TLDR
- SEC now requires top-level commissioner approval for formal investigations
- Change follows leadership transition with Mark Uyeda as Acting Chair after Gensler’s departure
- Previous system only required approval from enforcement directors
- Informal investigations can still proceed without commissioner approval
- Mixed reactions: some see it as protection against overreach, others warn of delayed fraud detection
The Securities and Exchange Commission (SEC) has implemented a new requirement that mandates top-level approval before launching formal investigations, marking a departure from previous protocols. This change comes as part of broader shifts following recent leadership transitions at the regulatory body.
According to sources who spoke with Reuters on condition of anonymity, SEC enforcement staff must now obtain permission from politically appointed commissioners before issuing subpoenas, demanding documents, or compelling testimony. This represents a notable change from the previous system, where staff members could initiate formal investigations independently.
The timing of this procedural change coincides with leadership changes at the SEC, including the departure of former chair Gary Gensler and Democrat Jaime Lizárraga in January 2025. President Donald Trump appointed Mark Uyeda as Acting Chair, leaving the commission with three active commissioners: Uyeda, Hester Peirce, and Caroline Crenshaw.
Under the previous administration’s guidelines, the SEC required approval from its two enforcement directors to formally launch probes. Sources have not confirmed whether the Commission formally voted to revoke this previous delegation of authority.
The new protocol does maintain some flexibility for enforcement staff. They can continue conducting informal investigations without commissioner approval, including sending information requests to gather preliminary evidence.
Tyler Warner, a former banking consultant who now analyzes NFT markets, views the changes as a safeguard against potential overreach. He suggests that SEC commissioners will apply more scrutiny and require stronger evidence before approving investigations.
Huge news out of the SEC
Enforcement staff can no longer launch formal investigations without approval from politically appointed leadership.
Less autonomy in staff, more control up top pic.twitter.com/amP6jQ8Unb
— TylerD 🧙♂️ (@Tyler_Did_It) February 3, 2025
However, the new system has drawn criticism from some industry experts. Marc Fagel, a retired attorney with expertise in SEC enforcement and securities litigation, expressed concerns about the potential impact on investigation efficiency. Drawing from his personal experience with the original delegation of formal order authority, Fagel warned that the change could extend the duration of already lengthy investigations.
The previous leadership under Gary Gensler had taken an active stance on cryptocurrency regulation. The SEC increased enforcement actions against major crypto exchanges, focusing on potential securities law violations and fraud allegations.
This approach generated debate within both the cryptocurrency sector and political circles. Some lawmakers, including members of Gensler’s own Democratic party, questioned whether his interpretation of securities laws was too broad and lacking in clarity.
Gensler defended the SEC’s actions as necessary measures to protect investors from potential frauds and scams in the cryptocurrency market. However, critics argued that this perspective resulted in an overly aggressive approach to regulation.
The new approval process introduces an additional layer of oversight to the investigation process. Commissioners will now review and authorize formal investigations, potentially affecting the speed and frequency of enforcement actions.
This change occurs during a period of transition for the SEC, with the commission operating with three commissioners instead of its full complement of five. The reduced number of commissioners could influence the pace of investigation approvals under the new system.
Industry observers are monitoring how this procedural change might affect the SEC’s enforcement capabilities. While some welcome the additional oversight, others express concern about potential delays in addressing market misconduct.
The requirement for commissioner approval represents a fundamental shift in how the SEC initiates formal investigations. This modification to internal procedures could influence the agency’s ability to respond quickly to potential securities violations.
The impact of this change extends beyond cryptocurrency markets to all areas under SEC supervision. Every formal investigation, regardless of the market sector, now requires this higher level of authorization.
