Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—SEC Acting Chairman Uyeda addresses federal-state securities cooperation in today’s world, (Apr 9, 2025)

By Jay Fishman, J.D.

He considers whether it’s time for rebalancing the split between federal and state responsibilities.

The Securities and Exchange Commission’s Acting Chairman Mark Uyeda, at an April 8 joint conference with the North American Securities Administrators Association (NASAA), remarked on the longstanding cooperation between the respective federal and state securities agencies. But after reiterating the collegial relationship between the SEC and NASAA, Uyeda dove into a discussion of whether the current split between the Commission’s and NASAA’s responsibilities should be reexamined for potential rebalancing. And his two central topics pertained to the National Securities Markets Improvement Act of 1996 (NSMIA) that initiated the split:

1. The regulation of mid-sized investment advisers; and

2. The federal preemption of state regulation for certain securities transactions.

Mid-sized investment advisers. Uyeda began by restating the NSMIA provision that gave the SEC authority over investment advisers having more than $25 million in assets under management (AUM), while authorizing the states to oversee those advisers with at most $25 million in AUM. He then pointed to the Dodd-Frank Act of 2010 which raised the threshold for state oversight to investment advisers with between $25 and $100 million in AUM, leaving the SEC to regulate those advisers with more than $100 million in AUM. Uyeda then stated that Dodd-Frank notably provided the Commission with rulemaking authority to raise the threshold again.

Uyeda emphasized to conference attendees that it’s time to reexamine the threshold again for possible rebalancing. He emphasized the exponential growth of investment advisers—from 5,853 advisers in 2012 with between $1 million and $1 billion of AUM to 8,956 advisers currently with AUM between those amounts. And he declared, moreover, that there are now 4,756 advisers with more than $1 billion in AUM compared to 2,921 advisers in 2012.

Federal preemption. Turning to federal preemption, Uyeda said it’s now appropriate to consider whether the federal-state split in authority over certain securities transactions should be recalibrated. His most interesting point was that, going forward, the split need not be all or nothing the way it has been under NSMIA. For example, take a public company’s Initial Public Offering (IPO). If the company registered under a national securities exchange and is, therefore, required to file Exchange Act reports, the SEC—and not the states—has total authority over the primary offering, and for the same reasons, the secondary offering as well. But absent national securities exchange registration, the primary and secondary offerings must be registered in all the states. However, the situation becomes even more complicated when exemptions are factored in. Half of the Act’s exemptions from registration also preempt state registration or qualification, including the popular Rule 506(b) exemption, along with the Rule 506(c), Regulation A-Tier 2 and Regulation Crowdfunding exemptions.

Uyeda used the Regulation A Tier 2 to lay out a second example. This exemption becomes less popular with issuers because even though a company’s sale to retail investors is exempt from state registration and the securities are not restricted securities, the investors cannot resell those securities without abiding by state securities laws.

Going back to Uyeda’s primary point here that it doesn’t have to be full preemption or no preemption, in other words, all federal regulation or all state regulation, he suggested that scenarios like the two above could have issuers being subject to federal SEC regulation and the regulation of just one state rather than a dozen of them, perhaps the state where the company’s headquarters is located.

RegulatoryActivity: DoddFrankAct ExchangesMarketRegulation FederalPreemption IPOs JOBSAct NASAANews SECNewsSpeeches SecuritiesOfferings