What Senate control means for Biden’s regulatory agenda

On its face, Georgia Democrats Rev. Raphael Warnock and Jon Ossoff winning Senate seats clears a significant obstacle for Biden’s ability to implement his agenda and pivot from the policies of President Donald Trump.

But the size of the Democrats’ majority is still razor-thin, which will continue to be a problem. The majority in the House is less than a dozen seats, while the party’s margin in the Senate is actually zero. Vice President Kamala Harris will have a vote to break any ties.

What will controlling both chambers of Congress mean for Biden’s regulatory agenda?

Not much in terms of financial regulation, said David Slovick, partner with Barnes & Thornburg and a former senior trial attorney with the Commodity Futures Trading Commission (CFTC). Slovick said for all the promises from Trump on rolling back regulations, he did almost nothing in the area of finance.

“Congress didn’t enact any new legislation or even amend or override existing laws. The regulatory climate is more or less the same as it was” under President Barack Obama, he said. “There’s not a lot for Biden to come in and fix.”

One exception to that statement, Slovick said, was the recent passage of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, which includes a provision codifying the Securities and Exchange Commission’s ability to seek disgorgement from fraudsters (the return of profits earned from fraud). The provision strengthens the SEC’s ability to seek disgorgement by extending the lookback period from five years to 10. Trump vetoed the NDAA for other reasons; Congress overrode his veto.

All eyes on appointments

Amy Lynch, a former Financial Industry Regulatory Authority (FINRA) and SEC regulator who is founder and president of FrontLine Compliance, noted Democratic control of both the House and Senate will make it easier for Biden’s nominees to be confirmed. That could allow Biden to appoint more controversial or liberal nominees to take over certain agencies, departments, and regulatory bodies.

However, the turbulence within the handoff between the Trump and Biden administrations, as well as delays in the still-Republican controlled Senate, may leave Biden without a single Cabinet official confirmed by his Jan. 20 inauguration. At the moment, only Biden’s pick for Defense Secretary, Lloyd J. Austin III, has a nomination hearing scheduled before that date, The Washington Post reports. Many key national security posts would have to be filled with acting heads while the nomination process plays out.

So, it could be some time before Biden can install his appointees to lead regulatory agencies like the SEC, CFTC, Consumer Financial Protection Bureau (CFPB), and banking regulators collected under the umbrella of the U.S. Treasury.

Richard Stafford, professor of public policy at Carnegie Mellon University in Pittsburgh, said people outside Washington often overlook the importance of one party having control of all committee activity in Congress. It is the only way a party’s priorities can gain any real traction, he said.

“Whoever is in charge of these committees can put the brakes on bills or allow Biden’s wishes to go through,” he said.

Lynch said she expects whoever is nominated to lead the SEC will be free to implement Biden’s agenda with the two remaining Democratic commissioners.

“I think he will push for a tougher regulatory stance on issues that are important to him,” Lynch said, particularly regarding climate change and environmental, social, and governance (ESG). She said the SEC will likely begin Biden’s term by issuing rule proposals on how companies and regulated entities should disclose their ESG initiatives to investors.

Biden has placed a priority on pursuing renewable and sustainable energy sources, as well as addressing climate change. Whatever political capital he possesses with control of both the House and Senate may be spent there, Stafford said.

“His desire to push renewable and sustainable energy legislation will be strengthened considerably” with Democratic control of the Senate, he said.

Most experts agree regulatory agencies under Biden will use existing laws and rules to ramp up enforcement activity against Wall Street. Slovick said regulators under Biden will interpret existing rules and statutes “much more vigorously” than regulators did under Trump.

Lynch said the SEC under Biden will be more aggressive in pursuing cases regarding cryptocurrency, particularly if the agency determines a digital asset being passed off as digital currency is actually an unregistered security. The SEC recently filed a lawsuit against Ripple Labs, accusing the company of raising $1.3 billion with the cryptocurrency XRP without registering it as a security.

Passing new laws, however, will still be a real challenge for the Biden administration, Stafford said.

“It’s going to be very difficult to get any resounding successes on new laws,” he said. “There are so many ways for Congress to stall, and 50-50 [in the Senate] is still not the most favorable circumstance.”

Stafford said change may also come incrementally because Trump has stacked so many agencies with his loyalists. “That may not be easily undone by Biden,” he said.

New interest in insider trading?

One piece of securities-related legislation that could be revived would be an insider trading bill. Under its anti-fraud statute, the SEC has the authority to investigate charges of insider trading, but the statute does not include a definition of insider trading. Democrats contend the law as written provides plenty of loopholes for defendants to exploit.

In 2019, the House passed the Promoting Transparent Standards for Corporate Insiders Act (H.R.624), which, if it became law, would have required the SEC to study whether to amend its rule for trading plans to limit the ability of corporate insiders to, for example, adopt multiple, overlapping plans or change their plans to indirectly take advantage of inside information. The SEC would be required to report to Congress and revise its rules based on the results of that study.

The bill was never taken up by the Republican-majority Senate.

Another bill, the Insider Trading Prohibition Act (H.R.2534), also passed the House in 2019 but was similarly never heard in the Senate.

For Congress to pass a law on insider trading “would be huge for the industry,” Lynch said. An established definition of insider trading “would make it clear whether there is enough evidence to move the investigation forward,” she added. Lynch said she expects the SEC under a Biden administration to be much more aggressive in pursuing insider trading cases than it was under Trump.