The Securities and Exchange Commission (SEC) is expected to adopt a more "laissez-faire" approach if Christopher Cox is confirmed as its new chairman.
Mr Cox's nomination will signal a shift in SEC rules, experts say
President Bush named the Republican congressman as SEC chairman, but the job must be confirmed by the US Senate.
Current chief William Donaldson quit on Wednesday, raising doubts over whether the finance watchdog will stick to its tough stance on corporate misconduct.
Mr Cox, a former corporate lawyer, is seen as close to the finance industry.
Experts say he could move the SEC towards a lighter touch on regulation.
Some commentators have claimed that his SEC predecessor Mr Donaldson quit the post having come under pressure from Republicans who objected to his hard-line reforms.
But Mr Donaldson said he had decided to leave two years early to spend more time with his family.
Change of direction
Mr Cox has declined to say what his plans are for the Commission, where he will oversee corporate disclosure, stock market regulation and investigations into allegations of corporate wrongdoing.
But he did signal that he could adopt a more conciliatory approach to business during a press conference with President Bush where he promised that the SEC would work with US businesspeople "to help build a better America".
"He'll be a formidable chairman, but it will be a major change in direction," Columbia University Law School Professor John Coffee said of the appointment.
Mr Bush hailed him as a "champion of the free enterprise system in Congress".
"Chris Cox knows that a free economy is built on trust," he said on nominating Mr Cox for the SEC post.
"In the years ahead Chris will vigorously enforce the rules and laws that guarantee honesty and transparency in our markets and corporate boardrooms."
As a Congressman, Mr Cox was responsible for steering through reforms which made investor lawsuits more difficult.
Business groups hailed the measure, which came into force in 1995, saying it cut back on frivolous and costly legal cases.
However consumer and investor groups claimed that it cut back on accountability in the corporate world and helped create the opportunity for scandals such as Enron and WorldCom to take place.
Several similar high-profile cases prompted the US to pass new reporting laws - known as Sarbanes-Oxley or Sox rules - which hold corporate bosses responsible for their companies' results.
"I can guarantee you that if Cox becomes the head of the SEC, one of the things that he's going to be looking into is eroding a lot of Sarbanes-Oxley, I guarantee it," US class-action lawyer Melvyn Weiss said.
Friend of finance
If the Senate does approve Mr Cox for the SEC post, the 52-year-old will become the first serving Congressman to take the post.
During his 16 years representing the wealthy area of Orange County, California, he has continually called for various taxes to be repealed, including capital gains and estate tax.
Accounting and finance companies have made large contributions to his political campaigns. Between 1993 and 2004, the financial services sector was the single biggest source of corporate campaign donations, contributing 21% of the total or almost $1m.
But the new appointment has heralded a time of uncertainty for investors.
California's Democrat state treasurer Phil Angelides was quick to criticise President Bush's choice, and urged the Senate to reject Mr Cox for the post.
"I fear that if Congressman Cox is confirmed, it will spell the death-knell for reform efforts," he told the Times.
US trade unions are also understood to be concerned about the choice.