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Impact of Biden-Harris Administration on Financial Regulation

February 24, 2021

By: Amy J. Greer and A. Valerie Mirko, Baker & Mckenzie LLP

This article discusses the change in the U.S. presidential administration, including its impact on financial regulation generally and the U.S. Securities and Exchange Commission (SEC) specifically. This article addresses transition matters and timelines for new leadership as well as the potential impact of the Biden-Harris Administration's priorities on the direction of the SEC, with a focus on retail investors, COVID-19, and Economic Social and Governance (ESG) matters.

Immediate Transition Matters

Gary Gensler Announced Nominee to Chair SEC in the Biden Administration

On January 18, 2021, Gensler was nominated to be the next SEC Chair. As of the date of this article, Gensler’s Senate confirmation hearings had not yet been scheduled.   

Gensler brings with him significant relevant experience, having served as chair of the Commodity Futures Trading Commission (CFTC), a partner at Goldman Sachs, the Department of Treasury Undersecretary for Domestic Finance, and an advisor to then-Senator Paul Sarbanes on the drafting of the 2002 Sarbanes-Oxley Act. Gensler also was an early and prominent critic of the London Interbank Offered Rate (LIBOR)―calling for reforms to the LIBOR system as early as 2012. When Gensler was CFTC chair, the agency settled enforcement actions with several major financial institutions charged with LIBOR manipulation.1

In recent years, Gensler has been a professor of global economics and management at the MIT Sloan School of Management, with a focus on public policy, financial technology, blockchain, and cryptocurrencies. Gensler also chaired the Maryland Financial Consumer Protection Commission, which made several recommendations to the Maryland legislature in January 2019―most notably legislation to broaden the fiduciary duty standard to apply to broker-dealers, their representatives, and insurance producers.2 As detailed below, he has also been a key leader in Biden-Harris administration transition efforts.

Gary Gensler Led Agency Review Team for Federal Reserve, Banking and Securities Regulators

On November 10, 2020, the Biden-Harris team announced several agency review teams, including the Federal Reserve, Banking, and Securities Regulators team led by Gary Gensler. This team was charged with reviewing the following agencies: the SEC, the CFTC, the Federal Deposit Insurance Corporation, the Federal Reserve, and the National Credit Union Administration. The choice of Gensler as team lead, as well as the range of perspectives represented on the 15-person team, indicated the potential for a forward-looking approach to the review, driven by both academic and labor-oriented points of view. Gensler’s choice also indicated the possibility―but not the certainty―of his eventual nomination to be SEC Chair.     

CFPB Review

Gensler’s transition review team was not the only one focusing on the review of financial regulators. The Consumer Financial Protection Bureau (CFPB) was the subject of its own 10-person review team, chaired by Leandra English, formerly Deputy Director of the CFPB and senior policy advisor to New York Department of Financial Services Superintendent Linda Lacewell. This was a considerable investment of resources in the transition for a single agency, which suggests there may be a more prominent future role for the CFPB. On the same day that Gensler's nomination was announced, Rohit Chopra, who is currently a commissioner with the Federal Trade Commission, was nominated to lead the CFPB.

Interim Changes in Leadership at the SEC

Following a presidential election, a new SEC chair is usually in place by late winter, though that timing is driven by administration priorities and the then-current economic climate. For example, after the 2008 election, when the United States was deep in the financial crisis, then-incoming Chair Mary Schapiro began her term on January 27, 2009, underlining the Obama administration’s priorities in light of the crisis. In contrast, Mary Jo White began her term on April 10, 2013 and Jay Clayton on May 4, 2017.

Along with Chair Clayton’s previously announced departure at the end of 2020, several additional departures were announced and have since occurred. This is a fairly typical year-end and election-cycle rotation among the senior staff of the SEC, though it does seem a bit more hectic this go-round; and it generally has trickle-down impacts, as new and open senior staff slots are and will be filled. Bill Hinman, Director of the Division of Corporate Finance, departed December 4, 2020; Enforcement Division Director Stephanie Avakian departed at the end of 2020, as did Trading and Markets Director Brett Redfearn. SEC General Counsel Bob Stebbins departed in early January 2021, and Investment Management Division Director Dalia Blass announced her departure at year-end, leaving in early February 2021, followed by the Commission's Chief Accountant, Sagar Teotia.  In addition, at the CFTC, Chair Heath Tarbert, who has led the agency since last year, announced that he would depart in January 2021.

Upon the departure of Chair Clayton, in late December, then-President Trump appointed Commissioner Elad Roisman to the role of Acting Chairman, a position he held only until January 21, 2021, when President Biden appointed Commissioner Allison Herren Lee to serve as Acting SEC Chair, pending Gary Gensler's confirmation.

