Paul Atkins, chair of the U.S. Securities and Exchange Commission, has repeatedly declared that it is a "new day" at the SEC, one that calls for using a lighter touch as the Enforcement Division pursues technical violations by businesses. The approach, which is counter to the aggressive enforcement regime of Gurbir Grewal during the Biden administration, is a significant recalibration of the SEC's enforcement program. Under Chair Gary Gensler's tenure, Grewal focused on imposing record fines, obtaining disgorgement, and executing multiple enforcement sweeps aimed at uncovering improper practices that have proliferated across financial institutions.  

Since Atkins' confirmation as chair, and during the interim term of Acting Chair Mark Uyeda, the SEC has followed President Donald Trump's deregulatory agenda by cutting back on or completely terminating regulatory review and enforcement in emerging areas such as cryptocurrency, ESG and climate change disclosures, and implementation of cybersecurity programs.

The SEC will be going after "crooks," Atkins told the Financial Times, referencing cases of outright fraud such as Bernie Madoff's Ponzi schemes, financial reporting errors, and other garden-variety violations of the securities laws. But he added that companies should not fear being blindsided by regulators over technical violations such as record-keeping standards, which differ among public companies, broker-dealers, and investment advisers. Instead of "bash[ing] down their door," he suggested the SEC should give businesses notice and a chance to fix compliance gaps before imposing sanctions.

Rethinking Corporate Disclosure Timelines

At the same time, President Trump has revived his long-standing criticism of quarterly reporting requirements. He has directed the SEC to study whether companies should be allowed to report less frequently. The SEC has stated that the proposal would "further eliminate unnecessary regulatory burdens on companies" by switching to semiannual reporting, and that the SEC is prioritizing the proposal.

Trump first sought to end quarterly reporting requirements in 2018, relying on input from top business executives who conveyed to him their position that converting quarterly filing requirements to a semiannual reporting schedule would bolster the job market. Supporters of decreasing periodic reporting contend that quarterly reports pressure executives into short-term decision-making, to the detriment of investment in long-term growth, including in key business operations such as development of new products or services. They argue that easing the burden would align U.S. markets with European reporting practices, where quarterly reports were eliminated in 2013, and foster business growth and sustainability.

Opponents of eliminating quarterly reporting argue that the change will harm investors' ability to obtain timely information regarding public companies and that reliance on Form 8-K disclosures of material events is not enough. They argue that reducing disclosure frequency could widen information gaps, harm market efficiency, and deprive regulators and investors of vital early warnings of financial troubles and substantial business risks. Moreover, there is concern that the increasing pace of change in the markets and business generally, especially as AI becomes more prolific, creates a greater need for transparency and timely disclosures.

Key Takeaways for Investors and Markets

Atkins' reorientation of SEC priorities will have repercussions for public companies and other SEC registrants. They should consider these proactive steps: 

• Shift risk assessments and mediation practices to focus on regulatory rulemaking instead of SEC enforcement trends. While the agency is moving away from surprise fines in favor of advance notice of infractions and harmonized rules, robust internal compliance policies are critical to understand the extent of deregulation and to avoid fraud allegations.
   
• Maintain books and records policies that meet the standards articulated by the SEC and the federal securities laws. Firms will still face exposure to adverse outcomes in civil litigation and other regulatory actions. While the SEC is implementing more stringent processes that may present companies facing enforcement actions the opportunity to make a more fulsome defense, companies may be pressed to disclose to the SEC internal compliance programs and control procedures, evidence of monitoring and testing their business practices, and policies regarding remediation and self-reporting of potential violations.
   
• Ensure management's emphasis on preparing appropriate disclosures in corporate filings. The SEC's study of a change from quarterly to semiannual reporting inevitably will include an analysis of existing corporate disclosure standards. A possible overhaul of disclosure rules could change the quality of corporate transparency that investors have relied on for decades.

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