Influential commentators recently attacked the functional school as novel and anomalous, and their advocacy contributed to amendments to the Delaware General Corporation Law that defined “controlling stockholder” in formal terms. In two companion articles, both published in the Fordham Journal of Corporate & Financial Law, I examine whether the claim of novelty holds up. The first article (the Historical Article) surveys a century of case law. The second article (the Statutory Article) examines statutory regimes that deploy the concept of control for the same purposes as fiduciary doctrine. Both show that the functional approach has always been dominant.

The Two Schools

The Historical Article traces case law addressing non-majority control from its origins in the early 20th century. It shows that the prevailing approach has always been functional. In 1912, the Supreme Court of the United States held that Union Pacific Corporation exercised non-majority control over the Southern Pacific Railroad. The justices looked for the ability to control corporate conduct, considered not only stock ownership but also the executive positions that Union Pacific personnel held at Southern Pacific, and took into account the transactional history between the companies. In Delaware, Chancellor Wolcott applied functional principles in Guth v. Loft, a landmark case from 1938, to conclude that a CEO and 11 percent stockholder controlled his corporation. Sixty years later, then-Vice Chancellor Strine reached a similar conclusion in Cysive, where he held that a CEO, chairman, and 35 percent stockholder exercised non-majority control.

The formal school, by contrast, is a recent innovation. Its core tenets first emerged in two Delaware decisions issued in 2006, and then coalesced into a recognizable framework in decisions issued around 2014. After that, a subset of Delaware decisions deployed the formal school’s tenets with increasing frequency, typically resulting in pleading-stage dismissals. Other Delaware decisions, by contrast, continued to take a functional approach.

Insights From Statutory Definitions

The Statutory Article examines codified definitions of control. Those definitions offer useful guideposts insofar as they openly assert what control means. That said, many statutory regimes deploy the concept of control in wide-ranging contexts. To avoid comparing apples and oranges, the Statutory Article focuses on regimes that operate in areas where fiduciary doctrines also govern and that deploy the concept of control for the same reasons equity imposes fiduciary duties on controllers: to ensure the law reaches those actually exercising authority and to constrain unfair transactions. That approach prioritizes two groups of statutes: regimes that police relationships between investors and entities, and regimes that police relationships between controllers and their controlled affiliates. It excludes regimes that use control for unrelated purposes, such as federal tax law’s 80 percent threshold for consolidated returns.

Statutes Addressing Investors’ Relationships With Entities

The first category starts with the Securities Act of 1933 and the Exchange Act of 1934. Both statutes use the concept of control extensively, but neither statute defines it. Congress intentionally avoided a fixed definition because it wanted the statutes to apply “wherever the fact of control actually exists.” In other words, Congress wanted a functional approach. In 1948, after developing guiding principles through regulatory rulings and caselaw, the SEC promulgated a uniform definition for both acts: Control is “the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” That definition is the most widely applicable test for control in American law, and it has remained substantively unchanged for nearly eight decades. It is functional in every respect.

State blue sky laws followed suit. Twenty-five states use the securities law definition verbatim or with minor variations. Thirteen states go further by presuming control at specified ownership levels: three at 10 percent, two at 20 percent, and eight at 25 percent. Only California uses a bright-line rule, and it establishes control at 10 percent. No state follows the formal school in using a bright-line test to foreclose control.

Statutes Addressing a Controlled Company’s Relationship With Its Controller

The pattern continues in the second group. The New Deal securities regimes all deploy a functional approach. The Public Utility Holding Company Act of 1935 uses a variant of the securities law definition and adds a presumption of control at 10 percent ownership. The Investment Company Act of 1940 uses a variant of the securities law definition and adds a presumption of control at 25 percent ownership. The Trust Indenture Act of 1939 treats 5 percent ownership as creating a disqualifying conflict of interest, implying control exists at that level.

The same is true in banking and insurance. The Bank Holding Company Act of 1956 deems control to exist at 25 percent ownership and separately authorizes case-by-case findings of non-majority control. Federal Reserve regulations implementing the Bank Holding Company Act create graduated presumptions of control by combining ownership thresholds as low as 5 percent with rights such as board representation, executive positions, contractual vetoes over operational and policy decisions, and other significant relationships. That is a functional approach. The National Association of Insurance Commissioners’ Model Insurance Holding Company System Regulatory Act presumes control at 10 percent ownership, and 41 states have adopted that definition.

The federal statute that governs review of foreign investment (FIRRMA) also defines control in functional terms. Its implementing regulations identify combinations of contract rights and other sources of influence that can establish non-majority control. The regulations also provide examples in which single-digit ownership stakes plus specified veto rights can establish control.

Thirty-seven states, including Delaware, have business combination statutes that take a functional approach to control. Those statutes start with the securities law definition and presume control using ownership thresholds that start between 5 and 25 percent, with most setting the threshold at 10 percent. Twenty-five states have control share statutes that require a vote when an investor crosses 20 percent ownership and one-third ownership, reflecting a legislative judgment that both levels carry significance for purposes of non-majority control.

What the Statutes Reveal

The statutory consensus is striking. The securities law definition or a near variant undergirds every major federal regime in the survey and the securities acts of 25 states. It treats control as a question of fact, recognizes multiple sources of influence, and embraces both contractual control and small-block control. The most sophisticated regimes—the Bank Act and FIRRMA regulations—provide detailed guidance for finding non-majority control based on combinations of stock ownership and other indicia of influence.

None of the regimes deploy the formal school’s signature features, such as requiring board control, voting power equivalent to majority voting control, or the ability to engage in retribution against independent directors or minority stockholders. None treat one-third ownership as a bright-line floor.

Some authorities have argued that control means different things in different areas of the law. That claim is accurate only at a high level of abstraction. In areas analogous to fiduciary doctrine, statutory regimes display remarkable consistency. All are functional.

Conclusion

Delaware’s functional school was neither novel nor anomalous. It applied the dominant historical and statutory approach. The formal school, by contrast, was an outlier. Reasonable minds can debate which approach is better as a matter of policy, and good-faith debate on that question should be welcomed. But the debate should proceed on accurate premises about which approach has historically prevailed in American law.

J. Travis Laster is a vice chancellor of the Delaware Court of Chancery. This post is based on his recent article, “How to Evaluate Non-Majority Control: What History and Statutes Tell Us—Part Two: The Definitional Consensus,” published in the Fordham Journal of Corporate and Financial Law and available here.

Chairman Atkins describes the package as the foundation of his “Make IPOs Great Again” agenda, intended to reverse the long decline in U.S. public company counts and make public-company status meaningfully more attractive, particularly for small and mid-sized issuers. For large IPO candidates, including those that today cannot qualify as EGCs, the proposal is especially significant: it would give them access for the first time to an IPO on-ramp with reduced S-1 disclosure burdens, including fewer years of required financial statements, as well as ongoing relief from the Section 404(b) internal control over financial reporting (ICFR) auditor attestation requirement once public.

Public companies, IPO candidates, audit committees, and their advisers should begin assessing how the new framework, if adopted, could change their disclosure obligations and internal control attestation costs.

Why the SEC Is Proposing These Changes

Under the current disclosure framework, public companies sort themselves into five partially overlapping filer statuses: large accelerated filer (LAF), accelerated filer (AF), non-accelerated filer (NAF), smaller reporting company (SRC), and emerging growth company (EGC). Filing deadlines turn on the LAF/AF/NAF axis; the Sarbanes-Oxley Section 404(b) auditor attestation requirement applies to LAFs, AFs, and certain SRCs that are also AFs but not EGCs; and scaled disclosure accommodations depend on whether a company is a SRC, an EGC, both, or neither. The SEC itself acknowledges that the resulting framework is “layered and complex,” with multiple overlapping thresholds that registrants must re-test annually — or, as Commissioner Hester Peirce put it, “[c]ompanies, and even their lawyers, need flow charts, cheat sheets, and lots of caffeine to decipher their filer status under the current framework.”

Revised Large Accelerated Filer Status and Status Transitions

Under the proposal, a company would qualify as an LAF only if its public float equals or exceeds $2 billion, up from the current $700 million threshold. The SEC estimates that LAFs today represent about 35% of registrants and projects that, with a threshold at $2 billion, LAFs would shrink to roughly 19% of registrants. That means nearly half of today’s LAFs could drop to the new NAF status.

Public float would also be measured differently. Instead of testing the float on a single day, the proposal would use the average closing price over the last 10 trading days of the issuer’s most recently completed second fiscal quarter, multiplied by the non-affiliate share count on the last day of that quarter. The 10-day averaging window is designed to prevent filer status from flipping based on a one-day price spike or drop.

Status transitions would also become more deliberate. For seasoned registrants (those with at least 60 months of Exchange Act reporting history, as discussed below), entry into and exit from LAF status would each require two consecutive annual measurement dates above (or below) the $2 billion threshold, and the separate, lower exit threshold under current rules would be eliminated. A NAF whose float first crosses $2 billion at one second-quarter measurement date would remain a NAF, becoming a LAF only if its float still exceeds $2 billion at the next year’s measurement date. LAF-level compliance would then begin with the Form 10-K for that second crossing year. The same two-year pattern applies on the way down: a LAF whose float drops below the threshold in one year would remain a LAF for that year, dropping back to NAF only after a second consecutive sub-threshold measurement. Every registrant would therefore remain in each status for at least two annual cycles, with at least one year of advance visibility before any transition.

