Stop the SEC’s Regulation by Enforcement

During this time of unprecedented uncertainty, the need for our government to set forth consistent, predictable rules has never been greater, and the Securities and Exchange Commission (SEC) is no exception.

It’s time for the SEC to return to required rulemaking to impose new regulations, rather than regulating without rules. This is why we, along with the American Securities Association, the Competitive Enterprise Institute and the New Civil Liberties Alliance, have filed a petition for rulemaking, demanding the SEC to discontinue the troubling practice of rulemaking by enforcement.


The SEC’s Share Class Selection Disclosure Initiative has taken over $125 million from investment advisers over the past two years. However, the enforcement staff could not cite a clear rule or regulation that had been violated. Instead, the SEC relied on previous settlements and past published guidance (which are statements of the staff’s view on a topic at a given time) to squeeze settlements from businesses today.

This drive-by regulating without rules harms independent financial services firms and American investors. Independent financial firms and advisors have a reasonable expectation that the SEC will establish clear rules of the road before engaging in enforcement. Regulating without rules creates uncertainty for firms by not providing proper guidelines as to how they should operate their business, leads to inconsistencies in interpretation and enforcement, and increases costs for investors.

It’s time for the SEC to return to required rulemaking to impose clear regulations, rather than regulation established through enforcement action. Any rulemaking should be transparent, allow interested members of the public to provide comments and include an appropriate phase-in period to allow firms to develop and implement plans to comply with the new rules, with consideration given to grandfathering established practices.

Read the Petition for Rulemaking.

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