Key Takeaways
- •Republicans praised SEC Chairman Atkins for restoring accountability and due process, shifting the agency back to its core mission of investor protection and capital formation.
- •Witness Chan criticized the prior SEC's "regulation by enforcement," citing the off-channel communications initiative as an example of unfair practices.
- •Rep. Hill (R) pressed Witness Iacovella on the SEC's "off-channel communications" fines, arguing the agency should have issued guidance instead of punitive enforcement.
- •Rep. Sherman (D) criticized the current SEC for "deregulation by non-enforcement" and a lack of Democratic commissioners, contrasting with Republican praise.
- •Congress is considering legislative reforms like a 60-day minimum comment period and the INVEST Act to ensure durable guardrails and prevent future SEC overreach.
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Hearing Analysis
Overview
The House Financial Services Subcommittee on Capital Markets held a hearing on February 4, 2026, titled "A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence." The primary purpose of the hearing was to examine the Securities and Exchange Commission’s (SEC) shift in regulatory and enforcement philosophy under the leadership of Chairman Paul Atkins. Republican members and several witnesses argued that the previous administration under Gary Gensler had engaged in "regulation by enforcement" and partisan overreach, while Democratic members expressed concern that the current Commission is neglecting investor protections and operating without minority party representation.
Chair Ann Wagner (R-MO-2) opened the hearing by asserting that the SEC had drifted from its core mission in recent years, citing rushed rulemaking and a lack of rigorous cost-benefit analysis. She praised Chairman Atkins for "righting the ship" by restoring internal discipline and recentering the agency on capital formation and investor protection. Conversely, Ranking Member Brad Sherman (D-CA-32) argued that the SEC is currently engaged in "deregulation by non-enforcement" and "capitulation" in litigation. He specifically criticized the lack of Democratic commissioners, noting that the SEC is currently "unipartisan" with zero Democrats serving on the board, which he argued undermines the agency’s traditional independence.
Key Testimony
The witness testimony highlighted deep divisions regarding the SEC’s recent trajectory. Mr. Peter Chan, a Partner at Baker McKenzie and former SEC enforcement official, testified that the agency had lost its way by pursuing "esoteric theories" and "off-channel communications" initiatives that pressured firms into massive settlements without evidence of bad faith. He advocated for a "Wells 2.0" committee to reform the enforcement process and ensure fairness. Mr. Alexander Cohen, Partner at Latham & Watkins, provided a package of ten structural reforms, including the creation of an SEC Vice Chairman position to manage the agency's 26 direct reports and folding the Public Company Accounting Oversight Board (PCAOB) directly into the SEC to eliminate regulatory "barnacles."
Overview
Mr. Chris Iacovella, CEO of the American Securities Association, focused on "mission drift," arguing that the SEC had become a political actor. He proposed several legislative fixes, including a statutory minimum 60-day comment period for rules, a transparent fine schedule for administrative violations, and ending the "unauthorized delegation" of regulatory functions to Self-Regulatory Organizations (SROs) like FINRA. He specifically criticized the Consolidated Audit Trail (CAT) system as an illegal collection of personal investor data. In contrast, Mr. Ben Schiffrin, Director of Securities Policy at Better Markets, argued that Chairman Atkins is turning the SEC into an "arm of the administration" that prioritizes Wall Street over retail investors. Schiffrin warned that reducing enforcement and pushing retail investors into "risky and expensive" private markets would ultimately harm the economy and market confidence.
Several specific policy proposals and pieces of legislation were discussed. Rep. Frank Lucas (R-OK-3) highlighted his bipartisan bill to establish a Public Company Advisory Committee within the SEC. Rep. Troy Downing (R-MT-2) discussed H.R. 3318, the SEC Modernization Act, which would reorganize the SEC’s 43 offices into 12 statutory offices to increase efficiency. The INVEST Act was also mentioned as a vehicle to reduce compliance burdens for Emerging Growth Companies (EGCs) by allowing them to provide two years of financial statements instead of three. Additionally, members discussed the SEC Regulatory Accountability Act, which would require definitive problem identification before any new rulemaking.
The hearing featured several notable exchanges regarding the SEC’s enforcement tactics. Full Committee Chairman J. Hill (R-AR-2) delivered a sharp critique of the SEC’s "off-channel communications" sweep, which resulted in billions of dollars in fines for firms whose employees used personal devices during the COVID-19 pandemic. Hill highlighted the "hypocrisy" of the agency enforcing these standards while former Chairman Gensler reportedly failed to preserve his own text messages. Rep. Lisa McClain (R-MI-9) engaged in a pointed dialogue with Mr. Iacovella regarding FINRA, noting that the organization sits on a $2 billion general fund while its president receives approximately $4 million in annual compensation. McClain questioned the lack of transparency in how FINRA utilizes fine proceeds.
