On July 19, the Senate Appropriations Committee Subcommittee on Financial Services and General Government held a hearing entitled “A Review of the Fiscal Year 2024 Budget for the U.S. Securities and Exchange Commission.” The sole witness in the hearing was Securities and Exchange Commission (SEC) Chairman Gary Gensler.
Below are some high-level takeaways on some of the key issues covered in the hearing prepared by Delta Strategy Group.
Subcommittee Chairman Chris Van Hollen (D-MD):
- I commend the SEC’s participation in the Holding Foreign Companies Accountable Act which would require foreign companies listed on U.S. exchanges to act in accordance with U.S. auditing standards.
- As markets increase in volume, it is critical that the SEC have the flexibly to pursue bad actors in emerging digital currency markets, like FTX who improperly acted as an exchange service.
- The SEC has done a good job in implementing ESG standards for companies as markets respond and evolve. The SEC’s climate disclosure proposal would help bring standardization to these types of disclosures.
Subcommittee Ranking Member Bill Hagerty (R-TN):
- The SEC is overreaching its authority and lacks accountability as a regulator. The climate change disclosure proposal does not fall within the SEC’s jurisdiction, and the SEC should carefully consider the implications of this proposal for the broader economic market.
Senator Susan Collins (R-ME):
- The SEC’s rulemaking process does not allow stakeholders the adequate time to respond to provisions. There is not sufficient input from the public in the rule-making process.
Senator Joe Manchin (D-WV):
- If other nations are not applying the same strict ESG standards to their markets, requiring U.S. companies to comply with them could put us at a global competitive disadvantage. Scope 3 emissions could be devastating to smaller operations.
- Under Chairman Gensler’s oversight, 74 percent of the rulemaking has been given a 30-day comment period, which is not enough time for people to provide adequate feedback.
Senator John Kennedy (R-LA):
- The SEC claims it is well-equipped to tackle fraud and market abuses in the cryptocurrency space, yet they let FTX slip through the cracks. They were neglectful to their responsibility to protect investors.
Senator Chris Coons (D-DE):
- The SEC should offer longer comment periods on its proposed rules.
Senator John Boozman (R-AR):
- The SEC’s custody rule is thoughtless, and the SEC should have worked closer with the CFTC for input.
- Under Chairman Gensler, the SEC has not provided a sufficient amount of time for the public to give comments on proposals.
- Regulation by enforcement is creating a great deal of uncertainty in the market, and we need more clarity in the digital asset market space to maintain our status as a global innovator.
Gary Gensler, Chairman, SEC:
- More people than ever are participating, trading, using tools and technologies that were unavailable even a few years ago. It makes sense for the SEC to grow, and we could use more funding to hire staff and update its technology. A FY24 budget of $2.4 billion would allow the SEC to operate at its current level, but it is still $73 million under our proposed budget.
- The investing public has taken an interest in crypto assets, and many of these projects have a group of individuals at the center that are dictating the decisions of the projects. This quality of decentralization indicated that these projects are investment contracts and fall under SEC jurisdiction.
- SEC has a robust authority around platforms that facilitate crypto trading, but the CFTC’s authority is not as robust. The SEC has a disclosure-based regime, and, when the investing public is anticipating profits based on the efforts of others, it is best that they receive full, fair, and truthful disclosure just as they would with other securities. The crypto space has been rife with fraud, and our goal is to bring these tokens and their trading platforms into compliance with SEC rules. These platforms are co-mingling their functions and often have significant conflicts of interest. The digital asset space is willfully uncompliant, and it is built in part by preying on investors and the hype around these tokens.
- Our rule-making pace is consistent with the new technology entering the industry, and we are trying to keep up with stakeholders’ and lawmakers’ demand.
- I assure you that climate disclosure rule we are trying to finalize will bring comparability and consistency to public companies’ sustainability disclosures. Many comments came in about alternative solutions to the current approach to Scope 3 emission reporting to ensure that the reach of the rule does not apply to non-public companies.