Gary Gensler has set the SEC on a perilous path
WASHINGTON, July 22 (Reuters Breakingviews) - Gary Gensler is the kind of regulator who gets things done. That’s not always the kind that serves America best. The chair of the Securities and Exchange Commission has flexed the rulemaking process in a way that has been helpful to a Democrat-led administration struggling to pass laws. The precedent Gensler has set will make it easier for future SEC bosses to play fast and loose too.
Since President Joe Biden picked him to run the markets watchdog in February 2021, Gensler has been unusually productive, with a volume and breadth of actions that have left companies reeling. Among his initiatives have been plans to rein in companies that go public via special-purpose acquisition companies, proposals to standardize and increase climate-related disclosures, and moves to reform the $4.5 trillion money market sector.
The hyperactive approach to regulation ought not to come as a surprise. Gensler previously ran the Commodity Futures Trading Commission under the Barack Obama administration, and among the various agencies responsible for the Dodd-Frank financial reforms following the 2008 crisis, his was the fastest at proposing new rules, according to a tracker by law firm Davis-Polk. His nomination as SEC chair was backed by liberal politicians like Senator Elizabeth Warren, an open and vocal critic of Wall Street. Holding financial firms to account is part of the Gensler brand.
What’s unusual, though, is his penchant for playing by his own rules. First, there are the signs of mission creep. The SEC wants companies to disclose more about how climate risks affect their business read more . That makes sense since one of the agency’s key mandates is to protect investors. But requiring specific disclosures of greenhouse-gas emissions, including estimates from suppliers and customers, isn’t obviously directly material to investors. Requests for such information would be better coming from the Environmental Protection Agency, which unlike the SEC has expertise in assessing that kind of data.
Gensler has also sped up the rulemaking process. On average his SEC proposals have allowed 63 days from the moment of announcement for the public to provide comment based on a Breakingviews analysis of agency filings. That compares with an average of 78 days under his predecessor Jay Clayton. Yet even as the timelines have contracted, the amount of public feedback Gensler’s far-reaching proposals receive is rising. So far in this fiscal year, the agency has received more than 72,000 comments, nearly triple what it got in the prior period.
Finally, there are those substantial changes that have avoided the rulemaking process altogether. One example is an SEC accounting bulletin in March that told companies holding custody of cryptocurrencies on their clients’ behalf to start including the risk of minding those digital assets on their own balance sheets. Bulletins are a fairly routine way of offering guidance, but in this case, what’s at stake is a major shift in accounting standards read more . What’s more, companies affected needed to comply in time for their second-quarter financial statements.
Gensler has a history of sneaking in significant measures in a similar way. In 2013, his CFTC extended rules on cross-border swaps to non-American entities in certain circumstances – but it literally did so in a footnote. That angered executives on Wall Street and overseas regulators like European Union commissioner Michel Barnier. Another footnote expanded the number of firms that had to register as a so-called swap execution facility, to encompass firms outside of the United States.
The get-things-done spirit – which befits a former Goldman Sachs banker – is a gift to Biden, who oversees a divided Congress that has struggled to legislate. But the precedents Gensler establishes in how the SEC functions in a Democratic administration could set the tone for future Republicans too. Moreover, his embrace of issues like global warming could provoke a backlash if a Republican wins the presidency in the 2024 elections. The SEC has already been criticized by senior party members on the banking committees, who have accused the chair of a “scorched earth rulemaking agenda” that does nothing to help businesses raise capital.
A creative conservative-leaning securities watchdog could, for example, roll back rules on climate disclosure. They could make it easier for companies to dismiss shareholder proposals ahead of annual meetings, something Gensler’s team made more difficult. They may also propose new regulations that limit investment firms’ ability to consider ESG issues. That could look like the now-defunct 2020 plan from the Office of the Comptroller of the Currency, which prohibited banks from denying loans and other services to oil drillers or gunmakers.
The more freewheeling SEC has achieved some things that will undoubtedly make capital markets healthier. Putting a chill on SPAC deals by threatening to make banks more accountable for the transactions they facilitate is one example; trying to rein in cryptocurrencies that are otherwise largely unregulated is another. Watchdogs are traditionally slow-moving and under-resourced, so such decisive action is progress – it’s just that once norms are tossed aside, it’s hard to bring them back.
Follow @GinaChon on Twitter
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
The U.S. Securities and Exchange Commission on July 13 voted to rescind a 2020 rule that required proxy advisory firms to make their recommendations on shareholder proposals available to a company by a certain time period. The measure was adopted during Donald Trump’s presidency but was never enforced by the agency.
Our Standards: The Thomson Reuters Trust Principles.