Industry Impact
Partisan dynamics were evident in the discussion of "materiality." Rep. Bryan Steil (R-WI-1) and other Republicans praised the rescission of Staff Legal Bulletin 14L, which they argued had allowed staff to greenlight "wackadoodle liberal" shareholder proposals based on "broad societal impact" rather than financial materiality. Rep. Sean Casten (D-IL-6) countered that the SEC’s recent decisions, such as granting no-action relief to ExxonMobil regarding retail investor voting, effectively disenfranchised sophisticated shareholders and elevated the C-suite over owners.
The industries and sectors most affected by the discussed reforms include broker-dealers, investment advisors, public companies (particularly EGCs and small-caps), the private equity sector, and the digital asset industry. Organizations frequently mentioned included the SEC, FINRA, PCAOB, MSRB, and specific companies like Coinbase, Ripple Labs, and Binance in the context of past enforcement actions.
Key Testimony
Chair Wagner concluded the hearing by requesting that witnesses provide responses to additional written questions by March 11, 2026. The subcommittee intends to use the testimony to inform upcoming legislative markups aimed at codifying 60-day comment periods, strengthening economic analysis requirements, and modernizing the SEC’s internal structure.
Transcript
The subcommittee on Capital Markets will come to order. [Gavel sounds.] And without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is titled A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. And before I recognize myself for an opening statement, I do want to inform our witnesses who so graciously appeared here today along with both majority and minority that we are going to have a this is going to go quickly here. A hard gavel and they've moved up votes to around 3:30 or so and then we're recessed. So it's just this is going to be it will not be possible for us to come back. So we're going to move through this as quickly as we possibly can. So I appreciate everyone's indulgence and certainly their their valued time. So, good afternoon. And I want to thank our witnesses again for all those in attendance for joining us here today. This hearing is part of an ongoing effort by the subcommittee to examine how effectively the Securities and Exchange Commission is executing its congressional mandate and to ensure our regulatory framework supports rather than stifles the world's strongest capital markets. For several years, the SEC drifted away from the principles that have long made our capital markets work. Rulemaking accelerated without sufficient economic analysis, enforcement actions increasingly replaced clear rules, and decisions of enormous consequence were made with too little transparency or accountability. That period raised serious concerns among public companies, Main Street investors, small businesses, and entrepreneurs about whether the SEC was faithfully serving its statutory mission. This hearing is not about relitigating the past. It is about ensuring the future of the SEC is grounded in the rule of law and respect for due process. Under Chairman Paul Atkins, the commission has begun the hard work of righting the ship, restoring internal discipline, and recentering the agency back to its core statutory mission. We welcome that progress. But progress alone is not enough. Lasting reform requires durable guardrails, and that is where Congress must lead. First, we must restore integrity to the SEC's rulemaking process. Rules should not be rushed, stacked on top of one another, or justified by speculative benefits with real costs are ignored. Notice and comment is not a box to check. It is a foundation of administrative law. Rigorous cost-benefit analysis is not optional or cut and paste. It is essential to ensuring that rules actually serve investors and markets rather than undermine them. Second, we must end regulation by enforcement. The SEC is a civil enforcement agency, not a policymaking substitute for Congress. Market participants deserve clear rules of the road before they are punished for crossing them. Enforcement should target fraud and clear violations of established rules, not serve as a substitute for notice and comment rulemaking or expand regulatory authority beyond what Congress has authorized. Third, we must address the SEC's structure and internal decision-making. Over time, authority has drifted away from the commission itself toward staff-level actions that lack transparency and accountability. Structural reform is necessary to ensure major policy decisions are made by accountable officials and subject to proper oversight. That is why this subcommittee is examining targeted legislative reforms, including proposals to strengthen economic analysis requirements, reinforce meaningful public comment periods, clarify enforcement standards, and modernize the commission's structures so it operates efficiently and within its statutory bounds. Let me be clear. These reforms are not about weakening the SEC. They are about making the agency stronger, more credible, more predictable, and more faithful to the law. Today's witnesses will bring deep experience from inside and outside the commission. I look forward to restoring accountability, due process, and public confidence in the commission. And now the chair recognizes the ranking member of the subcommittee, Mr. Sherman, for four minutes or four? What are we? Do you want four minutes or five minutes, sir?
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