Expanded Non-Accelerated Filer Status and Extension of Accommodations

The AF and SRC categories would be eliminated as unnecessary in light of the broader LAF/NAF restructuring. Every registrant that is not an LAF would simply be a NAF. EGC status would remain on the books as a statutory category (Congress created it, and the SEC cannot alone eliminate it), but the new NAF accommodations would make reliance on EGC status unnecessary in most circumstances.[1] Many registrants that today are neither SRCs nor EGCs would become eligible for scaled disclosure relief under the new framework,[2] including:

Financial statements, MD&A, and internal controls:

• Exemption from the Sarbanes-Oxley Section 404(b) ICFR auditor attestation requirement for NAFs.
• Two years of audited financial statements (rather than three) in annual reports on Form 10-K and in registration statements under both the Securities Act and the Exchange Act, with corresponding scaling of the comparable interim periods presented in Form 10-Q.
• Ability to prepare financial statements under Article 8 of Regulation S-X (the scaled set of form and content requirements currently available to SRCs) in lieu of the more granular Article 3 disclosures otherwise required of LAFs.
• Two years of MD&A instead of three, paired with the two-year audited financial statement presentation.
• No supplementary financial information under Item 302 of Regulation S-K.
• No quantitative and qualitative disclosures about market risk under Item 305 of Regulation S-K.
• For NAFs in their first five years after initial registration, the ability to elect deferred compliance with new or revised FASB accounting standards (mirroring the existing EGC accommodation).

Executive compensation and corporate governance:

• No Compensation Discussion and Analysis (CD&A).
• Compensation disclosure for three named executive officers instead of five, with two years of Summary Compensation Table data instead of three.
• No grants of plan-based awards table, option exercises and stock vested table, pension benefits table, or nonqualified deferred compensation table.
• No pay-versus-performance disclosure.
• No pay ratio disclosure.
• No compensation policies and practices related to risk management disclosure.
• No compensation committee report or compensation committee interlocks and insider participation disclosure.
• No say-on-pay, say-when-on-pay, or golden parachute shareholder advisory votes.

Other business and non-financial disclosures:

• More limited description of business than required of LAFs.
• No required risk factor disclosure in Forms 10-K and 10-Q, though in practice most SRCs voluntarily include risk factors in those filings, so the technical relief is one many eligible issuers historically have chosen not to use.
• No performance graph under Item 201 of Regulation S-K (except for NAFs that are investment companies).
• No resource extraction issuer payments disclosure.
• Single $120,000 related party transaction disclosure threshold under Item 404(a) for all filers, replacing the lower SRC-specific threshold in Item 404(d).
• No requirement to describe related party transaction review, approval, and ratification policies and procedures (Item 404(b)), which would apply only to LAFs going forward.

One disclosure obligation would expand. NAFs would newly be required to disclose the substance of material unresolved SEC staff comments on Form 10-K, a requirement that today applies only to AFs, LAFs, and well-known seasoned issuers. The SEC views this as an appropriate investor-protection backstop, particularly because the parallel Registered Offering Reform Proposal would make Form S-3 and shelf offerings available to many more issuers, including NAFs.

Reporting Deadlines for LAFs, NAFs and Small Non-Accelerated Filers

Under the proposal, LAF periodic report deadlines would remain unchanged: 60 days for Form 10-K and 40 days for Form 10-Q (or 40 days for the proposed Form 10-S semiannual report, if the SEC’s concurrent semiannual reporting proposal is adopted). NAF deadlines would also remain at their current levels: 90 days for Form 10-K and 45 days for Form 10-Q (or 45 days for Form 10-S). Further, the proposal would create a new sub-category for the smallest reporting companies, called small non-accelerated filers (SNFs). To qualify, a registrant would need to be an NAF with total assets of $35 million or less as of the end of each of its two most recent second fiscal quarters. The only additional accommodation SNFs would receive beyond standard NAF treatment is extended filing deadlines: 120 days for Form 10-K (instead of 90) and 50 days for Form 10-Q or, if adopted, Form 10-S (instead of 45).

Universal IPO On-Ramp Regardless of Size

Under the proposed LAF definition, no registrant can become an LAF until it has been an Exchange Act reporting company for at least 60 consecutive calendar months. That five-year on-ramp mirrors the JOBS Act EGC accommodation. Under the proposal, no newly public company could become an LAF until it has been subject to Exchange Act reporting for at least 60 consecutive calendar months, giving it access to the full range of scaled disclosure relief described above.

Exiting the on-ramp into LAF status would require the registrant’s public float, measured on the proposed 10-day average basis at the close of the second fiscal quarter, to equal or exceed $2 billion at both the year-four and year-five measurement dates. LAF-level compliance could then begin with the Form 10-K for that year-five fiscal year.

For large private companies considering an IPO, the proposal could be transformative. Under current rules, companies exceeding the EGC revenue threshold (currently $1.235 billion) have no IPO on-ramp, they must provide three years of audited financial statements and MD&A in the S-1, and if their float exceeds $700 million, they immediately enter the full LAF compliance regime upon going public. The proposal would extend to these larger IPO candidates, for the first time, EGC-style S-1 relief (two years of audited financials and MD&A) as well as exemption from the Section 404(b) ICFR auditor attestation requirement once public. This may meaningfully reduce a long-standing disincentive to IPO for some of the largest private companies.

Transition Mechanics for Existing Registrants

Under the proposed transition rules, existing registrants would assess their filer status as of the end of their fiscal year prior to the effectiveness of final rules. Crucially, for this initial assessment, registrants would not consider their current filer status. An existing LAF would treat itself as “not currently a large accelerated filer” when applying the new definitions. As a result, an existing LAF would transition to NAF status if, as of the fiscal year-end prior to effectiveness, it either (1) has not been subject to Exchange Act reporting for at least 60 consecutive months, or (2) did not have public float of $2 billion or more at both the most recent and immediately prior second fiscal quarter measurement dates.

As a practical matter, this means many current LAFs could become NAFs immediately upon effectiveness. Once a registrant qualifies as a NAF after its initial assessment, it may use NAF accommodations beginning with its next Securities Act or Exchange Act filing.

Treatment of Foreign Private Issuers

FPIs that file on Form 20-F or Form 40-F would be carved out of the new LAF/NAF definitions. Form 20-F would continue to require an ICFR auditor attestation report at the current $75 million public float threshold (unless the issuer qualifies as an EGC), and FPIs would continue to measure public float on a single-day basis.[3]

What Happens Next

The SEC’s proposing release, summarized in its fact sheet, will be open for public comment for 60 days following Federal Register publication, after which the SEC staff would review comments and the SEC would decide whether, when, and in what form to adopt a final rule.

This proposal does not sit in isolation. It is part of a package alongside the SEC’s semiannual reporting proposal and the concurrent registered offering reform proposal, among other contemplated future proposals. Together, these initiatives could materially reshape the cost and cadence of being a U.S. public company.

No immediate action by public companies is required. If final rules are adopted, however, boards, finance teams, audit committees, and outside counsel will need to assess filer status under the new framework and decide which of the accommodations discussed above to adopt and which to continue voluntarily. For large private companies considering an IPO, particularly those exceeding EGC thresholds, the proposal may warrant a fresh look at the economics of going public.

ENDNOTES

[1] One exception: the statutory FOIA exemption for confidential draft registration statements under Securities Act Section 6(e)(2), which prevents the SEC from producing an EGC’s nonpublic draft registration statement in response to a FOIA request, applies only to EGCs, and the SEC lacks authority to extend it to non-EGCs. Non-EGCs may still submit draft registration statements for nonpublic review and request confidential treatment under Rule 83, but this provides less certain protection than the statutory exemption.

[2] For a comprehensive, item-by-item summary of the disclosure requirements and accommodations that would apply to NAFs under the proposed amendments, see Tables 3 through 6 of the proposing release (at pages 90-96), which summarize the availability of scaling and accommodations under Regulation S-K, Regulation S-X, and other rules. The list below highlights selected principal accommodations.

[3] In June 2025, the SEC issued a concept release soliciting public comment on potentially narrowing FPI eligibility. See Cleary Gottlieb, SEC Considers Narrowing Foreign Private Issuer Definition, available at https://www.clearygottlieb.com/news-and-insights/publication-listing/sec-considers-narrowing-foreign-private-issuer-definition.

This post is based on a Cleary Gottlieb Steen & Hamilton LLP memorandum, “SEC Proposes Simplified Filer Status Framework and Expanded Disclosure Relief,” dated May 20, 2026, and available here. 

The question of timing of mandated disclosures should be understood against the background that the United States does not have a continuous disclosure system by which a covered firm must announce promptly any new material information in its possession.  We instead have a system requiring firms to periodically answer a set of specific questions in its annual Form 10-K report, quarterly 10-Q reports, and the updating Form 8-K reports for specified events.  This system has the advantage of greater clarity as to what must be disclosed and when, but the disadvantage that some information useful to the market remains undisclosed until it is called for by one of these forms.  The current quarterly reporting system represents an effort to balance this disadvantage versus the advantages of the current system.

Giving firms the option to move to six-month reporting would ignore the primary reasons for making disclosure mandatory in the first place.  Any optional disclosure system risks leading to a lower equilibrium: Firms are often disinclined to voluntarily disclose information useful to their competitors, major suppliers, and major customers, even when the information is useful to current and potential investors and accordingly likely would have a positive impact on share prices.   If all firms are required to disclose, the share prices will reflect these positive impacts, while each firm not only provides information to these other firms, but also receives from them comparable information.  Moreover, even if only one or a few firms in an industry were to choose not to disclose what is now required information, comparability would be lost.  The disclosure of each firm in an industry helps investors and potential investors understand the meaning of all firms in that industry.

We are deeply skeptical of the wisdom of adopting even an optional semiannual reporting system as proposed.  We have previously recognized the virtues of an independent Commission, see Shadow SEC Statement No. 1, The Value of an Independent SEC, available here.  Since our initial statement on the wisdom of retaining quarterly reports, Commissioner Caroline Crenshaw, the sole Democrat on the Commission, ended her term on January 5, 2026.  The Commission is now led by a 3-0 Republican majority.  The Commission has broken with decades of tradition and with Congress’ statutory design to maintain a one-party agency with solely Republican commissioners wielding power over United States capital markets.  As a result there are no commissioners at the SEC with the practical ability to ask hard questions of proposals that emanate from the White House, as the proposal for semiannual reporting system did.  The unlikelihood of internal commissioner-level debate is amplified by President Trump’s insistence that he has the right to fire independent agency commissioners at will.