At the Division of Enforcement, Marc Berger, who was Acting Enforcement Director upon the departure of Stephanie Avakian, followed her out the door in January 2021, leaving the top spots of this key Division open.  The SEC acted quickly, on January 22, 2021, appointing Melissa Hodgman, then an Associate Director of the Division, to serve as Acting Director of Enforcement; and on February 5, 2021, appointing Kelly Gibson, the Director of the Philadelphia Regional Office, to serve as the Acting Deputy Director of Enforcement.

Biden-Harris Administration Priorities and Impact on Financial Regulation

The Biden-Harris administration had announced its priorities as part of its transition plans as follows: COVID-19, economic recovery, racial equity, and climate change. The SEC under the Biden-Harris administration and led by Gensler is expected to continue to emphasize the protection of retail investors and market integrity while giving greater weight to ESG matters. The SEC’s existing COVID-19 relief is expected to also continue, as that is a bipartisan issue and one directly in line with the Biden-Harris transition plan’s focus on COVID-19.

Continued Focus on Retail Investors

The SEC has emphasized retail investor protection for the last four years, but has done so in a selective manner―largely in the enforcement realm―as opposed to a holistic manner. For example, while Regulation Best Interest (Reg BI) is focused on retails investors, other rulemakings—such as those relating to the use of derivatives by registered investment companies and business development companies and improving access to capital in private markets—have not been perceived to be as protective of retail investors.3 A Democratic-majority SEC that is focused on building confidence in the economy and the markets will likely broaden the retail investor focus and implement additional regulatory measures or approaches, such as the following:

  • Reg BI. Given the SEC's work in getting Reg BI over the finish line, and the heavy lift that the industry has undertaken to implement and comply with Reg BI, there will likely not be a wholesale repeal of or significant revisions to Reg BI. Another key indicator that Reg BI is here to stay is the Department of Labor's decision, announced on February 12, 2021, to leave in place its Trump-era fiduciary rule. More assertive enforcement of Reg BI, however, is expected, with the SEC focusing on the conflicts and care obligations. This will be in contrast to the 2020 examinations by the newly renamed Division of Examinations (but for now, we're just going to call it OCIE), which focused largely on the compliance and, to some extent, disclosure obligations of Reg BI.
  • Conflicts of interest. There will be a continued exams and enforcement focus on conflicts of interest of both broker-dealers and investment advisers, including compensation disclosure issues and revenue sharing.
  • Custody requirements for investment advisers. The Division of Investment Management has been working through pre-rulemaking efforts to revise SEC Rule 206(4)-2 (Custody Rule).4 It is likely these efforts will accelerate as the current Custody Rule has become unwieldy in the sheer number of interpretations required. In addition, the rule’s structure is more suited to advisers with separately managed accounts rather than to fund advisers.
  • Business continuity and remote supervision. OCIE has focused since March 2020 on how broker-dealers and investment advisers have reacted to the COVID-19 pandemic and has already published a risk alert on the subject.5 This work could lead, in the medium-term, to additional SEC guidance, or potentially more prescriptive rulemaking, intended to enhance industry resiliency with lessons learned from the pandemic.
  • Cybersecurity and vendor management. With more remote working, these issues have become even more critical, and have also been the subject of recent OCIE risk alerts.6 The risk alert provides notice to the industry, such that some enforcement actions may follow, particularly for firms that have neglected to address cybersecurity hygiene and lack appropriate policies and procedures. With a more regulatory-focused SEC, as with business continuity and remote supervision, these areas may also be subject to additional regulation or guidance.

ESG

There is a strong likelihood that the SEC becomes more active in the ESG area, in contrast to the lighter touch disclosure-focused activity to date. Until now, ESG-related disclosures have remained largely voluntary in the United States, and the SEC and its staff have focused on ESG through disclosure alone, whether for public companies or in the investment management space. For example, OCIE conducted a sweep in 2018 in which it asked firms with ESG product offerings (1) about their criteria for defining ESG; (2) whether firms were following established principles like the United Nations-supported Principles for Responsible Investments (UNPRI); and (3) to what degree firms were engaging on ESG matters with issuers in which they invest. OCIE also asked about firms’ marketing of ESG products and the degree to which the products were advertised as sustainable or green. In its report on examination priorities in 2020, OCIE referred to ESG investment offerings as an area of concern in which examiners would pay particular attention. More recently, at least three SEC offices (Boston, Philadelphia, and Los Angeles) have begun or continued local ESG-focused exam initiatives.

