The banking industry is vigorously opposing Securities and Exchange Commission head Gary Gensler’s ambitious regulatory agenda because it sees it as an outrageous overreach of the securities watchdog’s legal jurisdiction.
The US Chamber of Commerce, a business lobby, has been suing the SEC in recent months over a rule that expanded stock buyback disclosures. Last week, a coalition of private equity, venture capital, and hedge fund groups filed a lawsuit to stop the SEC’s adoption of comprehensive new rules for private fund managers.
As the business supporting the Ripple digital coin contests an SEC civil case on the grounds that it goes beyond the agency’s authority to regulate securities, it has run into opposition to its crackdown on the cryptocurrency industry.
The regulator also suffered a setback last month when a federal appeals court in Washington found that it had been improper to deny asset manager Grayscale’s request to open an exchange traded fund (ETF) that would follow the price of bitcoin, labelling the decision “arbitrary and capricious.”
Gensler is one of a group of senior regulators that Joe Biden’s administration appointed and who have adopted a stricter approach to rulemaking and enforcement. The SEC chair claims that doing this is essential to upholding the regulator’s role and safeguarding US investors.
As a proactive regulator, Gensler has developed a solid reputation. He presided over the Commodity Futures Trading Commission as it was developing and putting into action its response to the 2008 financial crisis. He was chosen by Biden to lead the SEC in 2021.
The head of the agency has given his new regulatory mandate careful consideration. Since the global financial crisis of 2008, the agency under his direction has proposed more major rules and regulations than any of his predecessors.
The notoriously anti-regulatory Committee on Capital Markets Regulation claims that in the first 850 days of Gensler’s tenure, which ended on August 15, his SEC submitted 47 recommendations that significantly impact market participants and enacted 22 of them. In both categories, that sets a record since ex-
Following her appointment as head of the SEC in January 2009, Mary Schapiro directed the regulator’s response to the financial crisis. She presented 59 draught rules and 18 final ones.
Detractors, including as Republican officials and market participants, claim that Gensler has exceeded the SEC’s legal jurisdiction. According to his admirers, he is putting forth long overdue regulations that better reflect contemporary markets following decades of inadequate regulation.
According to the SEC, each of its “proposals is grounded in authorities granted by Congress and the agency’s three-part mission.”
In order to ensure that the markets serve both investors and issuers equally, not the other way around, we are changing our regulations for the technologies and business models of the 2020s, the statement continued.
The Gensler ideas stand out for their breadth, recommending that the SEC create regulations for topics including mutual fund pricing, cyber security, and public firms’ climate statements.
While Gensler “is seen as aggressive, and to some extent he is,” according to Columbia Law School professor John Coffee, “the SEC is actually paralysed on some issues because of the new limits that the courts have placed on agency rulemaking.” Coffee was alluding to the “major questions doctrine,” which says that regulators “cannot take a significant new step that has not been authorised by Congress,” and which the US Supreme Court has endorsed in recent cases.
Gensler was accused of having a “overly aggressive rulemaking agenda” by Patrick McHenry, the chairman of the House financial services committee and a Republican. According to McHenry, there are “serious concerns that the rulemaking process is being rushed, undermining the integrity of our securities laws and running the risk of unfavourable unintended consequences.”
The US hedge fund trade group’s president and CEO, Bryan Corbett, claimed that the regulator’s goal “by and large, is not informed by market data, a market failure, or a congressional mandate.” The US financial markets will be hampered, the economy will suffer, and investment returns for pension funds, foundations, and endowments would decline.
The most recent instance of the SEC “exceeding its statutory authority” was the private fund restrictions, he continued. The MFA was one of the plaintiffs who launched a legal dispute against the agency earlier this month on guidelines that expanded disclosure and set new restrictions on how private funds treat clients, including institutional investors.
Six business associations sued to overturn the new regulations, claiming that they were “unwarranted, illegal, and will harm the private fund industry and hamper the jobs, innovation, and other benefits private funds bring to the economy.”
Consumer advocacy groups disagreed, claiming that the measures will increase openness and accountability in the $27 trillion market. They applauded laws that forbid side agreements that grant some investors preferential treatment on crucial issues like redemption limitations.
Last month, Gensler claimed that the regulations will “promote the efficiency, competition, integrity, and transparency of private fund advisers.” Investors, issuers, and markets all gain from this.
Progressive non-profit Americans for Financial Reform’s Carter Dougherty stated that rather than viewing Gensler’s energy as a problem, we should be open to the possibility.
The urgency of his work is further highlighted by the fact that prior SEC chairs either abandoned that mission or deliberately obstructed it. A lot of individuals who have become wealthy under the current system are scared of Gensler because he is familiar with Wall Street, Dougherty continued, mentioning Gensler’s 18-year tenure at Goldman Sachs.
The SEC “is decidedly not engaged in regulatory over-reach,” according to Dennis Kelleher, chief executive of the Better Markets campaign group. He added that the agency’s relatively small size meant it was “typically outmanned and outgunned by a gigantic financial industry with virtually limitless resources and allies that can easily overwhelm the SEC.”
According to Kelleher, SEC legislation frequently reduces the sector’s earnings and bonuses but satisfies the regulator’s purpose of promoting transparency and preventing conflicts of interest and other unethical behaviour.
“Those anti-investor practices are very profitable and the industry will do whatever it can to protect those profits, including filing frequent lawsuits,” he added.