We also have recognized the risks associated with the deep cuts in SEC staff—recently stated to be 20 percent or so of earlier staff—and the loss of morale and experience associated with high staff turnover.  See Shadow SEC Statement No. 2: The Crisis Deepens as SEC and Budget Cuts Are Directed, available here.

The semiannual reporting proposal should be understood in light of these facts—a one-party proposal that likely has received less internal review and debate from fewer experienced attorneys, economists, and analysts than historically would have been the case had the SEC been operating normally as an independent agency.

This likely has resulted in the exclusion of concepts self-evidently important to any fair reading of this proposal.  For a critical example, SEC Chair Atkins in a May 5, 2026 statement making the case for semiannual reporting explained that “companies and their investors” need to determine for themselves “the interim reporting frequency that best serves their business needs and investors.”  We agree that if an optional semiannual reporting system were to be adopted, it is preferable that investors be part of any company’s decision to adopt this change.  If managements of reporting companies simply opt for semiannual reporting, they may alienate many investors.  Companies could suffer a significant loss in share value that greatly exceeds any cost savings from moving to a six-month reporting interval if investors felt differently and discounted the registrant’s shares because of lesser transparency.  Under existing SEC statutory authority and rules such as Rule 14a-8, shareholders could be asked to vote before a company could move to ending quarterly reports.  This could be framed as a precatory vote as would be consistent with current Delaware law.  Hypothetically, if 90 percent of shareholders voted in favor of retaining quarterly reports, this would be important for management to know.  Ignoring such information or failing to obtain it could result in activist hedge funds seeking board representation in order to challenge management’s decision.  This would be expensive to both sides and could be avoided if management sought a serious census of its shareholders before proceeding.

The SEC semiannual rule proposal is strikingly unusual for its approach to judging new disclosure standards.  There is little analysis of the possibility of an increase in fraud as a result of companies being able to report less frequently.  See the Proposing Release at pages 67-78 and 110-115.  The Proposing Release does recognize what it terms a likely increase in “information asymmetries” and the risk that agency costs may cause companies to choose to report less frequently than would be in the interest of shareholders.  This is quite different than recognizing that there have been major securities frauds in recent years because of obscuring or misstating financial data such as Enron, WorldCom, and most recently FTX.  Historically, the SEC had long provided detailed data on disclosure requirements that could be correlated with the presence or absence of such information about material transactions with insiders, disclosure of bonuses, profit-sharing arrangements, the incidence of restatements, or the failure of companies to disclose all material financial information, a key issue in several crypto cases, which the SEC dismissed, about companies that engaged in overseas transactions to avoid full disclosure and United States oversight.   See Louis Loss, Joel Seligman & Troy Paredes, Securities Regulation 51-54, 730-751, 849-862 (Wolters Kluwer 7^th ed. 2024).  Although, Chair Atkins is correct that investor protection is one of the core elements of the SEC mandate, the Proposing Release seriously underemphasizes the extent to which the Securities Act of 1933 and the Securities Exchange Act of 1934 were adopted to deter fraud and to allow enforcement actions to spot what does occur.

The SEC’s semiannual reporting proposal also lacks a serious attempt to synthesize the results found in studies of comparable rule changes outside the United States such as the Robert Pozen, Suresh Nallareddy & Shiva Raigopal 2017 study, the Impact of Reporting Frequency on UK Public Companies, Research Found. Briefs 3, No. 1 which found that only 10 percent of covered companies elected to move to semi-annual reporting. It cites a study of such a rule change in Israel, Keren Bar-Hava, Audit Fee and Corporate Governance Quality, 9 J. Fin. & Acct. 249 (2021), but solely for the finding that semi-annual reporting reduces audit hours, and not for the effects reported in that study that suggest that such a switch would produce harms such as negative stock-price reaction to announcements by companies that were making such a switch and the positive associations with good governance at firms that did not make the switch.

The SEC instead arbitrarily assumed without citing reliable data that 20 percent of listed companies will elect to use semiannual reporting, see Proposal notes 313 and 332.  This assumption is based on a single survey from Nasdaq that did not report the response rate, the size of the surveyed universe, or any basis for believing that the companies that did respond were representative of public companies generally.  Seventy-five percent of 183 responding companies did report in this survey that they would move to semiannual reporting.  Left unaddressed in the assertion is that there are roughly 3500 Nasdaq companies.  This amounts to 4 percent of the total Nasdaq firms.

Nor did the SEC candidly acknowledge that estimated costs and benefits of its rule change are so uncertain that the net benefits of the proposal cannot in fact be reasonably quantified.  The proposal does recognize the possibility of increased costs of capital, lower liquidity, increased insider trading, and increased costs for analysts searching for information to replace quarterly reports by companies that choose to move to semiannual reporting.  It also recognizes that there would be a diminution in the ability of prospective investors or institutional investors to engage in comparable financial analysis if some firms now report on the semiannual Form 10-S once a year and others three times a year on the quarterly Form 10-Q.  Indeed, the potential harm to investors due to the lack of comparability is broader than that between firms that continue to report quarterly on Form 10-Qs and those that instead report semiannually on Form 10-S.  Additional comparability concerns are posed by firms who cease to file on Form 10-Q but supply some quarterly information to the market in a nonconforming format outside the language mandated by the SEC in Form 10-Q.  While the SEC proposal states that it lacks a basis for estimating the magnitude of such harms, it nowhere clearly acknowledges that as a result of the lack of data it has no basis for estimating the net costs and benefits of the rule.  This, in effect, is hiding the ball when it comes to the very serious risks of its proposal.

Is there a strong need for this proposal?  The stock market is up approximately 20 percent since President Trump took office in January 2025.  The Dow Jones Average opened 2025 at 42,660 and recently and consistently has traded above 50,000.  The Commission’s Investor Advisory Committee asserted before its March 12, 2026 meeting: “The disclosure requirements for public companies have increased dramatically in recent decades at a significant cost to public companies.”  But this can be viewed as the cost of doing business.  United States capital markets’ total equity market capitalization increased by $11 trillion in 2024 alone with substantial increases since then.  The costs of the SEC mandatory disclosure system should be compared with their benefits.  As Luzi Hall and Christian Leuz, International Differences in Costs of Equity Capital:  Do Legal Institutions and Securities Regulation Matter?, 44 Acct. Rev. 485 (2004), states, “firms from countries with more extensive disclosure requirements, stronger securities regulation and stricter enforcement have a significantly lower cost of capital.”

SEC Chair Atkins has repeatedly expressed interest in increasing the number of publicly traded companies.  This is within the SEC’s power to achieve by reducing the breadth of its current exemptions.  See Renee Jones, Untamed Unicorns (Harvard Univ. Press 2026 forthcoming).  The notion that offering companies the option to report semiannually will make much difference to company decisions to register with the SEC or remain private is fanciful.  What might make a difference is changing disclosure requirements, proposals for which the Commission has made in separate releases.  We will analyze these releases soon.

The bottom line here is simple.  If it ain’t broke, don’t fix it.  We have the most stable, highly regarded securities markets in the world today.  We should celebrate, as Chair Atkins once did, markets that are the “envy of the world.”

This post comes to us from the Shadow SEC, whose members are professors John Coates at Harvard Law School, John C. Coffee, Jr. at Columbia Law School, James D. Cox at Duke University School of Law, Merritt B. Fox at Columbia Law School, and Joel Seligman at Washington University School of Law.

Prior to sharing a few reflections, I must note that the views I express here today are my own as SEC Chairman and do not necessarily reflect those of the SEC as an institution or of my fellow Commissioners.

There is something quite fitting about gathering on a California morning such as this one, because it calls to mind a few of President Reagan’s most enduring words: “Morning in America.” And nowhere are those words more at home than here — in this library, a fixed monument to a free-market legacy. At its opening ceremony in 1991, President Reagan articulated his hope that the library would become “a dynamic intellectual forum where scholars interpret the past and policymakers debate the future.”[1] Today, I believe that we are proving that his hope was well placed.

With that in mind, I do not take lightly the moment in which I stand before you, especially in this milestone year as the United States approaches its 250th anniversary — an occasion that invites not merely nostalgia but a renewed resolve.

A resolve like that of President Reagan’s — to restore the ideals of our forebears: that the government is not meant to control a people, but to set them free to flourish. To prove, again, that America’s best days are never behind her.

It was this vision that won hearts across America in the 1980 election. But vision alone does not renew a nation. What set President Reagan apart was something rarer: an instinctive understanding of a people weary from the Carter years and starved of hope — and an extraordinary ability to rekindle it.

On the tail of his landslide victory, crossing New York City in a motorcade, he noted in a diary entry that “one thing was unusual and very humbling. The streets were lined with people as if for a parade… They cheered and clapped and I wore my arms out waving back to them.” Then he concluded with a somber conviction: “I keep thinking this can’t continue and yet their warmth and affection seems so genuine I get a lump in my throat. I pray constantly that I won’t let them down.”[2]

And today we assemble together because he did not. Because his belief in the “miracle of the marketplace”—and in the American people—pulled our nation up from the ashes of despair and placed it on a firm path toward renewal.

Miracle of the Marketplace

As a young lawyer, I witnessed some small measure of that renewal firsthand. In the summer of 1982, I worked in New York, and by 1984, my career had carried me back there. By that time the deep malaise of the Carter years had finally sunset, and morning in America, as Reagan hailed it, had dawned.

As I navigated the city, I recall a certain palpability to the promise of a new day. A new energy resounded through the streets. A rebounding economy was reviving the hearts and minds of many who had lost faith in — or at least doubted — America’s future.