Another key indicator is the recent appointment of Satyam Khanna as Senior Policy Advisor for Climate and ESG to the office of Acting Chair Lee, a newly created role that will likely transition to Gensler’s office when he becomes Chair. Looking ahead, the SEC’s focus on ESG may take one or more of the following approaches in addition to simply focusing on whether products sold to investors actually are what they claim to be―a perennial issue for the Enforcement Division:

  • Leverage global ESG regulatory developments, evaluate existing taxonomies, and consider standardized climate change and ESG disclosure requirements. Currently, ESG frameworks in the United States remain undefined, in sharp contrast to other countries. A likely initial first step would be the establishment of a cross-divisional ESG working group tasked with examining other countries’ ESG efforts. Similar efforts occurred in the context of crowdfunding during rulemaking pursuant to the Jumpstart Our Business Startups Act. Based on Acting Chair Lee’s climate change disclosure speech from November, as well as the stated Biden-Harris priorities, SEC staff efforts will likely focus first on climate change.7
  • Finalize the March 2020 Names Rule update. Earlier this year, the SEC issued a request for comment on potential updates to the 2001 Names Rule, which is designed to protect investors from product names that are deceptive or misleading by ensuring that the names of mutual funds and other registered investment products reflect the types of assets in which they actually invest.8 In considering revisions to the Names Rule, the SEC highlighted the growth in sustainable investing since 2001, noting the often subjective and amorphous standards for what constitutes a fund holding itself out as an ESG fund.
  • Focus on processes representing ESG expertise or credentials. Currently, a claim of ESG expertise relies on undefined terms and market-driven frameworks. As the SEC examines potential rulemakings and definitions, it is expected to focus on the process by which advisers and companies represent and publish to investors their ESG expertise and credentials. Additional focus on such processes will serve both as an input to any policy initiatives and as a way for existing OCIE initiatives to dive more deeply into potential disclosure issues.
  • Examine approaches to board structures and roles. In addition to examining existing taxonomies, the SEC―and particularly the Division of Corporate Finance―may evaluate ESG-related approaches to the structures and roles of boards of directors.

Amy J. Greer serves as the co-chair of Baker McKenzie’s North America Financial Regulation & Enforcement Practice and is on the steering committees of the Global Financial Services Regulatory and Global Financial Institutions Groups. Amy advises all manner of financial industry clients and SEC reporting companies in connection with regulatory enforcement investigations and examinations, as well as internal investigations. Her clients include broker-dealers, investment advisers, hedge funds, mutual funds, securities issuers and reporting companies, commodities traders, and those providing services to those businesses. Drawing on her experience leading an SEC regional office trial program, Amy provides practical and forward-looking guidance to clients, who seek her advice on matters as diverse as conflict-of-interest disclosures, sales practices concerns, insider trading/market abuse, financial reporting and accounting issues, securities offerings, investigations into complex products and trading, and whistleblower concerns.


A. Valerie Mirko advises on federal and state securities laws and regulations impacting the financial services industry, with a focus on the investment adviser and brokerage industries. Valerie’s practice includes a wide range of regulatory, compliance, examinations, and enforcement matters. Immediately prior to joining Baker McKenzie, Valerie was general counsel of the North American Securities Administrators Association (NASAA). As general counsel, Valerie advised NASAA’s board of directors on developments in the federal securities laws, including the SEC Regulation Best Interest rule set, and their impact on state securities regulations. Earlier in her career, Valerie advised broker-dealers and investment advisers on regulatory matters and enforcement investigations as an associate at a Washington law firm and held legal and compliance roles at Oppenheimer & Co., Inc., and Merrill Lynch (now BofA Securities) in New York. Valerie is also a member of the adjunct faculty at the George Washington University Law School and a committee chair within the DC Bar Corporation, Finance, and Securities Law Section.


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1. See e.g., CFTC Orders The Royal Bank of Scotland plc and RBS Securities Japan Limited to Pay $325 Million Penalty to Settle Charges of Manipulation, Attempted Manipulation, and False Reporting of Yen and Swiss Franc LIBOR (Feb. 6, 2013). 2. See Maryland Financial Consumer Protection Commission 2018 Final Report (Jan. 1, 2019). 3. See, e.g., Use of Derivatives by Registered Investment Companies and Business Development Companies, SEC Release No. IC-34084 (Nov. 2, 2020) and Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Securities Act Release Nos. 33-10884; 34-90300; IC-34082 (Nov. 2, 2020). 4. See e.g., Division of Investment Management’s Engaging on Non-DVP Custodial Practices and Digital Assets (March 12, 2019). 5. See Risk Alert: Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers (August 12, 2020). 6. See e.g., Risk Alert: Cybersecurity: Ransomware Alert (July 10, 2020). 7. See Allison Herren Lee, SEC Commissioner, Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation (Nov. 5, 2020). 8. See Request for Comment on Fund Names, SEC Rel. No. IC-33809, 85 FR 13221 (March 6, 2020).