SEC introducing regulations on level ‘not seen since financial crisis’

US Securities and Exchange Commission (SEC) chair Gary Gensler has introduced more rule changes and regulatory proposals than any of his predecessors following the 2008 financial crisis, new research has revealed.

Mark Taylor

Mark Taylor

Senior Editorial Manager

Under Gensler’s watch, the SEC has unveiled 47 proposals for market participants with 22 of them adopted in the first 850 days of his leadership, ending August 15, according to the Committee on Capital Markets Regulation (CCMR).

It is more than any chair since Mary Schapiro oversaw the initial response to the global financial meltdown upon assuming the role in 2009 and issued 59 proposals and 18 final laws.

Mary Jo White, chair from 2013 to 2017, and Jay Clayton in the role from 2017 to 2020, issued 22, and 25 proposed and final substantive rulemakings, respectively.

Gensler’s agenda also stands apart from his SEC predecessors in its share of proposals not mandated by congressional legislation.

Of Chair White’s 22 proposals, 59% were mandated by the 2010 Dodd-Frank Financial Reform Act and other laws. Just 17% of Gensler’s proposals were, and several of those were left over from Dodd-Frank.

Industry response to SEC chairman’s rulemaking agenda mixed

The CCMR, which consists of banks and other financial services businesses, academics and former regulators, has spoken out previously against regulation it considers harmful or overbearing.

“Most of what Gensler has done is unnecessary… markets need to be regulated but they need to be regulated in the correct way,” said Hal Scott, CCMR group president and an emeritus Harvard Law School professor.

Gensler’s SEC has introduced sweeping changes to cybersecurity disclosures, ESG rules, new mutual fund pricing obligations, and restrictions on asset custody amongst other guidelines.

Incoming is also a major overhaul of the private funds sector.

Some industry observers believe Gensler is on the right path, and that significant changes have been necessary to deal with advances in technology, high-speed trading, the expansion of private markets and the march of cryptocurrencies.

“It is totally reasonable for the SEC to modernise its regulatory framework in response to changes in business practises, markets and technology,” said Micah Hauptman, director of investor protection at the Consumer Federation of America.

Critics say the proposals increase costs and deliver weak returns, diluting the competition among money managers. The SEC was also accused of failing to consider the impact of rolling out swathes of concurrent changes.

“Too many of the regulations [Gensler] has proposed lack purpose, justification and realism,” said Eric Pan, chief executive of the Investment Company Institute, which represents fund managers.

“They will likely hurt markets more than improve them. They illustrate that quantity cannot substitute for quality.”

SEC chair Gary Gensler responds to critics

Gensler was called to appear before the Senate Banking Committee to defend his record, particularly his approach to pushing through legislation quickly.

At the hearing on September 12, Senator Tim Scott, Republican of South Carolina, said the commission was proposing rules and regulations at “a breakneck pace.”

Scott, who has announced his intentions to run for president in 2024, said the commission did not always give businesses and investors sufficient time to “digest complex rule changes” and fully respond.

Another Republican senator, Katie Britt, of Alabama, said some of the SEC’s proposals were “half-baked” and would do little to stop a “market failure” like the financial crisis of 2008.

However, Gensler argued the SEC was enacting new rules at a pace slower than some of his predecessors. He said the agency had sought comments from the public for 70 days on average.

The SEC also reopened the comment period on 18 proposed rules to allow for additional public input, he added.

A rule change to climate change disclosures has been halted for the time being due to the numerous comments from companies about the challenges they face when factoring in the climate impact of suppliers of goods and services, Gensler said.

“We’re updating our rules to promote the efficiency, integrity and resiliency of the markets,” said Gensler.

In response to questions about digital assets, he said that the cryptocurrency market faced “significant noncompliance” and was “rife for fraud.”

A spokesperson for the SEC said: “Chair Gensler is focused on ensuring that the markets work best for investors and issuers and not the other way around. All of the rules on the agency’s agenda advance the SEC’s mission.”

CUBE comment

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