It was a transformation that President Reagan understood at its root. In his first year as President, he expressed his core beliefs about free enterprise. “Trust the people,” he told a crowd from the World Bank and IMF. “Countries that have achieved the most spectacular, broad-based progress are neither the most tightly controlled, nor the biggest in size, nor the wealthiest in natural resources. No, what unites them all is their willingness to believe in the magic of the marketplace.”[3]

“The magic of the marketplace.” It was not so much a memorable alliteration as it was—and is—an empirical truth. Indeed, President Reagan understood that the greatest weapon to end the Cold War was not a strong military fist alone, but the invisible hand behind it—free markets lifted by a free people.

That philosophy traveled further than any of us had imagined. Thirty-eight years ago today, in fact, President Reagan embarked on Air Force One for his first visit to the Soviet Union. He took to his diary that evening and recorded that when he walked outside the Ambassador’s residence in Moscow, “It was amazing how quickly the street was jammed curb to curb with people—warm, friendly people who couldn’t have been more affectionate.”[4]

A short account, yet one that symbolizes the sweeping reach of President Reagan’s ideology, crossing the Iron Curtain before he ever did.

Years before he set foot on Soviet soil, President Reagan’s free-enterprise philosophy had been steadily permeating a people suffocating under the weight of communism. His economic “offensive strategy” was loosening the grip of its leaders. And the American free-market prosperity that he unleashed kept compounding the economic pressure—until finally the Berlin Wall fell and communism collapsed, all without any troops marching into Moscow.

In the end, the most powerful army that President Reagan deployed was an idea.

The lesson that he left us is not an historical artifact; it is an archetype: Free markets do not just create wealth. They generate gravity, pulling people toward them—across oceans, across ideologies, and as President Reagan proved, even across the Iron Curtain.

So much so, that after the Berlin Wall fell, countries across the former USSR and Eastern Europe began building market economies out of the rubble of central planning. In turn, more wealth has been created since the wall fell than in all prior human history.

In many respects, President Reagan’s belief in free markets inspired — and still underpins — my own. As a young graduate, I watched as the Soviet and communist system of central planning collapsed under the weight of its own contradictions, while President Reagan’s America empowered its citizens to innovate, to invest, and to build wealth within predictable and enforceable legal frameworks.

President Reagan held that our markets affirm the dignity of the human spirit and liberate its potential as no other alternative can. He believed, as do I, that markets, structured properly, can unleash the might of American dynamism as no monarch or government ministry possibly could.

But principles do not preserve themselves. And to maintain their might, markets require rules that are clear enough to guide but restrained enough not to suffocate.

Where the SEC Has Been

Shortly after his re-election victory, President Reagan became the first—and remains the only—sitting president to ring the opening bell at the New York Stock Exchange. He opened his remarks that morning with a characteristic clarity: “I’d like to say a few words about where this country’s been, and where we’ll be going from here.”[5]

Today, to echo President Reagan, I should like to say a few words about where the SEC has been, and where we will be going from here.

Perhaps no comedic line better captures President Reagan’s philosophy than one so beloved that it practically became a catch phrase, which you can probably recite with me: “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”

Over my three tours at the SEC, I have discovered six equally terrifying words: “We should create another disclosure requirement.”

Like President Reagan, I have come to understand the challenge of inheriting a regulatory environment gripped by government control that inhibited investment and punished success. In his inaugural address, President Reagan made clear a doctrine that he held that I also embrace today, that “Government can and must provide opportunity, not smother it; foster productivity, not stifle it.”[6]

For context, Congress has tasked the SEC with three mutually reinforcing aims: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. But seized by a sort of “regulatory adventurism,” past Commissions constructed around those three pillars a thicket of obligations that were unmoored from any of them.

As a result, the SEC’s disclosure regime became conscripted to serve interests beyond those of the Supreme Court’s objective standard of the reasonable investor. And the path to going public grew so costly, so litigious, and so politically fraught that countless entrepreneurs chose to remain private or to list elsewhere. The agency charged with stewarding the world’s greatest capital markets had become, in many ways, an imposing obstacle to them.

Indeed, as our disclosure and general regulatory burden expanded, the number of our public companies has dwindled. From the time that I left the SEC as a staff member in 1994, to when I returned as Chairman just over a year ago, the number of companies listed on the U.S. exchanges had fallen by roughly 40 percent — a decline that represents more than a data point; it is a lost opportunity for workers and savers to share in the prosperity of the next generation of American enterprise.

This regulatory overreach proved equally as damaging to digital asset innovation. The agency that I inherited had become defined — distinguished, even — by a regulatory hostility that pushed digital asset ventures overseas. Its driving philosophy seemed to be that the new technology itself — rather than malign individuals who might exploit it — was sinister and suspect and must be stamped out accordingly. As a result, innovators made the only rational choice. They left.

But — like President Reagan — when presented with this decline, under President Trump’s leadership we have a duty to reverse it. And I am pleased to report that we are equal to the task.

For President Reagan, it was “morning in America.” For us, it is a “new day at the SEC.”

Where the SEC Is Going

President Reagan did not tinker around the edges of a broken system. Rather, he returned it to first principles at its core. And that is precisely the path that this Commission is charting.

First, we are advancing our regulatory posture to bring it into alignment with the world as it is, rather than as it was when many of our rules were first written.

As I alluded to earlier, under the previous administration, innovators found that engaging with the SEC quickly gave way to getting investigated by it. The market rendered its verdict, and an entire generation of digital asset innovation developed outside the United States.

So, over the past year, this SEC has moved purposefully on President Trump’s goal of making America the crypto capital of the world. First, we launched Project Crypto — now a joint effort with the Commodity Futures Trading Commission — to modernize our rules and regulations to facilitate markets’ moving on-chain. Building on this initiative, we recently delivered long-overdue clarity for market participants that distinguishes which digital assets are considered securities, and which are not. Finally, among other measures underway, we are advancing work on a forthcoming innovation exemption for tokenized listed securities and taking steps to clarify how onchain trading systems fit within existing regulations.

Now, the SEC’s advancement of modernized rules is only as purposeful as the clarity with which we apply them.

Indeed, jurisdictional ambiguity can stifle innovation just as surely as ill-devised regulation — and for too long, it has. So after decades of fragmented oversight and overlapping authorities, CFTC Chairman Mike Selig and I have ushered in a new era of harmonization between our two agencies, replacing what I call a regulatory no-man’s land with a field of fertile ground for innovation to take root and flourish — and providing market participants the clear path forward that they have long called for.

Lastly, perhaps nowhere is our forward ambition more evident than in our resolve to transform the SEC rulebook.

As I mentioned previously, over time, many disclosure requirements that began as a framework to illuminate have become instruments to obscure. In losing sight of materiality as its north star and accumulating new rules without excising the extraneous, the agency steadily built a disclosure labyrinth so complex and costly that going and staying public became less and less compelling.

So, we are moving decisively to Make IPOs Great Again. Building upon our recent proposal to afford companies the flexibility of quarterly or semiannual reporting cadences, last week we put forward two rule proposals that would further reduce the burdens of being a public company, by recalibrating disclosure requirements and making it easier for companies to access the public markets quickly and when market conditions are most favorable. And I am pleased to announce that today, we have proposed the rescinding of the prior administration’s ill-advised climate rule — retethering our rulebook to the simple principle that the SEC exists to serve allinvestors, not to advance an agenda of the politicized few with axes to grind or business models to aggrandize.

Now, as substantial as they are, the reforms that I have outlined amount to a beginning, not a summation. Across every dimension of our mandate, the SEC has reclaimed its course — and is moving forward with equal parts rigor and restraint.

Conclusion

Under my leadership, I intend that the Commission work to ensure that the United States is well-positioned to seize on the excitement for economic opportunity that President Trump’s pro-growth policies have inspired — and to build upon the decades of economic strength that the Reagan Revolution ignited.

When he took the oath of office, President Reagan inherited a despondent nation wandering in economic desolation, with no guiding light to lead it out. But over eight years, his administration achieved an unrivaled turnaround, transforming a once barren land into a beacon of prosperity.

Of course, he left America not merely richer, but more itself — more confident in what free people and free markets can accomplish together.

The resulting optimism revived not only the spirit of the American people, but also the economy that they helped to reconstruct — yielding twenty million new jobs and significant declines in unemployment, inflation, and the prime interest rate alike.[7]

Today, we share in that success, but no less in the worldview that kindled it: that by trusting a free people to participate in free markets, we can beget decades of economic prosperity for generations to come.

So, let me close where I began — with the words that President Reagan spoke 35 years ago in this very place.

“For 10 years after we summoned America to a new beginning, we are beginning still… With each sunrise, we are reminded that millions of our citizens have yet to share in the abundance of American prosperity. Can’t we pledge ourselves to a new beginning for them?… May every day be a new beginning and every dawn bring us closer to that shining city upon a hill.”[8]

Indeed, 45 years after President Reagan summoned America to a new beginning, we are beginning still. On the cusp of 250 years of our Republic, and at the dawn of a new Golden Age under President Trump, the question before us is not whether the American people possess the ambition or the ability to lead our nation toward new beginnings. It is whether we, as regulators, possess the will to let them.

In this new day at the SEC, I am confident that we do — and that by preserving the promise of our capital markets for the next quarter millennium, we will heed the call to carry our nation ever closer to that shining city upon a hill.

So, ladies and gentlemen, I am grateful, once again, for the opportunity to participate in this Forum. Thank you very much for your attention. And I look forward to the work ahead of us. Thank you.

ENDNOTES

More recently, the human capital committee’s agenda has been affected by technological evolution—particularly artificial intelligence and similar models—and its impact on labor markets, employee hiring and displacement, and organizational hierarchies. Recent media headlines lay out the committee’s technology-related challenges, from dramatically changing job markets to weakening workplace culture to increasing employee job responsibilities. Pope Leo XIV’s recent encyclical on “Safeguarding the Human Person in the Times of Artificial Intelligence” adds concepts of worker dignity and social justice to the agenda.

