SEC Chair Gensler Asks Senate Banking Committee for More Resources
Commentary by Steven Lofchie
In testimony before the Senate Banking Committee, SEC Chair Gary Gensler outlined the agency's responses to current forces changing the face of finance today - from "[n]ew financial technologies and business models, from predictive data analytics to crypto."
Mr. Gensler stated there are two general ways to respond to theses challenges: (i) to ensure that the SEC, which is "deficit neutral" (i.e., "collecting fees on securities transactions ... to fully offset our appropriation") is fully funded, and (ii) to "drive efficiencies in our capital markets and to modernize our rule sets."
Mr. Gensler summarized how the current challenges are affecting the bond, equity, security-based swaps and crypto markets and how the SEC is responding by issuing numerous rule proposals to address them. He highlighted the "transformative" challenge of predictive analytics, particularly "when coupled with differential marketing, differential pricing, and individually tailored behavioral prompts," (called digital engagement practices, or "DEPs"). He described how DEPs require regulatory responses to investor risk as to "robo-advising, wealth management platforms, brokerage platforms, and other financial technologies."
Mr. Gensler also highlighted numerous SEC proposed initiatives to enhance disclosure on a host of subjects including climate-related risk, cybersecurity risk, the adequacy of information on Chinese companies, special purpose acquisition companies, share repurchases, beneficial ownership and trading by company insiders.
In the funds and investment management space, Chair Gensler detailed proposed rules to (i) enhance transparency for private fund investors (on advisers’ fees, performance metrics and side letter arrangements), (ii) ensure that fund names are not misleading, (iii) require additional ESG disclosure and (iv) improve "resiliency" including updating Form PF.
He appealed to legislators for more funding, arguing that while the SEC Enforcement "Division is doing more with less, we do need more resources."
Commentary
Given unlimited resources, the SEC under Chair Gensler would undoubtedly pick up the pace of rulemaking. However, those subject to the SEC's rules do not have unlimited resources. It would be better for the markets and the economy if Mr. Gensler would prioritize.