I spoke to A Valerie Mirko, partner and leader of Armstrong Teasdale’s Securities Regulation and Litigation practice area in Washington, DC, about her thoughts on regulatory change at the mid-year point. The modernization of rules, processes, and technology was on her mind, as were the expectations financial services regulators place on businesses in continuing to protect investors and the market as a whole.
FINRA’s modernization
We started by reflecting on the FINRA annual conference that was held in May in Washington, DC. “FINRA is taking the same opportunity as the SEC to very thoughtfully modernize regulation for the industry based on its delegated authority,” she said.
Of course the self-regulatory organization (SRO) has a more circumscribed mission, and you have the SEC working on scoping out the regulatory paradigm for digital assets (along with Congress), but FINRA has made a good number of changes, including the gift rule and outside business activities, she pointed out.
“Atkins is accelerating the push for FINRA, but you have to recognize the SRO for its modernization efforts, which started even before Atkins took the helm at the SEC,” Mirko said.
I pointed out FINRA’s continued enforcement activity, even where there has been no provable, actual harm to an investor, such as in recordkeeping cases featuring the use of off-channel communications.
“Absolutely, it’s reminding firms that this is still an area of scrutiny based on current rules. I truly think there’s an appetite at the SEC level to redo the recordkeeping rules, which will be quite helpful, as there is a frustration with outdated rules among those of us that work with or within the securities industry,” she said. “But, in the meantime, the current rules are still being enforced.”
Mirko reminded me that FINRA’s Head of Enforcement, Bill St Louis, has promised that a new enforcement manual is on the way, and many industry participants eagerly await it. “I fully appreciate that they want to get this right, and it’s the first time they are doing it,” she added. “But it will be important in terms of due process and fairness, as the SEC’s enforcement manual has been out for a couple of decades.”
I asked her about the prospects of a revised outside business activities (OBA) rule, as it has been criticized for many years for being overly burdensome. Broker-dealer representatives are required to report on their bartending and fitness-instruction side endeavors, and broker-dealers are expected to supervise those activities.
“Thankfully, it’s with the SEC right now, and we should see a final OBA rule this year. The industry has pushed hard for a rule that was laser-focused on investment activity only. For example, if someone is managing a hedge fund as a side gig, it should be reported and supervised to mitigate risk. However, coaching a little league shouldn’t require broker-dealer oversight,” Mikro noted.
SEC’s modernization
In March, the Department of Labor (DOL) issued a proposed rule in the March 31, 2026, edition of the Federal Register addressing how fiduciaries evaluate 401(k) investment options. The proposal addresses more than just formally opening the door to alternative assets in defined contribution plans. Rather, it outlines a new process-based safe harbor for fiduciary decision-making on selecting 401(k) plan investment options.
Mirko noted how important this proposal is and that it has an impact wider than just Employee Retirement Income Security Act (ERISA) attorneys, “as we need to really think about the downstream effect of changing what can go into a retirement portfolio and the different impact on investors in the long run,” she said. Industry trade groups wielded a lot of sway here to influence this proposal, which “involved a more substantive process than lobbying for a statue.”
She added that “this proposal could make investors interested in an array of products for their other portfolios, not just their retirement ones. Their expectations will change, which in turn will change the risk profile for broker-dealers and investment advisers, whether it’s a Reg BI [Regulation Best Interest] or an Adviser’s Act analysis.”
Mirko and I recalled a day when fees were not disclosed with the level of precision that they are now. “That disclosure has already improved over time, and I think Reg BI made material changes here because it speaks to costs within the care obligation prong,” she said.
Don’t admit but maybe deny
What about the SEC’s recently announced recission of its policy to require settling defendants or respondents to agree not to deny the allegations or findings contained within the Commission’s charging documents? In future, settling parties can publicly contest the charges, and the agency will not enforce past no-deny clauses. What is the significance of this move?
“There are still matters being referred to enforcement and a lot of that activity is being resolved at the examination stage. So, for my clients, that is still a lot of time and effort and money.”
A Valerie Mirko, partner, Armstrong Teasdale
“It’s a big change, and it will take a good while to see the effect of the nuances of that change,” Mirko said. “The admission of wrongdoing, paradoxically, takes on heightened importance. Up to now, no respondent could say anything after settling with the agency, except what was in the order publicly. This means the settlement orders are going to look different by virtue of the changed policy. This is just expected, because the SEC now knows that the company can contest the allegations as written there.”