From a corporate governance perspective, this extraordinary level of disruption has made the human capital committee a critical component of the board’s overall practice, creating new challenges and duties for directors. These duties are grounded in governance’s fiduciary responsibility for human capital and a positive workforce culture. While management must address day-to-day workforce matters, the board has a role to play. For example, thought leadership from organizations such as the National Association of Corporate Directors (“NACD”) ( ) promotes close board monitoring of the potential workforce impact of corporate technology deployment.

To this point, NACD encourages boards to ensure that such deployment augments rather than replaces human capabilities. This is consistent with the views of Wachtell Lipton Rosen & Katz founding partner Martin Lipton that “boards should consider in a balanced manner the effect of technological adoptions on important constituencies, including employees and communities, as opposed to myopically seeking immediate expense line efficiencies at any cost.”

These perspectives suggest the following strategies for the human capital committee.

Expanded Agenda Items. The regular committee agenda should be expanded to include greater responsibility for workforce oversight. This would include monitoring management’s ability to shape an agile workforce that can effectively respond to technological change.

A prominent new task would be for the committee to monitor or otherwise consult with management before any material AI-related worker displacement can proceed and whether efficiency should be a factor in that displacement. Another task would be to collaborate with management on retraining and improving the skills of employees affected by AI. The committee may also work with management on retaining senior employees with the experience, judgment, and values necessary to supplement the gaps in AI systems.

Other AI-associated issues relate to preserving a positive workforce culture. This might include the “loyalty” concern; i.e., the extent to which, given AI pressures, employees maintain the level of trust and engagement with their duties necessary to assure the company stays competitive. A similar concern is the impact on workforce culture of repeated messages on the potential for AI-related displacement.

The committee may also be concerned with the extent to which AI is used in employee hiring, and if so, at what levels. AI’s role in recruiting is controversial and certainly within the realm of governance scrutiny.

Information Flow. Other new committee tasks could include adjusting the scope and frequency of management-to-committee information flow. This might include more news reports relating to employment implications of AI; notable private sector decisions regarding employment and displacements; comments and projections of prominent executives; specific levels of government and private sector-generated labor and employment statistics and analysis; and relevant legislative and regulatory developments on both the state and federal levels (e.g., California Governor Gavin Newsom’s new AI workforce-related Executive Order.

Structural Considerations. The full board should consider whether the committee’s charter, composition, and staffing need upgrading. The charter may need to be amended to cover the new tasks expected of the committee. Similarly, there is value in reviewing whether the existing authority granted to the committee—either advisory capacity or board-delegated—is sufficient. Certainly, the composition of the committee, e.g., the number and perspectives of members, should be reviewed. In addition, the committee should consider the value of having a representative of the general counsel’s office and outside counsel serve as staff.

Communications. The committee will want to regularly monitor proposed internal and external communications addressing new technology-related workforce issues. Great sensitivity is expected in communications relating to worker obligations, workforce displacement, and unique issues pertaining to young and older workers. As the media has reported,  harsh, insensitive, or dehumanizing management comments on employment status and opportunities can severely harm workforce culture.

With the duties and responsibilities of the board’s human capital committee facing such seismic and rapid change, it’s high time that the board and executive leadership focused on ensuring that the committee is up to the challenge.

Michael W. Peregrine is a retired attorney and a fellow of the American College of Governance Counsel.

When a corporation commits a crime, the U.S. Justice Department increasingly offers something close to a path to redemption: Come forward early. Tell the whole story. Preserve the evidence. Identify the wrongdoers. Pay victims. Disgorge profits. Fix compliance failures. Do that, and a company may avoid indictment, reduce its penalty, avoid a monitor, and preserve its future.

This is the basic logic of DOJ’s new department-wide Corporate Enforcement and Voluntary Self-Disclosure Policy, announced in March. The policy creates a department-wide framework for companies that voluntarily disclose their misconduct, cooperate, remediate, disgorge gains, and compensate victims.  It allows qualifying companies to avoid prosecution, fines, and third-party oversight in some circumstances.

There are good reasons for this. Corporate crime is hard to detect from the outside. Companies hold the emails, payment trails, accounting records, compliance reports, and witnesses prosecutors need. If DOJ wants companies to come forward before investigators discover wrongdoing, it must offer more than a vague promise of “credit.” It must offer a reasonably predictable path.

In this respect, whatever one thinks of DOJ’s broader direction, here it has done something sensible: It has built a roadmap.

The question is why that kind of clarity and imagination is easier to find when the defendant is a corporation.

Individual criminal cases are not devoid of mercy. Federal prosecutors have charging policies. The Sentencing Guidelines account for acceptance of responsibility. Cooperation can matter enormously. Restitution, remorse, family obligations, health, and rehabilitation can all affect how a case is resolved.

But mercy for people usually works differently. It is more discretionary, more opaque, and more often retrospective. A defendant may receive credit for accepting responsibility, but usually after charges have been filed. Cooperation can help, but often only if the government decides the cooperation is useful. Rehabilitation may move a judge at sentencing, but by then the indictment, legal fees, employment consequences, and family disruption may already have altered the defendant’s life.

That is the asymmetry: Corporate rehabilitation can prevent prosecution; human rehabilitation more often mitigates punishment.

Arthur Andersen helped teach DOJ this lesson for companies. The accounting firm was indicted after the Enron scandal, convicted of obstruction of justice, and effectively destroyed. By the time the U.S. Supreme Court unanimously reversed the conviction, the firm could not be put back together. The conviction was gone, but the institution was dead.

That experience left a mark. Prosecutors learned that charging a corporation can punish many people who did not commit the crime: employees, partners, shareholders, pensioners, customers, and communities. A corporate indictment can function as a death sentence even before trial.

The Morgan Stanley FCPA matter shows the other side of the same lesson. In 2012, DOJ charged a former Morgan Stanley managing director, Garth Peterson, for evading internal controls in connection with a real estate deal in China. But DOJ declined to charge Morgan Stanley itself, emphasizing the company’s internal controls, compliance program, and efforts to prevent misconduct. In other words, the individual was prosecuted, but the institution was spared because DOJ concluded that the company had built systems intended to prevent the crime.

That is precisely the kind of judgment corporate enforcement now encourages. DOJ can ask whether the institution failed, whether it responded responsibly, whether prosecution would repair harm or merely spread it, and whether accountability can be achieved without destroying the enterprise.

But prosecutions of individuals can also impose life-altering consequences long before sentencing. They can end careers, rupture families, trigger deportation, destroy reputations, and bankrupt households. And when the system later reverses course, the damage cannot always be repaired.

Ray Donovan, President Reagan’s labor secretary, resigned after becoming the first sitting cabinet member to be indicted. He was later acquitted. Afterward, he famously asked, “Which office do I go to to get my reputation back?” The question endures because it captures something every defense lawyer understands: An acquittal may end a case, but it does not necessarily restore a life.

Ted Stevens offers an even sharper example. He was convicted on federal corruption charges shortly before Election Day in 2008 and lost his U.S. Senate seat. Months later, DOJ moved to dismiss the indictment because of prosecutorial misconduct, and the conviction was set aside. But the election could not be rerun. His career could not be restored. The legal system corrected itself too late to undo the real-world consequences of the prosecution.

That is the individual analogue to Arthur Andersen. The point is not that corporations and people are the same. They are not. The point is that criminal process itself can be destructive. DOJ recognizes that reality when the defendant is a corporation. It should recognize it more clearly when the defendant is a person.

DOJ’s corporate policy does not say misconduct is irrelevant. It says the defendant’s response to misconduct matters. DOJ’s corporate policy rests on a humane premise: The government should care not only about what went wrong, but also about what has been repaired, who else will be hurt, and whether prosecution will destroy more than it fixes.

Those principles should not disappear when the defendant is a human being.

Of course, companies and people are different. A corporation can replace managers, redesign controls, and change reporting lines. A person cannot become a new legal entity. But people can change too. They can get treatment, repair harm, work, care for children, assist victims, leave criminal networks, and become less dangerous. The criminal justice system says it believes in rehabilitation. DOJ’s corporate policy shows what it looks like when that belief is translated into rules.

The answer is not to make corporate criminal justice harsher for the sake of symmetry. That would be the wrong lesson. The better lesson is that DOJ has demonstrated an institutional capacity it should use more broadly. It knows how to create incentives before prosecution, define cooperation, value remediation, weigh collateral harm, and preserve accountability while avoiding unnecessary destruction.

The Justice Department has built a largely thoughtful criminal justice system for corporations. It is transparent, structured, pragmatic, and alert to the possibility that prosecution itself can do harm.

The challenge is not to ask why companies get that kind of system. It is to ask why people so often do not.

Duncan Levin is a former federal prosecutor, criminal defense attorney, and lecturer at Harvard and Columbia law schools.

Vibrant public and private markets can and should co-exist—they are not mutually exclusive. However, the strength of the U.S. public markets over the past ninety years has primarily powered the innovation of our entrepreneurs, the prosperity of our workers, and the economic growth of our nation. Public markets function as the anchor of American capital formation because they forge liquidity, transparency, price discovery, and accountability in a way that private markets cannot fully replicate. As a result, public markets also provide meaningful investment opportunities for millions of Americans. More than a corporate milestone, every IPO is an invitation for workers and savers to share in the prosperity of the next generation of American enterprise. When more companies become public, especially earlier in their life cycle, all investors—not just a select few with access to the private markets—can participate in and benefit from the growth in their value.

Shortly after I left the SEC as a staff member in the mid-1990s, more than 7,800 companies were listed on the U.S. securities exchanges.[1]When I returned as Chairman a year ago, that number had fallen by roughly 40 percent.[2] Today, companies tend not to go public, if at all, until after their Series D or E round of private fundraising, whereas thirty years ago, an IPO would be the equivalent of today’s Series B or C.[3]

Revitalizing our public markets means dismantling the barriers that drove companies away in the first place. Overly burdensome SEC rules may not be the sole reason for this decline—but where regulatory frictions are a determinant of it, the agency is moving intently to remove them. In the time that we have together, I will first share what we have achieved thus far to that end before turning to what we still plan to accomplish.

