Securities and Exchange Commission Chair Gary Gensler during a conference defended the commission’s ambitious rulemaking agenda, which has about 50 projects on it.
Former SEC Chairman “Jay Clayton—we went back [and looked at] some of the data—did 64 final rules. Mary Schapiro did a similar number; …Chair [May Jo] White, maybe a little less. So, we are right in the zone,” Gensler said during a fireside chat session of the Investment Adviser Association (IAA) Policy & Leadership Forum on Sept. 28, 2022, in Washington.
Clayton served from May 2017 to December 2020 during the Trump administration. White was chair of the SEC from April 2013 to January 2017 during the Obama administration. Schapiro also served during Obama’s presidency from January 2009 to December 2012.
Gensler is President Biden’s SEC appointee and has been in the position since April 2021. The chair of the regulatory agency sets the rulemaking agenda.
Gensler’s remarks come amid criticisms, mostly from industries and business lobbyists, that the SEC’s rulemaking activity has been too frenetic. Companies are having a hard time trying to comply with new regulations. Moreover, they complained that the rules the commission is proposing or adopting are too burdensome. Critics also claimed that a few of the rules could even be outside the agency’s jurisdiction.
During the fireside chat, Karen Barr, IAA’s president and chief executive officer, said that the organization has over the years recommended that the SEC look at the cumulative effect of all its rules on companies that the agency regulates.
“While the SEC does a cost-benefit analysis of each regulation individually, regulation does not exist in a vacuum. And the proposed regulations are both interconnected and have broad implications. And implementation is cumulative,” Barr told Gensler. “The same people within our member firms, operations compliance, business lines have to execute well on a host of new regulations coming down at the same time. There are also a limited number of outsourced vendors who can help them, and they’re all doing it at one moment here. What is your approach to looking holistically at regulatory requirements and the feasibility of firms operationalizing all of these major rules at once?”
SEC’s Tripartite Mission
But Gensler gave a more general answer to a specific question. As he often does during public events, he cited the SEC’s tripartite mission, which is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” And investment advisers manage clients’ money, he said, thereby facilitating capital formation.
When writing any rule, the SEC follows the law, including putting out a proposal for comment, he said. The commission’s staff does an economic analysis on each rulemaking project.
“And there’s a baseline. And the baseline is—you say cumulative—there’s a lot of regulations that are on the books whether they are recently adopted in the last two to five years or long ago adopted, that’s part of the baseline,” he said. “But I encourage your members to write in on comments” because the regulator benefits from comment letters. “If they see some, you know, cross pollination, we usually group some of the rules together,” he said.
For example, on environmental, social and governance (ESG) matters, the SEC issued two separate proposals that apply to the investment industry, which are intended to address greenwashing when selling ESG funds. The two proposals are Release No. 33-11068, Environmental, Social, and Governance Disclosures for Investment Advisers and Investment Companies and Release no. 33-11067, Investment Company Names. Both were issued in May this year.
“We’ve also reopened some of our proposals on, for instance, stock lending and short selling because there was sort of a more direct interlinking in that regard,” the SEC chief said. “I would also encourage your members to write in even if it’s even past the comment period. We have a long tradition at the SEC that have comments come post-the comment period. If we see something, the staff considers it, the members like myself of the five-member commission consider what we can along the way.”
IAA’s Barr followed up with a related question, saying that many of the association’s members are small businesses.
“They’re trying to implement all of these at the same time. Are you all giving any thought to staggering compliance periods or having different kinds of compliance periods for different kinds of rule implementation in firms,” she asked.
Gensler repeated that the agency benefits from public comments. The SEC has adopted some of the proposed rules, and other projects are on the horizon.
“Equity market structure is something that has gotten a lot of public attention, but we’ve not yet proposed those. We have some other issues in our corporate finance and in our trading and markets,” he said. “But you mentioned in the investment management space, the custody [rule] that we are taking up, some ideas from custody and on third-party service providers are two areas, and you rightly mentioned digital engagement practices or what I might call the use of the algorithms and predictive data analytics and machine learning in Robo advising. So that would be something that would touch your members, but we’re going to try to get through those remaining proposals.”
The agency considers implementation dates, he added.
Gensler said that the rulemaking projects are necessary to improve the functioning of capital markets.
“It’s part of our job to make sure that the markets are more resilient,” he said. “We’re living through uncertain times right now; we’ve seen this in the last few days in the international bond markets for sure and the currency markets. But to build greater resiliency into this system. So, shortening those settlements cycles from two days to one day. In that proposal, we actually put in when I get my years right, a March of ‘24 implementation date. So, … the proposal, which was 10 months ago, at least we sort of … put everybody on notice. And now I can’t prejudge when we’ll adopt, how we will adopt. But we tried to put that out there.”
Gensler: ‘Next Question’
Barr then wanted to know what rules Gensler thinks are the most important.
“To that end, and you’re speaking about a lot of different issues, and in your testimony a couple of weeks ago, you talked about…the sequencing that come out when they come out,” she said. “But are there any of these initiatives that are most near and dear to your heart that you just want to see get done and make sure to complete the pass on?”
Gensler said he has three daughters.
“Would you want me to pick amongst them? I love them all the same,” he said. “Next question.”
This article originally appeared in the October 5, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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