SEC Chairman Gary Gensler has a long and detailed to-do list, which seems natural for a kinetic regulator who isn’t comfortable standing still.
The most recent iteration of the Securities and Exchange Commission agenda — in late June — includes 27 rulemakings in the proposal stage and another 26 in the final stage. Gensler views the activity as necessary to keep improving a financial system coming under new pressures.
“I think that we never take our capital markets for granted, and technology is changing so rapidly,” Gensler said in an InvestmentNews interview in late June. “It’s truly a transformational time.”
The themes animating Gensler’s agenda are increasing efficiency and competition — and reducing the cut intermediaries take — to help capital raisers and investors. “It’s how you keep our capital markets the gold standard around the globe,” Gensler said.
He worries about growing concentration in the markets, pointing to a “handful of wholesalers” transacting more than 90% of retail market orders, and a similarly short list of providers of indexes and money market funds.
“How do we instill and continue to ensure that we get that competition and efficiency in the heart of our capital markets?” Gensler said. “That’s beneficial to investors, to issuers and the economy as a whole.”
That’s Gensler’s vision for his agenda, the extent of which has generated resistance from a broad array of groups representing advisers and the industry.
“This is an unprecedented volume of rule proposals,” said Kenneth Bentsen Jr., chief executive of the Securities Industry and Financial Markets Association. “It’s an agenda that’s, frankly, a little too large and unwieldy and not sufficiently prioritized that we think is going to lead to problems. The commission is trying to do too much, too fast, and, I will add, there’s not a clear congressional mandate or intent.”
The Investment Company Institute, which represents the mutual fund industry, cautioned that such extensive rulemaking could undermine one of the SEC’s core missions. “When a regulatory agenda is overly broad and burdensome, capital formation suffers,” ICI CEO Eric Pan said in a statement.
Gensler was appointed by President Biden at the beginning of his administration. If you look at Gensler’s agenda as what he’s trying to do in a first Biden term, it puts it into perspective, said Tyler Gellasch, executive director of the Healthy Markets Association.
“Technology is changing so rapidly. It’s truly a transformational time .”
SEC Chair Gary Gensler
“The SEC’s agenda is both ambitious and imminently doable,” said Gellasch, a counsel for former SEC Commissioner Kara Stein and a former congressional aide. “There’s a handful of really big rules and probably a little more than a handful of rules for each division. It really is the chair’s agenda for his full term.”
It’s not just the size of Gensler’s agenda but also the speed at which he’s pursuing it. He seems to have settled on allowing 60 days for public comment after receiving much criticism for 30-day comment periods initially.
“We are concerned that the speed and sheer volume of the current rulemaking agenda is resulting in a less deliberative approach by the commission and that meaningful public input into the rulemaking process is at risk of being lost,” said Gail Bernstein, general counsel at the Investment Adviser Association.
Beyond vetting individual proposals, sufficient time is necessary to assess the way they interact with each other because they could have “a significant cumulative impact on savers, investors, capital formation and economic growth and job creation,” she said.
SIFMA and the IAA don’t always agree on regulatory policy, but they’re on the same page when it comes to urging the SEC to allow more time for rulemaking.
“The commission needs to think about how one rule will affect another,” Bentsen said. “If the commission tries to pump out all these rules really quickly, they’re not going to be able to do sufficient cost-benefit analysis and understand how this is going to impact the market [and] impact investors.”
Just about every trade association has something it’s following on the SEC agenda. The topics include investment adviser custody, digital engagement practices for advisers and brokers, environmental, social and governance disclosures, cybersecurity, exchange-traded products and money market reform.
The ICI plans to weigh in on many, including policy on money funds. “When the commission proposes mandates, such as swing pricing for money market funds, they look to achieve a policy goal and disregard enormous operational complexities,” Pan said. “That doesn’t make markets more orderly.”
Groups like ICI are complaining because Gensler is revisiting many rules they had worked to put in place, Gellasch said.
“He’s frankly reconsidering things they’ve spent the last decade lobbying Congress and lobbying the regulators to achieve,” he said. “He’s looking to unwind some of their hard-fought and hard-lobbied gains.”
During the Biden administration, the SEC has a 3-2 Democratic majority led by Gensler. The agency’s policy priorities have shifted from those pursued under former Chairman Jay Clayton during the Trump administration.
That back-and-forth based on which party is in power has become routine and creates a moving target for those trying to comply with regulations.
“There’s a whole lot of distrust brewing in what I call the politics of regulation,” said Kurt Schacht, head of policy advocacy at the CFA Institute. “Everything is starting to look temporary. It reduces the whole notion of regulatory certainty.”
The SEC has a three-part mission of protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. Under Clayton, the focus was more on capital formation. The pendulum is swinging toward another priority under Gensler.
“We like the fact that his view of balance means more work is needed on the investor protection leg of the stool,” said Schacht, a former chairman of the SEC’s Investor Advisory Committee.
Gensler often hears pushback about his agenda in person.
ICI has a “productive working relationship” with Gensler and his staff, Pan said. “They are willing to meet frequently to discuss the substantive issues the chair has laid out in his agenda, and we appreciate that.”
SIFMA’s Bentsen also has talked with Gensler, but hasn’t always been able to persuade him to adopt SIFMA’s views. “In some cases, we’ve agreed to disagree,” Bentsen said.
Gellasch sees Gensler proposing most rules this year, finalizing them next year and working to implement them before he leaves office. Of course, there will be big fights along the way. If Republicans take over Congress in November, lawmakers may try to deny SEC funding for some regulations.
“Most of the rules can be enacted,” Schacht said. “Whether they get defunded or blocked through litigation remains to be seen.”
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