SEC, See You Later!

Data obtained through a public records request reveals that the Securities and Exchange Commission (“SEC”) experienced a workforce reduction of nearly 19% following the buyout programs initiated by the Trump administration in collaboration with the newly established Department of Government Efficiency. Staff cuts in the Chicago and San Francisco regional offices were close to 20%, as were those to the General Counsel’s office. Additionally, the SEC's Enforcement division, one of the largest divisions within the agency, has lost over 70 employees since January. The SEC has continued its cost-cutting efforts, recently reassigning more than 20 employees from their regular duties to focus exclusively on contract reviews to identify further cost-saving opportunities, particularly in IT services.

CFTC Not Safe from Sanctions

A New Jersey court is debating a recommendation to sanction the U.S. Commodity Futures Trading Commission (“CFTC”), based on a report that they made significant missteps in a 2023 fraud case. The activity in question dates back to August 2023, when the CFTC sued My Forex Funds and its Chief Executive Officer, Murtuza Kazmi, accusing the firm of operating Ponzi scheme. According to the CFTC, My Forex had gains of hundreds of millions of dollars in illegal profits, Kazami, himself, buying a $1.6 million Lamborghini Aventador. Later that month, a judge froze the assets of Kazmi and My Forex Funds based on claims from the CFTC that Kazmi had moved $31.5 million into a personal bank account. In fact, the transfers were payments to Canadian tax authorities. A report accuses the CFTC of deliberate obfuscation, prompting calls for the case’s dismissal and for the agency to pay legal fees. In response, the CFTC has placed four staff members on administrative leave, and Acting Chair Caroline Pham acknowledged the agency’s failings, calling for accountability and corrective action to restore credibility.

These revelations come in the wake of a number of CFTC Commissioners departing the agency, leaving Caroline Pham as the sole voting member of the Commission. Kristin Johnson most recently joined Summer Mersinger and Christy Goldsmith Romero, as three agency members to announce their upcoming departures within the space of a week.

Regulation S-P

In May 2024, the SEC adopted major amendments to Regulation S-P to strengthen consumer data protection amid rising cybersecurity threats. The updated rule requires broker-dealers, investment advisers, investment companies, and transfer agents to implement written incident response programs and notify individuals of data breaches within 30 days. It also expands the safeguards and disposal rules to cover all customer information, including data from other institutions. Compliance deadlines are upcoming. Large entities defined as registered investment advisers with $1.5 billion or greater in assets under management (“AUM”), broker-dealers, or investment companies with $1 billion or greater in AUM have until December 2, 2025, to comply with the rule. Smaller entities, advisers with $1.5 billion or less in AUM have until June 2026.

If you are a large entity seeking help with Regulation S-P compliance, including policy reviews, risk assessments, and preparedness planning, contact the Orical Team for support.

SEC to Show Leniency

Antonia Apps, deputy enforcement director at the U.S. Securities and Exchange Commission (“SEC”), told financial professionals that the Republican-led SEC under Chairman Paul Atkins is expected to be more sympathetic with penalties, especially for firms that cooperate and do not commit fraud.

Apps suggested the SEC may be less aggressive with penalties, on the table is the possibility of waiving the requirement for firms to hire external compliance consultants if the firms have already addressed issues internally. When consultants are required, i.e. if a firm “is not getting the message,” their roles will be more narrowly defined. She emphasized a greater sensitivity to regulatory burdens and acknowledged that firms making good-faith compliance efforts might face reduced penalties.

SEC Speaks

Commissioner Hester Peirce, as a part of the SEC speaks program, outlined progress made by the SEC's Crypto Task Force, including public engagement, new guidance, and collaboration with Congress. The Commissioner’s speech focuses on the SEC’s evolving approach to crypto regulation, criticizing its past reliance on enforcement actions instead of clear guidance or rulemaking. She argued that most crypto assets are not securities, though some may be sold as part of investment contracts early in their development. She highlighted the work of the SEC’s Crypto Task Force, which is developing clearer rules, issuing guidance, and engaging with the public and Congress. The Commissioner supports a safe harbor for crypto projects, tailored registration frameworks, and exemptions for certain transactions like airdrops and secondary sales. She emphasizes the need to distinguish functional, decentralized crypto assets from securities and calls for clarity to support innovation and investor protection.

FINRA

The Financial Industry Regulatory Authority (“FINRA”) has proposed a new rule aimed at streamlining the regulation of outside business activities (“OBAs”) by consolidating its existing Rules, 3270 and 3280. The proposed change would simplify oversight by removing supervisory requirements for representatives involved in outside investment adviser activities, which FINRA does not directly regulate. The goal is to reduce regulatory burden and improve clarity. Although the public comment period has closed, FINRA is reviewing the feedback and has not made a final decision on whether or how the rule will be adopted or modified.