The views I express here are my own as Chairman, and not necessarily those of the SEC as an institution or of the other Commissioners.

***

Some of you may recall that last September, the Commission issued a policy statement regarding companies’ inclusion of mandatory arbitration provisions in their governing documents.[4] These provisions require shareholders to arbitrate their claims against the company that arise under the federal securities laws. Prior to our statement, the SEC staff, with the apparent support of agency leadership, told companies on an ad hoc basis that including such a provision would prevent their registered offering from proceeding or substantially delay it. Those days of unwritten, consequential policies are over. Our formal Commission policy statement reversed this shadow position and clarified that, based on Supreme Court precedent, mandatory arbitration provisions are not inconsistent with the federal securities laws. This decision reaffirms that the SEC is not a merit regulator and must operate within its mandate as a disclosure agency—including with respect to a company’s chosen method of resolving disputes with its shareholders.

In that same spirit, the Commission earlier this month proposed amendments that, if adopted, would provide public companies with the option of filing one semiannual report each year, in lieu of three quarterly reports.[5] Removing the SEC’s thumb from the scale, as we proposed, affords companies regulatory flexibility based on their industry, business model, and investor expectations.

Just last week, the Commission issued two additional proposals that, if adopted, would build upon legislative and regulatory concepts that have proven successful in the past, and which aim to extend that success to more companies in the future—particularly small and mid-sized companies, creating further incentive to go and stay public.

The first—referred to as registered offering reform[6]—would expand access to the SEC’s “shelf registration” process, which allows public companies to access the public markets quickly and when market conditions are most favorable. Currently, due to eligibility restrictions, newly public companies cannot use shelf registration, and smaller companies have only limited access to shelf registration. Registered offering reform, meanwhile, would expand the full availability of shelf registration to nearly all public companies—including the newest and the smallest—increasing the number of eligible companies by 60 percent. Additionally, this proposal would extend certain offering and communications flexibilities—currently reserved for large companies that have been public for at least one year—to all companies listed on a U.S. securities exchange. This change alone would represent a 200 percent increase in companies receiving these flexibilities.

The second reform that we proposed last week—referred to as filer status reform[7]—would re-calibrate disclosure requirements based on a company’s size and how long it has been public. As a result, more companies would receive relief from some of the most onerous SEC requirements, including the obligation to obtain an auditor attestation of internal control over financial reporting. Currently, that benefit is reserved for newly public and smaller companies. Filer status reform would broaden it to approximately 81 percent of public companies, including certain seasoned and mid-sized issuers. The proposal would also build on the “IPO on-ramp” concept that Congress created by extending the length of time that companies can potentially remain on the on-ramp and be exempt from the auditor attestation requirement—and others like it.

***

Taken together, these actions reflect the SEC’s significant progress since I became Chairman to incentivize more companies to go and stay public and, in doing so, to revitalize our capital markets. But, the work is far from finished, and additional noteworthy initiatives are on the horizon.

The Commission staff is well underway in developing recommendations for proposed changes to rationalize, simplify, and modernize the SEC’s public company disclosure requirements, including with respect to executive compensation. Guided by materiality as our north star, I would like to see the Commission’s disclosure regime reflect the minimum effective dose of regulation necessary to elicit information that is material to a reasonable investor, without requiring information that is indisputably immaterial.

Of course, the incentives for going public are only as effective as the process that companies must navigate to capitalize on them. With that in mind, I have asked the Commission staff to prepare recommendations to modernize the IPO process itself.

I routinely hear from companies and their advisors that one of the challenges of the IPO process is navigating the communication—or gun-jumping—rules under the Securities Act of 1933. In light of this, I would like to see any rulemaking in this area include considerable reforms to these rules. When Congress originally enacted the Securities Act, a company could not make any written or oral “offers” to sell securities before a registration statement became effective.[8] But as Linda Quinn—a former director of the SEC’s Division of Corporation Finance—once questioned, “[d]o we need to continue to register offers?”[9]

Over time, both Congress and the Commission eased the prohibition on offers.[10] However, the Commission’s spider web of gun-jumping prohibitions and exceptions remains difficult to maneuver. Moreover, the last time that the Commission implemented significant reform in this area was more than 20 years ago.[11] The ways in which businesses communicated with employees, customers, and potential investors at that time bears little resemblance to how they do so now. As the Commission staff prepares its recommendations, I look forward to constructing a more harmonized set of rules that offer clarity, simplicity, and congruity with today’s technology.

Modernizing the IPO process also invites a broader reassessment of the method by which companies become public. IPOs conducted through a firm commitment underwriting offer many benefits and have been, and likely will remain, the dominant path for companies intending to go public—but they are by no means the only one. For example, in recent years, combining with a special purpose acquisition company, or SPAC, has become a popular workaround to the process of becoming a public company.[12] But, instead of standing idly by while companies pursue indirect paths to going public, regulators and market participants should move decisively to remedy the root causes and remove the barriers to more direct approaches.

For the public market debut of companies offering the next generation of products and services, the “traditional” IPO process may, in some respects, still be stuck in the prior generation. So I call on founders, executives, investors, bankers, lawyers, and others to boldly innovate and remain open to alternative methods of taking a company public. Now, an alternative method may not be ideal for every company, but for some, it may offer faster and cheaper execution, less susceptibility to unfavorable market conditions, and greater valuation certainty. And, if the market does develop an alternative method, the SEC and other regulators should not introduce or maintain regulatory frictions that stand in the way.

Consider, for example, becoming a public company through a direct listing—the path that Spotify took in 2018. In anticipation of that listing on the New York Stock Exchange, the NYSE proposed amendments to its listing standards that would have required only an Exchange Act registration statement, without a concurrent Securities Act registration statement.[13] However, the NYSE ultimately withdrew this aspect of the proposal, and the listing standards that the Commission approved retained the Securities Act registration requirement.[14] Nasdaq’s standards for direct listings similarly require a Securities Act registration statement.[15]

Initial registration statements filed under the Exchange Act and the Securities Act contain largely the same company disclosure and generally undergo the same Commission staff review process. However, a Securities Act registration statement subjects the company—and any person deemed to be an underwriter—to more stringent liability standards for material misstatements or omissions under section 11 of the Act. Yet following a unanimous 2023 Supreme Court decision,[16] investors who purchase shares following a direct listing may find it difficult to establish a claim pursuant to section 11, though recourse through other liability provisions under the federal securities laws remains possible.[17]

As we look for ways to improve the process and method of becoming a public company, regulators and market participants might consider revisiting how direct listings are conducted and the associated legal requirements. As part of this consideration, it behooves us to ask questions such as: following the 2023 Supreme Court decision, does the market really believe that a Securities Act registration statement continues to offer meaningful investor protections in the direct listing context? Is the requirement to prepare a Securities Act registration statement—as opposed to an Exchange Act one—a hindrance for companies contemplating a direct listing? And beyond the form of the registration statement, are there other regulatory frictions in the direct listing process that the Commission or its staff can reduce through rulemaking or guidance, respectively, while preserving investor protections?

These are the types of questions that I hope today’s conversation will inspire you to answer. But I am equally eager to hear your broader ideas for modernizing IPOs overall, whether that means improving the SEC’s communication or other IPO-related rules, or identifying ways that the agency can remove roadblocks to non-traditional paths to going public. Beginning today, the SEC will accept written comments, and I encourage you to submit yours by July 27, though we will still consider comments received after that date. All ideas are most welcome. I have just one request—that you be bold and creative. And as you share your ideas, you have my word that we are listening.

This is the regulatory perimeter problem in modern finance. Post-financial crisis reforms made banks safer, but they did not make systemic risk disappear. In many cases, risk migrated to market-based areas where leverage, liquidity transformation, and maturity mismatches are less visible to traditional bank supervision. The resulting challenge is not only financial but also legal and institutional. Regulation remains organized largely around categories of institutions, while systemic risk increasingly travels through activities that cut across banks, funds, dealers, clearing houses and capital markets.

The distinction matters for securities regulators and banking supervisors alike. A bank may be well capitalized and still be exposed to stress created by non-bank intermediaries. A fund may not take deposits and still generate destabilizing liquidity pressure. A repo market may look like a technical funding source and still function as a site of systemic fragility. A collateral rule may appear to be private risk management and still amplify forced selling across markets.

Financial stability law must therefore follow the plumbing of risk, not only the charter of institutions.

The post-2008 regulatory framework was built around a clear diagnosis. Banks had entered the global financial crisis with excessive leverage, fragile funding structures, and opaque exposures. The policy response was necessary: higher capital requirements, liquidity rules, stress testing, resolution planning, and more robust supervision. These reforms reduced the probability that a bank failure would trigger a system-wide collapse similar to the 2008 financial crisis.

But the reform agenda also left an important boundary problem. As bank regulation became stricter, parts of credit intermediation and leverage moved into non-bank financial intermediation. This did not necessarily make the system worse; non-bank finance can diversify funding, deepen markets, and support investment. But it changed the channels through which stress is created and transmitted.

A traditional bank run is visible. Depositors withdraw funds, liquidity evaporates, and regulaors can identify the institution under pressure. A market-based run is harder to observe as it is happening. It occurs when secured funding is not rolled over, when collateral haircuts rise, when variation margin calls force investors to raise cash, or when open-ended funds sell assets to meet redemptions. The mechanics are different from a deposit run, but the effects can be similar: forced deleveraging, falling prices, declining liquidity, and contagion across markets.

