A legacy of wins built one vote at a time

The SEC chair says the views of Republican commissioners can influence rules, even if unanimous support can't be achieved.

Over the two years SEC Chair Gary Gensler has led the agency, the five-member commission has cast many 3-2 votes to advance rulemaking proposals, a trend that’s likely to continue on major regulations.

Gensler and his fellow Democratic commissioners — Caroline Crenshaw and Jaime Lizárraga — are in the majority, while Republican commissioners Hester Peirce and Mark Uyeda comprise the minority.

The two groups have split on decisions about whether to release for public comment proposals on custody, outsourcing and cybersecurity for investment advisors, as well as proposals on mutual fund liquidity and climate disclosure for public companies and ESG disclosures for investment advisors.

If the Republicans aren’t on board to release the proposals for comment, it’s likely they’ll oppose the final rules, too. The political division within the Securities and Exchange Commission reflects a policy and partisan divide that occurs throughout Washington, D.C.

The danger when it comes to rulemaking is that a 3-2 vote can make a regulation more vulnerable to court challenges and more likely to be amended or overturned by a future Republican-majority commission. That increases regulatory uncertainty and potential costs for financial advisors.

Gensler said split votes go with SEC territory. “They’re part of democracy,” he told reporters following a House hearing in March.

In a recent InvestmentNews interview, Gensler said the SEC has had a “great deal of success” on the approximately 65 regulatory actions the commission has voted on over the last two years, including 46 proposals and 14 final rule adoptions. About half of them have come with 5-0 votes.

“That’s a pretty good record compared to legislative bodies,” he said.

Even if some commissioners object to a final rule, that doesn’t mean their concerns weren’t taken into account, Gensler said.

“We make adjustments where we think appropriate, even if we can’t get to unanimous support,” he said.

Gensler, a former Commodity Futures Trading Commission chair and Capitol Hill aide, applies his political knowhow to running the SEC, said Christopher Iacovella, CEO of the American Securities Association.

“Based on the intensity of a political issue, he’ll decide whether he wants to finalize the rule with a divided commission or negotiate to get broad support and a 5-0 vote,” said Iacovella, who was counsel to a Republican CFTC commissioner when Gensler headed the agency. “You get whatever you can get, and at some point, you know you’re going to lose.”

Gensler “likes to engage intellectually,” Iacovella said. “If he has made up his mind on something, he tries to convince others his view is the right view. If he hasn’t, there’s an open dialogue about the merits of an issue.”

Gensler said he enjoys the give-and-take with his colleagues. “As a nation, we benefit from having a commission with five individuals bringing a diverse set of policy [and] economic views to these debates,” he said.

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