Gary Gensler, Chairman of the Securities and Exchange Commission, takes a seat before the start of the Senate Committee on Banking, Housing and Urban Affairs hearing on SEC oversight Tuesday, September 14, 2021.
Bill Clark | CQ Roll Call, Inc. | Getty Images
SEC Chairman Gary Gensler is testifying before the House Appropriations Subcommittee on Financial Services and General Government at 10:00 am ET Wednesday.
The head of the Securities and Exchange Commission is likely to be questioned by several members of the House of Representatives who are unhappy with his aggressive regulatory agenda, which some believe is now sweeping the business community with a tidal wave of new climate data disclosure, ESG, rules threatens. Shortening of the settlement cycle, updating of electronic records, cryptocurrencies and many other problems.
“Judging by the first quarter, Washington’s political center of gravity in 2022 could be the Securities and Exchange Commission (SEC), which issued 16 proposed rules during the first three months of the year,” said Kenneth E. Bentsen, Jr., President and said the CEO of the Securities Industry and Financial Markets Association in an April 15 editorial in The Hill.
This can only be the beginning. Bentsen noted that the SEC released its list of upcoming new rules last fall, with 54 separate items on the list.
A plea for more money, especially for enforcement
On the surface, these are routine budget hearings that are part of Congress’ oversight of federal agencies. President Joe Biden’s 2023 budget calls for an 8% increase in SEC funding, but Gensler will ask for more money even though the agency is primarily funded by securities transaction fees.
“The sheer growth and added complexity in capital markets continues to require greater resources for the SEC,” Gensler said in prepared comments for the subcommittee, noting that the enforcement division in particular needs more staffing.
“The additional staff will provide the department with more capacity to investigate wrongdoing and expedite enforcement action,” Gensler said.
Gensler’s agenda is aggressive. Wall Street is not happy
“This is one of the biggest regulatory agendas we’ve seen from the SEC in many years,” Amy Lynch, president of FrontLine Compliance and a former SEC compliance officer, told me in February.
Since then, the agenda has only grown. Gensler has rules on cybersecurity risk management, securities lending and borrowing, reporting of short positions by investment managers, shortening the settlement cycle for stock trades, the balance of compensation and performance for corporate executives, improved disclosure of special purpose Acquisition Companies (SPACs) proposed and improved disclosure of insider trading and corporate buybacks.
David Franasiak, an attorney at Williams & Jensen who follows corporate affairs in Washington, told me that American companies are starting to back down.
“He’s likely to get supportive comments from Democrats, while Republicans will say this is too much, too soon, too soon,” he told me.
Environment, Social and Governance (ESG) and Climate Change: In one of his most controversial proposals, Gensler has proposed a new climate change disclosure rule that would require registrants to provide climate-related information in their registration statements and annual reports
Republicans, Franasiak told me, “are going to view all of this climate disclosure as beyond the reach of the SEC.”
Separately, Gensler is also demanding disclosures about the diversity of companies’ directors and nominees, as well as additional disclosures about how companies manage their workforces.
Crypto and Bitcoin ETFs: There is also the crypto crowd. They are angry that Gensler has made it clear that he is against a pure Bitcoin ETF while supporting Bitcoin futures ETFs.
Here, however, Gensler might be well prepared to defend its cautious position on crypto.
Franasiak said that when asked, Gensler is likely to highlight the recent threat posed to the investing public by the stablecoin debacle and likely note the need for increased enforcement efforts.
“Given the recent disasters surrounding stablecoins, he may have some cover,” Franasiak told me.
In his prepared remarks, Gensler indicated that he would take just such a position. “The volatility in crypto markets over the past few weeks underscores the risks for the investing public,” he said.
Wall Street: We don’t have enough time to respond
The sheer volume of regulations is a problem, but American companies also complain that the SEC isn’t giving them enough time to act on the proposed regulations.
Generally, the public has at least 60 days to comment on a rule after its publication in the Federal Register, and may be extended to 90 days in certain circumstances. However, under Gensler, the SEC has often shortened the comment period, some even to 30 days.
“[W]The SEC’s shortened comment periods limit our ability to conduct robust analysis and provide meaningful feedback,” said Bentsen.
SIFMA and two dozen organizations recently sent a letter to the SEC asking for more time to review the agency’s regulations.
The climate change disclosure proposal, for example, was originally published in the Federal Register on April 11, with comments being requested on or before May 20. On May 9th, the comment period was extended to June 17th, after which the Commission could amend the rule and issue it for further comment, or they could proceed to a final rulemaking phase.