In testimony before the U.S. Senate Banking Committee, SEC Chair Gary Gensler weighed in on market structure, predictive data analytics, issuers and issuer disclosure, and funds and investment management.
On market structure, Mr. Gensler outlined his requests to SEC staff on recommendations to better enhance resiliency and competition in the fixed income, equities, security-based swaps and crypto assets markets. He stated that he asked staff to consider (i) initiatives on Treasury trading platforms and (ii) how to ensure that firms that "significantly trade" in the Treasury market are SEC-registered broker-dealers.
With regard to the crypto assets market, Mr. Gensler stated that he directed staff to consider what interagency action could be taken under current authorities, what regulatory gaps remain, and potential legislative solutions. He also suggested that crypto trading platforms engage with the SEC to determine whether their offerings are securities, though he stated: "while each token's legal status depends on its own facts and circumstances, the probability is quite remote that, with 50, 100, or 1,000 tokens, any given platform has zero securities. Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption." On predictive data analytics, Mr. Gensler expressed concern that new models and artificial intelligence could lead to greater concentration of data sources, herding, and interconnectedness.
On issuer disclosure, Mr. Gensler highlighted the following areas to which the SEC is looking to bring greater transparency: (i) special purpose acquisition companies ("SPACs") and the inherent conflicts of interest within SPAC structures; (ii) issuers located in China and Hong Kong that do not comply with inspections by the Public Company Accounting Oversight Board; and (iii) trading by corporate insiders, by modernizing SEA Rule 10b5-1 ("Trading 'on the basis of' material nonpublic information in insider trading cases").
On funds and investment management, Mr. Gensler testified that he asked staff to consider reforms to cybersecurity risk governance, including cyber hygiene and incident reporting, and enhanced disclosures for pension funds investing in private funds. In addition, he stated that the SEC will be assessing the type of information used to substantiate environmental, social, and governance claims.
Mr. Gensler reported that the SEC Division of Enforcement is "on track to exceed the number of stand-alone actions against wrongdoers" and the SEC Division of Examinations is set to complete approximately 3,000 examinations. He argued for additional resources, noting a nearly four percent decrease since the end of fiscal year 2016.
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