Blog FinReg + Policy Watch February 05, 2021

Not So Fast…Biden White House Freezes 11th-Hour Rulemaking Under Trump Administration

On January 20, 2021, the Biden White House issued a memorandum to the heads of U.S. federal executive departments and agencies requesting a broad regulatory freeze of new and pending rules that were advanced in the final weeks under the Trump Administration. In the memorandum, Ron Klain, Chief of Staff to President Biden, asked for (1) an immediate withdrawal of recently adopted rules that have not yet been published in the Federal Register (FR) and (2) a 60-day postponement of newly adopted rules previously published in the FR that have not yet taken effect, and consideration of opening a fresh 30-day comment period for such rules.

The memo is carefully worded as an “ask” rather than a mandate. This technically leaves the ultimate decisions in the hands of interim leadership at the various departments and agencies. The ask vs. mandate distinction is especially important for independent federal agencies like the SEC. But the memo makes no mention of whether it applies to independent federal agencies. “Independence” in this context means that the agency operates separate from the Executive Office of the President and any federal executive departments (e.g., the Department of the Treasury or the Department of Labor). SEC commissioners are nominated by the President, but confirmed by Congress. This leaves the President with limited authority to remove an SEC commissioner and the White House generally does not meddle in the SEC’s agenda or other business.

The memo calls into question the fate of several, recent SEC rulemakings that have not yet become effective, including the modernization of equity market data infrastructure, updating rules that govern investment adviser marketing, a new exemptive rule regarding the use of derivatives by registered funds, the harmonization of the framework for exempt securities offerings, and a new “fair value” rule to address funds’ valuation practices.

The SEC has been silent on this front. Any decision to comply with the memo would rest with Acting SEC Chair Allison Herren Lee and her three fellow Commissioners. However, action in this respect is not as simple as issuing a press release to announce a freeze—it would require a vote by the Commissioners. Such a vote is unlikely for many reasons, including that the vote would likely split 2-2 along party lines, resulting in no action taken.

It will be interesting to see how the SEC responds to the memo, if at all, especially given that many of the rulemakings that would be subject to the freeze actually passed via a 5-0 vote, showing bipartisan support. That means that all four of the existing SEC Commissioners (including Acting Chair Lee) voted in favor of adopting the particular rules, despite those votes taking place in the final weeks of the Trump Administration.

We will continue to monitor developments on this front, especially as the various federal agencies and departments transition to new leadership over the coming weeks and months.

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