesn’t have designs on the agency doing any last-minute rulemaking. We will make a bold prediction that the SEC stays true to Gensler’s word. Here are three reasons why we believe the commission will take a conservative approach to rulemaking in the runup to November 5.

Reason #1: Threat of the Congressional Review Act

For the uninitiated, the Congressional Review Act grants Congress the authority to review and nullify new rules created by federal agencies. The timeline in which Congress can undo a rule is 60 legislative days, but when rules are submitted with fewer than 60 days left before Congress adjourns, the clock starts over in the next session. If that happened to any rules enacted this year, Republicans could conceivably control the White House, House of Representatives and Senate when Congress reconvenes in 2025.

Should this potential threat scare off federal agencies? In a word, yes. While the CRA has rarely come into play historically, policymakers have started using it more often during the last two administrations. Congress used it successfully just once prior to 2017. Since then, Republican President Donald Trump put his stamp on 14 CRA resolutions soon after taking office to negate the work of the Obama administration. Between the time Trump was sworn in and when he left office, he approved a total of 16 rules repeals under the CRA. (To be fair, Democratic President Joe Biden in his first month on the job nuked three rules made by the Trump administration.)

If you think Trump and the GOP would be loath to use the CRA to quash rules they don’t like, think again.

Reason #2: Judicial challenges may lie ahead

If the CRA doesn’t undo the SEC’s last-minute rules, the courts might.

The items left on the SEC’s agenda appear controversial, which makes them highly susceptible to legal challenges. If you’ve been following the agency’s woes in court lately, you know SEC officials would undoubtedly like to avoid that path. Bear in mind that the recently finalized rules governing climate-related disclosures are already getting attacked in court.

Reason #3: Bipartisanship is dead

The SEC could avoid the hassle of passing new rules and seeing them promptly crushed. All it would take is focusing on projects that are popular on both sides of the aisle. Unfortunately for the Commission, you won’t find many of those projects in the current political climate.

To be sure, Gensler’s SEC has enacted nearly 40 new rules in three years, so the idea that the agency might complete a Hail Mary or two before Biden and Trump square off again for the presidency doesn’t seem completely absurd. We’re merely speculating about what is to come. But if the SEC does intend to get some rules across the finish line, time is running out.