Lawmakers grilled SEC Chair Gary Gensler on September 27 regarding the impact of the agency's rule proposals as the deadline for Congress to avoid a government shutdown loomed.
Key takeaways from the SEC chair questioning
- Congress questions SEC Chair Gary Gensler on rule-making impact.
- SEC was criticized for not considering stakeholder feedback and economic analyses.
- GOP lawmakers focus on SEC's climate-disclosure rule proposal.
. - Firms must assess technology use for conflicts of interest.
- Concerns voiced by Senators Rounds and Hagerty and committee Republicans.
- Democrats raise concerns about the government shutdown's implications on the SEC.
- A government shutdown is possible if Congress doesn't pass a spending bill by October 1.
Chair Patrick McHenry, R-N.C., expressed concerns about the SEC's current rule-making approach, stating it jeopardizes the integrity of financial markets and puts investors at risk. McHenry, along with all committee Republicans, criticized the SEC's reluctance to consider stakeholder feedback and its failure to conduct comprehensive economic analyses in a letter dated September 26. They urged the agency to evaluate the real and cumulative impact of its rulemaking on competition before finalizing or implementing any new rules.
The American Securities Association echoed these sentiments, asserting that an ideological takeover of the markets in the last two years has negatively affected small businesses, retirement savers, and working families. The association's president and CEO, Christopher Iacovella, warned that adopting multiple rules impacting various market aspects in a short timeframe could lead to market failures the SEC is meant to prevent.
During the hearing, many GOP lawmakers directed their questions toward the SEC's climate-disclosure rule proposal. Gensler emphasized that the SEC is not a climate regulator and that the proposal aims to provide consistency and comparability in climate-related information disclosure by companies.
Both Republicans and Democrats on the committee also inquired about the SEC's proposal concerning the use of artificial intelligence by investment advisers and broker-dealers. The proposal from July requires firms to assess whether their use of certain technologies creates conflicts of interest that prioritize the firm's interests over investors'. If conflicts exist, firms must eliminate or neutralize their effects. Gensler clarified that the rule aims to be technology-neutral, although some trade groups have contested this.
A joint comment letter from 13 trade associations dated September 11 expressed strong opposition to the proposal, describing it as hostile to technology use. Senators Mike Rounds, R-S.D., and Bill Hagerty, R-Tenn., along with 19 committee Republicans, voiced their concerns in a letter dated September 22, labeling the AI-focused proposal as misguided, overly broad, and potentially harmful to both investors and capital markets.
Ranking member Maxine Waters, D-Calif., and several Democrats on the committee raised concerns about the implications of a government shutdown on the SEC. Gensler explained that a shutdown would reduce SEC staffing to a small, skeletal team, making normal market oversight impossible.
If Congress fails to pass a spending bill by October 1, a government shutdown will commence.
Source: Pensions&Investments
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