The House Financial Services Committee will hold a hearing this morning on oversight of the Securities and Exchange Commission. Oversight hearings are usually a snoozefest but with the potential for fireworks.
That’s because SEC Chairman Gary Gensler has drawn the ire of many in corporate America over his list of 50+ new regulatory proposals that the SEC is scheduled to vote on this year.
The proposals range from addressing climate change and board diversity to updating rules on best execution and payment for order flow (PFOF), securities lending, short sale disclosure, shortening the settlement cycle for securities, cyber security and Includes more disclosures on private funds. And the advisors around them.
Too many rules, too little time to respond
Wall Street’s main complaint against Gensler: Too much, too fast.
“The obstruction of rulemaking at the SEC is unprecedented and requires close congressional scrutiny,” Tom Quadman, executive vice president of the U.S. Chamber of Commerce, said in an open letter to the House Financial Services Committee. “Chair Gensler has identified a range of 50-55 regulatory priorities since the beginning of her tenure, and has proposed twice as many rules as her predecessor in only half the time.”
The chair of that committee appears to share those concerns.
House Financial Services Committee Chairman Patrick McHenry (R.-N.C.) said, “This chair is trying to make massive changes and has a lot of money in the market and she’s been given a limited amount of time to actually make good comments.” ” ) said on CNBC Tuesday morning. “So we’re going to impose bad regulations that are very costly to the market at a time when the rest of the world wants to take over our capital markets. I don’t think that’s a smart agenda.”
This is more than just a complaint: The SEC could be sued if it isn’t giving due weight to the concerns of those affected by proposed rules, which Suzanne Clark, CEO of the US Chamber of Commerce, said is likely. the result is.
Clark told CNBC on Monday that the chamber could work with Gensler and his team. “We submit comments and requests, do everything we can to accomplish the appropriate amount of regulation and smart regulation,” he said. “If that doesn’t work, we will take them to court.”
Challenging SEC authority on climate change
Few proposals have sparked more debate than Gensler’s plan to require public companies to disclose the risks they face due to climate change. The SEC has received 15,000 comments so far.
In his prepared testimony, Gensler acknowledged, “The SEC has no role with respect to climate risk. But we do have an important role with respect to ensuring public companies make full, fair, and true disclosures about material risks.”
Gensler says hundreds of companies are already disclosing climate risks and he’s simply trying to create order out of chaos.
But the proposed rule faces considerable opposition from the business community, which argues that too much disclosure is required, and Republicans who claim it is a covert means of pushing a climate change agenda.
Opponents of climate change disclosures have a big weapon
Opponents of increased regulation cite a powerful court case that has encouraged them.
In the last year West Virginia vs. EPA, the Supreme Court ruled that there are limits on the regulator’s powers. In that case, the Court relied on the “major question doctrine”, which holds that Congress has not assigned issues of major importance to regulatory agencies. Any agency should be able to point to a clear statement from Congress authorizing its action.
That case concerns the Clean Air Act and the EPA’s ability to regulate carbon dioxide emissions. According to the summary of the case in J.D.supra, “The majority found that EPA exceeded its responsibility assigned by Congress by encouraging utilities to take system-wide steps away from coal-generated electricity and toward cleaner forms of electricity generation Is.”
Since Congress has not passed major climate legislation in years, opponents of the SEC’s climate rule will likely sue the SEC and cite West Virginia vs. EPA Arguing again that Congress has not given the SEC specific authority to take action on climate change.
This is exactly the line of attack that the Chamber of Commerce suggested: “How has the Securities and Exchange Commission taken into account the principle of leading questions in interpreting its rulemaking authority – as advanced in West Virginia v. EPA?” Quadman said in his letter.
Gensler on crypto
Crypto enthusiasts have been frustrated by Gensler’s refusal to approve a spot Bitcoin ETF and his increased enforcement efforts against crypto exchanges and others in the community, which critics say is an attempt by the SEC to gain control over the industry. Is.
“Most crypto tokens are securities,” Gensler declared in his written testimony to the House Financial Services Committee. “Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and must register with the SEC.”
But without clear regulatory authority from Congress, there has been considerable opposition.
“SEC Chairman Gensler has taken a long time to testify before the House Financial Services Committee,” Rep. French Hill (R.-Ark.), vice chair of the House Financial Services Committee, said in a statement released to CNBC. “I have deep reservations about the SEC’s approach toward digital assets, including its ongoing battle with the CFTC and its efforts to advance bipartisan efforts in Congress to pass payments stablecoin legislation.”
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