As elementary and middle-school students, we always hoped that our regular teachers would be absent and that we would be supervised by a “substitute teacher.” The normal rules of the classroom had not suddenly changed one bit, but the sub’s ability to enforce those rules or modify those rules during the temp’s brief tenure, was feeble. Of course, we all took advantage of the poor substitute instructor!

Earlier this week, the Wall Street Journal reported that the SEC and FINRA have imposed far fewer and lower penalties during the first six months of the current Administration than was the case during the first half of 2016. Fines were down by nearly two-thirds during that period, a pace which is the lowest annual level of fines since at least 2010.

The new Administration has been vocal about wanting to rescind or revamp the Dodd-Frank Act and other financial regulations enacted by the previous Administration. As evidenced by the current Administration’s similar efforts with regard to health care reform, however, the ability to enact legislative and rule changes is extraordinarily slow and difficult, despite Republican control of Congress and the White House.

Although some of the decrease may be due to the fact that financial crisis-era cases have concluded, many industry observers believe the reduction is due to a change in the regulatory agenda. Enforcement staff changes and the delays in filling commissioner and enforcement staff vacancies also have contributed to the significant decline in enforcement.

At least one senior SEC staff member indicated that variations in the amount of penalties from year to year are normal and that six months isn’t a sufficient time period for drawing conclusions. The CFTC’s enforcement chief states that there is no change in that agency’s “commitment to vigorously prosecute violations of our laws to preserve market integrity and protect customers.”

Still, the approach to regulation and enforcement under current SEC Chairman Jay Clayton seems to be in stark contrast to that of his predecessor, Mary Jo White. Mr. Clayton has indicated, for example, that corporate penalties levied by the SEC in the past have hurt shareholders and it would be better to punish guilty individuals. White famously espoused a “broken windows” approach to enforcement, signaling that even relatively minor infractions would not be tolerated because, left unchecked, they would lead to more egregious conduct.

When the regulatory landscape is altered by the amount of enforcement rather than by rule changes, a pervasive uncertainty is created. Industry participants are forced to consider whether they need to continue to follow specific regulatory requirements or, instead, simply factor the decreased penalties as a now-more-manageable cost of doing business. As always, we will continue to closely monitor, analyze and forecast the evolving regulatory climate.