This is where securities regulation and prudential regulation meet. The legal question is not simply whether a particular entity is a bank, broker-dealer, investment fund, clearing member, or asset manager. The more important systemic question is what activity the entity performs, how that activity is funded, how quickly it can generate liquidity, and which institutions absorb the shock when conditions change.

Repo and securities financing illustrate the problem. These markets are essential for liquidity and price discovery. They also create collateral chains and short-term funding dependencies. When haircuts are small and volatility is subdued, leverage can expand smoothly. When volatility rises, haircuts can increase, maturities can shorten, and funding can become harder to roll over. Leveraged investors may then be forced to sell assets into falling markets. If many investors do this simultaneously, private-risk management becomes a public stability problem.

Margin calls create a similar dynamic. Initial and variation margin requirements are essential tools for reducing counterparty risk, but they can also generate sudden cash needs. A margin call does not ask whether the investor’s long-term position is fundamentally sound; it requires liquidity now. If liquidity is unavailable, the investor sells what can be sold. This can transmit pressure from one market to another, including from advanced-economy funding markets to emerging-market bonds, equities, and currencies.

Investment funds add another layer. Open-ended funds may promise frequent liquidity to investors while holding assets that are less liquid under stress. If redemptions rise, funds may sell assets at depressed prices. Those sales can widen spreads, impair market functioning, and affect banks that provide credit, custody, derivatives, clearing, or market-making services. The risk is not identical to banking risk, but it can become bank-relevant.

The legal architecture has struggled to keep pace because responsibility is fragmented. Banking supervisors look at bank safety and soundness. Securities regulators focus on market integrity, disclosure, investor protection, and conduct. Central banks monitor liquidity and monetary transmission. Resolution authorities prepare for institutional failure. Each mandate is legitimate. The problem is that systemic risk often sits in the gaps between mandates.

The Financial Stability Oversight Council in the United States was created to address precisely this kind of cross-sector vulnerability. Yet the broader regulatory system still tends to treat bank supervision, securities regulation, and market-infrastructure oversight as separate disciplines. The next stage of reform should not be to collapse these disciplines into one. It should be to build a more explicit activity-based layer across them.

Activity-based oversight does not mean regulating every fund like a bank. That would be neither practical nor desirable. Banks are special because of deposits, payments, credit creation, and access to public backstops. But when non-bank activities generate bank-like systemic effects, supervisors should have the data, legal authority, and institutional ability to monitor them.

The core principle should be simple: Similar risk-creating activities should be visible to regulators, even when they occur in different legal forms. Leverage matters because it amplifies losses. Liquidity mismatch matters because it can force selling. Collateral rules matter because, in stressed markets, higher haircuts and collateral demands can force asset sales and transmit stress across balance sheets Cross-border portfolio rebalancing matters because it can move market pressure rapidly from one jurisdiction to another. These risks are not defined by the institutional label of the entity carrying them.

A practical regulatory agenda would begin with data. Supervisors need a clearer map of bank–non-bank interconnections: prime brokerage exposures, repo financing, derivatives positions, clearing relationships, credit lines, collateral reuse, and concentrated funding dependencies. They also need better information on margin liquidity, reducitions in loan values, fund flows, and market liquidity. This information should not be collected only after a crisis. It should be part of ordinary systemic surveillance.

Second, stress testing should cover more of the financial system. Bank stress tests are necessary, but they are not sufficient if the shock enters through market-based finance. Scenarios should examine how increases in margin calls, reduced repo rollover, and similar changes affect both non-bank intermediaries and the banks connected to them.

Third, regulators should develop clearer protocols for sharing information. A securities regulator may see fund outflows before a banking supervisor sees credit stress. A central bank may detect market liquidity deterioration before a prudential supervisor sees solvency concerns. A clearing house may observe margin pressure before public markets register disorderly selling. These signals need to be connected quickly.

Fourth, international coordination matters. Market-based finance crosses borders by design. Funding can be raised in one jurisdiction, collateral posted in another, risks hedged in a third, and assets sold in emerging markets when liquidity is needed. A purely domestic view of systemic risk is increasingly incomplete.

Emerging markets provide a useful stress test for this framework. They are often exposed to global dollar conditions, commodity prices, foreign portfolio flows, and external risk appetite. Their domestic banks may be sound, but their markets can still experience abrupt outflows when global investors deleverage. In these jurisdictions, the regulatory perimeter problem is not theoretical. It is part of the recurring experience of financial openness.

This does not imply that every market correction should be prevented. Markets must be allowed to reprice risk, and losses should not automatically become public liabilities. The objective is narrower and more important: to prevent ordinary repricing from becoming forced selling, liquidity spirals, and systemic stress.

The post-crisis era taught regulators to take bank resilience seriously. The next era will require them to take market plumbing just as seriously. Financial regulation cannot stop at the boundary of the bank charter when the sources of systemic risk run through collateral, margins, repo, derivatives, funds, and cross-border portfolios.

The regulatory perimeter should be defined not only by what institutions are called, but also by what activities do under stress.

Gustavo Pessoa is a professor of economics at Brazil’s Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo (FGV-EAESP) and holds a PhD in finance.

Several sponsor-backed issuers accessed the public markets during the first quarter of 2026, while large sponsor-to-sponsor transactions also returned for scaled, high-quality assets. While market sources and data points vary, they generally report a decline in U.S. private equity exit deal value, but an increase in U.S. private equity deal volume in the first quarter of2026 as compared to the first quarter of 2025. There isn’t enough data yet on Q2.

Strategic acquirers continue to pursue transactions that fit defined priorities. Capital is available, but disciplined. Public market demand has returned, but selectively.

That is shaping sponsor behavior in an important way. In prior cycles, liquidity planning was often concentrated near the end of the hold period. Today, many sophisticated firms are treating liquidity as an ongoing ownership function, developed well before a formal sale process begins.

That distinction may define the next phase of the market.

For years, exits largely followed a familiar script. A company was improved, marketed, and sold through a competitive auction, transferred to another sponsor, or taken public when markets were receptive. Those routes remain central to private equity. What has changed is the premium now placed on readiness, flexibility, and process discipline.

In many cases, the best outcome is no longer determined solely by who shows up to bid. It is often determined by how thoroughly the sponsor has prepared long before bids arrive.

The Market Has Reopened, but Standards Are Higher

There is capital available for quality businesses. Lenders are willing to support transactions with strong fundamentals. Buyers continue to pursue assets that fit strategic mandates. Public investors have shown appetite for issuers with credible growth stories and clear earnings visibility.

At the same time, buyers are more selective, financing terms remain more disciplined, and valuation support is more company-specific than market-wide.

That means average assets are not benefiting from a rising tide in the same way they might have in earlier periods. The spread between well-prepared companies and merely saleable companies can be meaningful.

Sponsors are responding accordingly.

Many firms are pursuing exits only after key initiatives are complete and the business can be presented with conviction. Others are extending holds where another year of focused execution may materially improve value. Some are pursuing structured liquidity solutions that provide distributions now while preserving future upside.

Those are not signs of hesitation. They are signs of a more sophisticated market.

Liquidity Is Becoming Part of the Ownership Model

One of the more notable changes in private equity is that leading sponsors increasingly plan for liquidity throughout the investment lifecycle rather than only at the end.

That can begin shortly after acquisition.

Management incentive programs may be designed with multiple realization paths in mind. Reporting systems may be upgraded early to withstand third-party diligence. Add-on acquisitions may be evaluated not only for strategic merit, but also for how they enhance eventual sale positioning. Customer concentration, margin profile, and recurring revenue quality may receive greater focus because they directly influence exit attractiveness.

In other words, many sponsors are no longer separating value creation from monetization strategy. They are integrating the two.

That approach can create a practical advantage. When markets improve, prepared assets can move quickly. When markets become more selective, prepared assets often remain competitive.

In this market, sponsors are not just selling companies. They are selling readiness.

The Exit Lens Is Wider Than a Traditional Sale

Another defining feature of the current market is the broader range of tools available to sponsors.

Continuation vehicles, preferred equity, minority recapitalizations, and other structured transactions are now established features of the private capital landscape. Industry data from early 2026 shows that while global private equity exit volume remained below prior-cycle highs, overall exit value increased materially because larger, higher-quality assets continued to transact.

A continuation vehicle may allow existing investors to realize proceeds while giving those who wish to continue exposure the ability to do so. Preferred equity can provide liquidity or capital without a full change of control. Minority recapitalizations can reduce concentration and return capital while preserving operational control.

Used thoughtfully, these tools can improve alignment between investor objectives and company timing.

Importantly, they are often strongest when applied to quality assets with remaining runway, not simply assets that could not be sold.

They also require careful execution. Sponsors considering GP-led or structured transactions are increasingly focused on valuation support, conflicts management, process fairness, rollover elections, tax efficiency, and clear LP communications. Those issues can materially affect both execution certainty and investor reception.

What Effective Sponsors Are Doing Differently

In my experience, firms navigating this environment most effectively tend to focus on four disciplines.

1. They Underwrite the Exit While Owning the Asset

Some sponsors treat exit planning as a final-stage exercise. Others revisit the eventual buyer universe, likely diligence focus areas, and valuation drivers throughout the hold period.

The second group often has an advantage.

When a sponsor understands early what future buyers are likely to reward or discount, management priorities can be set more effectively during ownership.

2. They Distinguish Motion From Progress

Not every improvement initiative translates into realizable value.

Sophisticated sponsors focus on changes that are likely to matter in a sale process: revenue durability, margin quality, management depth, systems credibility, market position, and scalability.

Busy ownership periods do not always equal valuable ownership periods.

3. They Run Multiple Paths Without Signaling Uncertainty

The strongest firms often evaluate multiple liquidity paths simultaneously. A traditional sale, structured recapitalization, or continued hold may each remain viable until late in the process.

That flexibility can improve outcomes. It can also strengthen negotiating leverage by avoiding dependence on a single route.

4. They Manage the LP Narrative With Specificity

Limited partners understand that market windows change. What many investors value most is clarity.

