A Major Change In SEC Enforcement Settlements: SEC Rescinds ‘No-Deny’ Policy

On May 18, 2026, the Securities and Exchange Commission (SEC) announced that it had rescinded its longstanding “no-deny” (gag) settlement policy, codified in Rule 202.5(e) of its informal rules of procedure. For more than 50 years, the SEC would not settle an enforcement action involving a sanction unless the respondent agreed not to deny the Commission’s allegations publicly. The SEC’s action removes that condition and gives the Commission greater flexibility to resolve enforcement matters without requiring settling parties to remain silent about disputed allegations.

For broker-dealers and registered investment advisers, this is a major improvement. The prior policy often placed firms and associated persons in the difficult position of resolving an enforcement matter without admitting liability, while also agreeing not to deny the allegations publicly. The SEC’s rescission of the policy should give regulated entities more room to manage reputational, investor-relations, employment, insurance, and collateral litigation considerations after settlement, particularly where the settlement does not include admissions.

The SEC also stated that it will not enforce existing no-deny provisions to which Respondents had already agreed. In practical terms, the Commission said it will not ask a district court to vacate a settlement or reopen an adjudicatory proceeding based on a breach of an existing no-deny provision. The SEC further emphasized that the change does not alter its practice regarding admissions: the Commission may still settle without admissions, and it may still negotiate for admissions where it believes they are appropriate. However, a potential future risk is that settlements may become more difficult, particularly if the SEC changes its policy to more often require an admission of liability.

Why This Matters for Broker-Dealers and Registered Investment Advisers

Broker-dealers and RIAs frequently face enforcement issues where regulatory resolution, customer communications, Form U4 or Form U5 disclosures, employment consequences, insurance coverage, civil litigation, and reputational concerns intersect. The ability to settle an SEC matter without being bound by a broad no-deny undertaking may provide meaningful flexibility in how firms describe the matter. It will also provide defense counsel in related civil litigation and arbitrations with additional latitude to minimize the significance of settled enforcement proceedings. 

The policy’s recission does not mean that settling parties should treat post-settlement communications as risk-free. Public statements may still create exposure under the securities laws, settlement documents, court orders, FINRA rules, state law, employment law, defamation principles, insurance policies, or parallel private litigation. But eliminating the SEC’s required gag policy is a significant step toward allowing parties to resolve enforcement matters while preserving their ability to make accurate public statements regarding contested allegations.

Will FINRA and Other Securities Regulators Follow?

The next question is whether FINRA and other securities regulators will follow the SEC’s lead. FINRA is already in the middle of a broader rule modernization initiative, including a review of its Enforcement processes, as part of its “FINRA Forward” program. That initiative reflects a broader regulatory focus on transparency, fairness, efficiency, and modernization in securities dispute resolution and regulatory processes.

Financial institutions should continue to monitor whether FINRA, state securities regulators, and other self-regulatory or enforcement authorities reassess similar settlement provisions, undertakings, or practices that may restrict post-settlement speech. The SEC’s decision should prompt renewed industry attention to whether no-deny or non-disparagement-style provisions remain appropriate in regulatory settlements.

Practical Takeaways

Firms facing SEC enforcement matters should reassess their settlement strategy in light of the rescission. In particular, broker-dealers and RIAs should consider how the absence of a no-deny requirement may affect settlement negotiations, public communications, disclosures, regulatory filings, and coordination with parallel FINRA, state, criminal, or private proceedings.

This is an important and welcome development for regulated firms. It gives the SEC more settlement flexibility, reduces a longstanding speech restriction on settling parties, and may become a catalyst for broader reconsideration of similar practices across the securities regulatory landscape.

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