27a. Financial Regulatory Agencies – Securities and Exchange Commission; and Related Agencies (Summary)

Author: David R. Burton

Summary

• Purpose of Financial Regulation: The chapter discusses the primary purposes of financial regulation, including deterring fraud, ensuring reasonable disclosure, and maintaining fair secondary capital markets.
• Complexity of Securities Laws: U.S. securities laws, rooted in the Securities Act of 1933 and the Securities Exchange Act of 1934, have become convoluted over time, creating an incoherent regulatory framework.
• SEC Reforms Needed: The SEC’s current approach, including a proposed climate change reporting rule, could drastically increase costs for public companies, reducing investment opportunities for Americans. The chapter argues for simplified and rationalized disclosure systems and regulatory reforms to enhance transparency and reduce barriers to capital formation.
• Abolishing Inefficient Agencies: The chapter recommends abolishing the Public Company Accounting Oversight Board (PCAOB) and the Financial Industry Regulatory Authority (FINRA), merging their functions into the SEC, and establishing a commission to review the role of other self-regulatory organizations (SROs).
• Entrepreneurial Capital Formation: The chapter advocates for reducing regulatory barriers to entrepreneurial capital formation, such as simplifying Regulation A and Regulation CF, broadening the definition of accredited investors, and exempting small offerings from registration requirements.
• Capital Market Improvements: Recommendations include preempting state-level securities regulations, terminating the Consolidated Audit Trail (CAT) program, and opposing SEC mandates on non-material disclosures like social and political information.
• SEC Administration Enhancements: The chapter calls for better data collection, resource allocation, and reduced administrative proceedings within the SEC, with a focus on enhancing the Commission’s efficiency and effectiveness.
• CFTC Modernization: The Commodity Futures Trading Commission (CFTC) should modernize the definition of commodities, clarify regulations on digital assets, and allocate resources to core functions.
• Digital Assets Regulation: The SEC and CFTC are criticized for failing to adequately regulate digital assets, with the chapter urging clear rules to distinguish between commodities and securities in the digital space.
• Improved Regulation of SROs: The chapter suggests more robust oversight and reforms of SROs, with potential integration of their regulatory functions into the SEC if they fail to reform.

Analysis

• Potential Ramifications: If implemented, the proposed reforms could streamline financial regulation, making it easier for businesses to raise capital, especially small and medium-sized enterprises. However, reducing regulatory oversight might increase the risk of fraud and market instability. Abolishing entities like FINRA could lead to a more centralized but potentially less agile regulatory environment.
• Impact on Investors: Simplified regulations could benefit investors by providing clearer and more accessible information. On the other hand, less stringent disclosure requirements might reduce the transparency that protects investors.
• Digital Assets Market: Clearer regulations in the digital asset market could foster innovation and investment in the cryptocurrency space, but might also expose consumers to new risks if not carefully designed.
• Administrative Efficiency: Enhancing the SEC’s administrative functions could improve its ability to enforce regulations effectively, but might also concentrate power in fewer hands, raising concerns about accountability.

Tags

• Financial Regulation
• SEC Reforms
• Capital Markets
• Digital Assets
• Entrepreneurship

Read the original chapter text here: https://static.project2025.org/2025_MandateForLeadership_FULL.pdf#page=862

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