Sponsors who can explain why an asset is being sold now, held longer, or monetized through an alternative structure are often in a stronger position than those offering only broad market commentary.

In a slower realization environment, communication itself can become an asset.

What This Means for the Next Cycle

Traditional exits will remain the foundation of private equity realizations. Strategic sales, sponsor-to-sponsor transactions, and IPOs will continue to matter.

But the firms likely to outperform in the next phase of the market may not be those waiting for conditions to become universally favorable.

They may be the firms that accept a simpler reality: liquidity is no longer just the final chapter of ownership. It is part of the operating plan from the beginning.

That shift is subtle, but meaningful.

In this market, value creation does not end with a sale. Increasingly, it includes knowing how, when, and through which path to sell.

This post is based on a Mayer Brown LLP memorandum, “Private Equity’s Next Exit Cycle: Why Sophisticated Sponsors Are Treating Liquidity as a Core Value-Creation Function.”

The Order states that it is “the policy of the United States to streamline regulatory processes, reduce unnecessary barriers to entry, and encourage collaboration between fintech firms, federally regulated financial institutions, and Federal financial regulators.”  That’s an anodyne but unexceptional goal, although there may be  more going on here than meets the eye.

For those following the power game between the White House and Federal Reserve Board (the “Fed”), a closer look reveals a clever piece of legal and policy legerdemain that allows the Trump Administration to pay lip service to a broad concept of Fed independence while actively undermining it.  As a result, the Order puts the Fed in a difficult position early in the tenure of Chair Kevin Warsh.^[2]

The Order defines fintech broadly.  While the definition includes what we usually think of as fintech—things like “neobanks,” which offer digital banking services without physical locations, and other nonbank providers of traditional financial products—it’s hard not to conclude that the Order’s real focus is purveyors of the administration’s (and the Trump family’s) favorite “innovative,” gambling-based activities: crypto trading and prediction markets.  It also seeks to promote blockchain solutions of all types.

The scope of the Order is as broad as it could possibly be:

 “Fintech firm” refers to a non-bank company that uses or develops technological means to offer or support the offering of financial products or services, including, but not limited to, any application or any digital or online technology that facilitates access to, management of, or data processing for financial products or services.  Such financial products or services may include, but are not limited to, payment processing, lending, deposit-taking, derivatives, investment management, brokerage services, underwriting and capital-market activities, custodial and fiduciary services, digital banking, digital asset-related services, securities and commodities market activities, and blockchain-based services.  For the avoidance of doubt, such financial products or services also include the activities set forth in paragraphs (A) through (G) of section 4(k)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)(4)).

The last sentence incorporates all activities deemed “financial in nature” that are permissible to financial holding companies.[3]

The Order requires the heads of the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the National Credit Union Administration, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency—but not the Fed—to do a variety of things:

conduct a review of existing regulations, guidance, supervisory practices, and application processes to identify those that could be updated to facilitate innovation, and competition to financial products and services for fintech firms, particularly those that are small and emerging.  The reviews shall identify regulations, guidance documents, orders, no-action letters, and other items that unduly impede fintech firms from entering into partnerships with federally regulated institutions (including insured depository institutions, credit unions, broker-dealers, investment advisers, and futures commission merchants), as well as regulations, guidance documents, orders, no-action letters, and other items that could be amended to streamline application processes for eligible fintech firms seeking bank charters, credit union charters, deposit or share insurance, and other Federal licenses, registrations, and authorizations, balancing innovation interests with the importance of safety and soundness, consumer and investor protection, market integrity, financial stability, and oversight.

Within 180 days, the named federal financial regulators are required,  in consultation with Kevin Hassett, the assistant to the president for economic policy, to “take steps” to encourage innovation as a result of the review.

But the most interesting part for Fed watchers is this: Section 4(a) of the Order also contains a “request” for the Fed to comply with all the “fintech”-related bank regulation requirements that are applied directly to the other federal banking agencies as mandates in the Order. [4]

On its face, the phrasing in that part of the Order can be viewed as a massive victory for the concept of Fed independence. By using this “request” framing, the Trump Administration  formally acknowledges for the first time that the “independence” of the Fed extends beyond monetary policy and includes its supervision of state-chartered Fed member banks, bank holding companies, financial holding companies and foreign banking organizations.[5]

This is a significant retreat by the administration from the aggressive approach taken in the president’s February 2025 executive order on independent regulatory agencies, which asserted that the Fed was independent from Executive Branch control only when it came to the FOMC and monetary policy and not when it came to bank regulation. [6]

Stepping back for a moment: Although the idea of Fed “independence” has been well established in policy circles, its legal justification is complex and has been heavily contested by the Trump White House since the Supreme Court began to adopt the so-called unitary executive theory and eliminate protections for independent regulatory agencies in recent years.  The Fed does many things in addition to controlling the money supply and influencing interest rates—things like regulating banks and holding companies and running the national payments system.  Some argue that “independence” should not apply to these non-monetary policy matters. While the better argument is probably that the Fed’s bank regulatory and payments activities are part of its control over monetary policy and thus should be independent,[7] the issue isn’t settled.

The change in the administration’s formal attitude to Fed independence can in part be attributed to pragmatism.  Two things have changed since the 2025 executive order.   First, the Supreme Court strongly indicated during oral arguments in the case challenging the firing of Fed board governor Lisa Cook that the Court will exempt the Fed from direct presidential control under an exception to its unitary executive theory. Second, the pushback from Wall Street leadership, the financial press, and congressional leaders against any efforts to reduce Fed independence has been nearly universal.

So, has the administration given up on trying to bend the Fed to its will?  Legally, perhaps, but not as a matter of power politics.

There are many ways to use legalisms to skin a cat, as this administration knows well. And, as we all know, some requests are really demands.  This is one of those “requests.”

The president is throwing down a politely-phrased gauntlet to new Fed leadership, daring them not to comply with a bank regulatory-policy diktat while offering them a face-saving way to maintain the aura of independence without the reality.

This puts Chair Warsh in a particularly difficult situation personally.  He is newly confirmed for  the job after facing congressional skepticism about his ability to stand up to political pressure from the president. If he leads the Fed to comply with the request/demand, he may be accused of “secret deals” in areas where the president is ethically and financially compromised and of political subservience to the Trump agenda.  If the Fed fails to comply, he will be attacked aggressively for that failure by the administration because, after all, the president asked nicely.

 Warsh’s situation is complicated by the fact that he has openly opined^[8] that the Fed is not independent of Executive Branch control in bank regulatory matters.  So what’s a new chair to do?

Given his history,  and despite the criticism that may follow, Warsh will almost certainly take the bait and push the Fed to do what the president asks by adopting fintech-friendly bank regulatory policies in line with those of the other banking agencies, regardless of what the views of the career regulators at the Fed might be.  And the administration appears confident that Michelle Bowman and Christopher Waller, Trump appointees to the Federal Reserve Board of Governors, will agree and that the Fed as a whole will support the president’s personal and policy priorities.

The irony is this. Despite badly losing both the legal and public opinion battles on Fed independence in bank regulatory matters, the administration appears to have won the war, leaving the Fed with a future of Potemkin independence in bank regulatory matters, where it will comply with any policy directive from the president as long as it is phrased as a “request “rather than an order.

ENDNOTES

[1] https://www.whitehouse.gov/presidential-actions/2026/05/integrating-financial-technology-innovation-into-regulatory-frameworks/

[2] While there have historically been good reasons for the Fed to coordinate bank regulatory policy with the other “independent” regulatory agencies, those reasons became more questionable after Supreme Court decisions eliminating the concept of an independent agency and making agencies like the OCC and FDIC effectively subject to presidential political and policy fiat.https://www.scotusblog.com/2025/12/morrison-v-olson-and-the-triumph-of-the-unitary-executive-theory/

[3] For purposes of this subsection, the following activities shall be considered to be financial in nature:

(A) Lending, exchanging, transferring, investing for others, or safeguarding money or securities.

(B) Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any State.

(C) Providing financial, investment, or economic advisory services, including advising an investment company (as defined in section 3 of the Investment Company Act of 1940 [15 U.S.C. 80a–3]).

(D) Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly.

(E) Underwriting, dealing in, or making a market in securities.

(F) Engaging in any activity that the Board has determined, by order or regulation that is in effect on November 12, 1999, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto (subject to the same terms and conditions contained in such order or regulation, unless modified by the Board).

(G) Engaging, in the United States, in any activity that—

(i) a bank holding company may engage in outside of the United States; and

(ii) the Board has determined, under regulations prescribed or interpretations issued pursuant to subsection (c)(13) (as in effect on the day before November 12, 1999) to be usual in connection with the transaction of banking or other financial operations abroad.

[4] The Order contains a separate, but similarly phrased, “request” directed at the Board with regard to expanded nonbank access to the U.S. payments system, but the Fed’s proposal for so-called “Skinny” master accounts proposed on the next day appears to have rendered that issue moot for now. https://www.federalreserve.gov/newsevents/pressreleases/other20260520a.htm

[5] And the acceptance of independence extends to the aforementioned payments matters as well.

[6] “This order shall not apply to the Board of Governors of the Federal Reserve System or to the Federal Open Market Committee in its conduct of monetary policy.  This order shall apply to the Board of Governors of the Federal Reserve System only in connection with its conduct and authorities directly related to its supervision and regulation of financial institutions.”  https://www.whitehouse.gov/presidential-actions/2025/02/ensuring-accountability-for-all-agencies/

[7] Lev Menand, The Supreme Court’s Fed Carveout: An Initial Assessment, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5266613; Daniel K. Tarullo, The Federal Reserve and the Constitution, 97 S. Cal. L. Rev. 1 (2024).

[8] https://www.federalreserve.gov/newsevents/speech/warsh20100326a.htm.

Todd H. Baker is a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia Business School and Columbia Law School.