Compliance April 20, 2023

At House Committee, SEC Swing Pricing Proposal Comes Under Fire

Gensler defended the SEC’s recent proposals on subjects such as climate disclosure and swing pricing.

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The U.S. House Committee on Financial Services held an oversight hearing on Tuesday in which Securities and Exchange Commission Chairman Gary Gensler testified for approximately five hours.

The hearing covered many topics, including the SEC’s climate risk disclosure proposal, its swing pricing and hard close proposal and artificial intelligence, among other items. Many members were critical of procedural flaws at the SEC, such as the inadequate length of comment periods and a “breakneck pace” of rulemaking.

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Swing Pricing

During Gensler’s testimony, some representatives expressed skepticism of the SEC’s swing pricing proposal on the grounds that it could hurt retirement savers, especially those who live in the Pacific Time Zone.

The swing pricing proposal would require mutual funds to impose a hard close at 4 p.m. ET, meaning an investor must have placed a buy or sell order by that time to receive that day’s price for a fund. Since many retirement accounts trade through intermediaries, those orders must be sent even earlier to ensure they are received in time; otherwise, they would have to processed at the following day’s price.

Americans held $6.6 trillion in defined contribution retirement plans as of December 31, 2022 and 62% of those assets, or $4 trillion, were in mutual funds, according to the Investment Company Institute data.

Representatives Young Kim, R-California, and Steven Horsford, D-Nevada, pointed out to Gensler that investors in the Pacific Time Zone might have to get their orders in by 9 a.m. local time just to get that day’s price, since they estimate that orders for retirement accounts would have to be in by 12 noon ET.

Climate Disclosure

The SEC proposed in March 2022 to require public companies to disclosure their material risks related to climate change, their direct greenhouse gas emissions and their indirect emissions from electricity consumption. Some companies would also have to disclose Scope 3 emissions: emissions in their supply chain.

The proposal was favored by all the committee’s Democrats who remarked on it, usually on the grounds that it will inform investors so they can account for climate risk. It was opposed by many of the Republicans on the Committee, typically because they feel it exceeds the SEC’s authority under securities laws, that it will provide a large compliance burden on businesses and because the SEC has no expertise in climate issues. Representative Blaine Leutkemeyer, R-Missouri, joked that Gensler is effectively acting as if he were the director of the Environmental Protection Agency because of the scope of the SEC’s climate risk disclosure proposal.

Gensler provided a defense he has given elsewhere: Many securities issuers are already providing these disclosures, and the SEC is merely looking to make sure that they are truthful and consistent. He added that the proposal is almost universally supported from investors who sent in comments to the SEC, though he admitted that the comments from issuers were more mixed.

Representative Sean Casten, D-Illinois, a strong supporter of the proposal and co-founder of the Congressional Sustainable Investment Caucus, said at the hearing that because of inadequate disclosure of climate risk, many real estate investments are overvalued because physical climate risk, such as flooding, is not being considered by investors. He said he worries that, over time, more sophisticated investors who are aware of this overvaluing will try to sell these assets to less sophisticated investors unaware of the risk involved. He added that uniform climate risk disclosure would mitigate this possibility.

Representative Alexander Mooney, R-West Virginia, said the proposal amounts to naming and shaming, will cost jobs and “will be devastating to the state of West Virginia.” He accused the SEC of trying to shift capital toward social and political goals.

Artificial Intelligence

Gensler also spoke briefly on the importance of regulating artificial intelligence. He highlighted robo-advising and predictive analytics as emerging areas the SEC will have to regulate in the future.

Representative Juan Vargas, D-California, took interest in Gensler’s comments about AI and asked him to elaborate. Gensler responded that AI could be used in the future for things such as compliance and sentiment analysis. He added that one of the more important areas of future regulation will be the programming of AI from a fiduciary perspective; in other words, ensuring that AI is programmed to seek out a client’s best interests and how it is programmed to do so.

 

Products April 20, 2023

MetLife, Savi Launch Student Debt Management App for Public Sector Workers

Participants can use MetLife’s financial wellness platform to gauge eligibility for student loan forgiveness programs.

Reported by


Recognizing the strain that many public sector employees are experiencing to pay off their student loan debt, MetLife’s financial wellness platform, Upwise, has partnered with Savi Technology, a social impact technology company, to help borrowers navigate their eligibility for different student loan forgiveness programs. 

The collaboration, announced earlier this month, comes at a time when more than 43 million Americans have student loan debt, with the vast majority holding federal loans. According to MetLife’s 2023 U.S. Employee Benefit Trends Study, 62% of employees are looking to their employer for more help in achieving financial security through employee benefits. 

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Upwise, run by MetLife Services and Solutions LLC, was first launched in 2021 with the goal of helping employees build healthy financial habits. The partnership with Savi will now allow employees to take a “holistic view of their personal finances and understand how student loan debt impacts their financial health,” a press release stated.  

Using a student loan calculator, the mobile app assesses an employee’s eligibility for relief by exploring various repayment and student loan forgiveness options. 

Ellen Pedersen, vice president and head of product at Upwise, says plan sponsors can offer this application to participants free of charge. Because MetLife works with many employers in federal, state and local governments, as well as sectors of health care, education and nonprofits, Pedersen says it made sense to partner with Savi, which specifically focuses on bringing student loan forgiveness to public sector employees. 

The application will be exclusively offered to employers who are MetLife clients, Pedersen explains. 

When using Upwise, Pedersen says users first input a few pieces of information to assess if they are eligible for public service loan forgiveness. Upwise then analyzes the data and gives an initial prognosis, such as suggesting a user can reduce their monthly payments by $200 and could be eligible for forgiveness. 

As this is an “integrated solution,” according to Pedersen, the user is then directed to Savi’s platform and asked to enter more information, such as the number of dependents they have and their income level, to receive a more specific assessment and recommendations.  

While a user may be eligible for more than one student loan forgiveness program, Savi will recommend the program that will save them the most money on their monthly payments. 

“To date, Savi has identified more than $1 billion in projected loan forgiveness opportunities for student loan borrowers and can reduce monthly student loan payments by $150/month,” a press release stated.  

Payments on federal student loans have been on pause since the start of the pandemic in 2020 but are expected to resume some time between June and September, Pedersen says.  

“This is going to be a shock, because people are already dealing with inflation, and the average student loan payment in the U.S. is $400 per month,” Pedersen says. “So it’s a good time to have a solution like this [application] out in the market.” 

The Public Service Loan Forgiveness program, which forgives the remaining balance on a borrower’s direct loans after the borrower has made 120 qualifying monthly payments, can be an overwhelming logistical hurdle, according to Pedersen, and she says Upwise’s platform attempts to help people navigate that process. 

As long as the borrower is working full-time for a qualified public sector employer, they receive credits toward forgiveness through the PSLF program. Pedersen says employers who offer this benefit may see boosts in their retention, because if an employee with substantial student loans is in this program, they would be less likely to switch to a private sector job. 

“The fact that the employer offer can offer this does make them more attractive,” Pedersen says. 

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