Mirko elaborated, saying “if you look at settlements from the last 10 years or so, the factual findings are pretty terse. The SEC might now want to expand the factual findings a bit, parse them out more, expecting that many respondents will be denying aspects of the allegations publicly now.”
She acknowledged the flip side of the coin for firms in being able to deny the allegations, the drawbacks for them.
On the subject of “further factual findings and denials alleging more facts” she said “you have to worry, as a business or as defense counsel, about the collateral litigation risk, collateral regulatory consequences, collateral reputational consequences. There is always a tension around the language used in these orders, and now that has become more pronounced due to this policy shift.”
But she cautioned against drawing a conclusion too soon, saying “we really need to see how the next six months of settlements go to see if the no-admit, no-deny paradigm was a better one for regulated businesses.”
Mirko is heartened by the fact that David Woodcock is the director of the SEC’s Division of Enforcement now and has the experience as defense counsel and in-house counsel to guide this transition.
Optional semi-annual reporting
In early May, the SEC proposed a rule that would give public companies the option to file interim reports on a semi-annual basis instead of the current quarterly requirement. Mirko thinks there are a lot of benefits to streamlined reporting: “It goes along with what Chair [Paul] Atkins told us we would see, streamlined reporting in many forms, and lots of rulemaking and comment-seeking in general.”
Mirko calls this anticipated flurry of rule proposals and comment periods the “Atkins Avalanche.” While she acknowledges that the rules are likely going to lower compliance burdens for firms overall in the future, this period of evaluating and commenting on the many rule proposals will take up a lot of time for firms in the short term.
And, to be sure, the obligation to report material risks is not going away. “The concept of materiality is foundational here. Their messaging is there; I mean, Chair Atkins has a podcast [Material Matters] that is a play on the word materiality! It’s more about efficiency and getting back to the core basics, which I think is important to remember,” she added.
One chair, one commissioner
The SEC is currently down to three members: Chair Atkins and Commissioners Hester Peirce and Mark Uyeda. All three occupy Republican-designated seats, and Commissioner Peirce’s term expires this year. The agency currently has two vacant seats allocated for Democrats following the departure of Commissioner Caroline Crenshaw on January 2.
Mirko finds this untenable.
“I have been very supportive of this triad at the SEC, but I still think there should be a Democrat commissioner that is writing his or her two cents down for the record in these settlements and proposed rulemakings. We need those dissents for the record,” Mirko said. “It’s part of an independent commission to have it, to have those dissents recorded.
For instance, Commissioners Uyeda and Peirce wrote some really strong dissents during the Gensler [era] that have helped serve as the foundation for what is being built today at the agency. I mean, it was President Trump that appointed Caroline Crenshaw, and people forget that.”
Mirko hopes before the lame-duck session (right after US elections) we see at least one Democrat appointed. Or, rather, “we need Hester Peirce’s seat filled when she leaves, and then at least one Democrat appointed.”
Enforcement activity
I challenged Mirko on the topic of enforcement, noting that enforcement levels were down at the SEC and the agency seems more intent on pursuing cases involving individual bad actors. “That is true,” she said.
“But there are still matters being referred to enforcement, though we are seeing matters being resolved at the examination stage. We may be seeing fewer enforcement settlements, but they continue, and some are still significant from a dollar perspective. See, for example, the recent cherry-picking settlement that had a $100m civil penalty,” she said.
“And, even for matters settled at the exam stage, there could be restitution to investors, and/or significant remedial changes negotiated, very akin to what you’d see in the undertakings section of an enforcement order. It’s just happening at that exam level.
“Thankfully, when a matter is resolved at the exam level, the firms don’t get a settlement order at the end, so there’s no public disclosure element there. And it saves the SEC a lot of trouble too, as it’s harder to get the matter over the line in an enforcement action versus an examination,” she said.
Mirko contends this is not a securities watchdog that has its pencils down. “The agency still cares a lot about investor harm, compliance programs working well, clients getting billed fairly and conflicts being disclosed. Conduct can be corrected in a much less public way than how the Gensler SEC handled it, and the SEC has been recalibrating to make that happen.”