The House Committee on Financial Services will hold an oversight hearing on the Securities and Exchange Commission next Wednesday and Chairman Gary Gensler is expected to testify. The SEC’s proposed budget and their recent proposals, especially the climate disclosure proposal will all likely be discussed.
The SEC requested $2.436 billion for 2024, an increase of $265 million from this year primarily to hire new staff. The new hires are proportionally concentrated in the Divisions of Risk Analysis and Investment Management, whose staffs would increase by more than 5% each. The largest aggregate staffing increase would be to the Division of Enforcement, from its current 1,505 positions to 1,558.
The Division of Investment Management, under William Birdthistle, is the division from which many of the more technical and controversial rule proposals of Gensler’s tenure have originated, such as those on swing pricing, the new custody proposal, and the market structure proposals.
Gensler said that this funding request is offset by transaction fees that the SEC collects.
Chairman of the Appropriation’s Committee Subcommittee on Finance and General Government, Representative Steve Womack, R-Arkansas, said that the SEC is acting in a heavy handed way and proposing new regulations at a “blistering pace” at a hearing on March 29 in which Gensler defended the SEC budget request.
Womack also suggested that the SEC’s proposal on climate disclosure, which would require entities registered with the SEC to disclose their carbon emissions, was not within the SEC’s legal authority, a concern shared by several other Republican members of the committee.
The climate disclosure proposal has been a sensitive issue for agricultural interests. Representative Ashley Hinson, R-Iowa, emphasized the potential impact of this rule on farmers at the hearing. She said that this proposal would be bad for farmers in her state who would have to collect and disclose their emissions data to issue securities and to work with larger businesses who must collect emissions data from their value chain.
Representative Michael Cloud, R-Texas, shared this sentiment during the hearing and said that any issuer subject to Scope 3 disclosure would compel farms in their supply chain to collect this data, a tedious process, which might reduce farmer’s access to credit if they do not comply.
Gensler acknowledged that 49 farm bureaus had commented on the proposal. He responded that many stock and bond issuers already disclose this information, and the SEC is simply trying to make sure these disclosures are uniform, consistent, and not misleading, so that investors understand what they are investing in, a defense that he has been very consistent with and has given in other settings. Gensler emphasized that many commenters, especially those that are investors, support the rule proposal.
Representative Norma Torres, D-California, highlighted one instance in which climate disclosure would be material for securities issuers in her state. She said that due to increased wildfires in California, the cost of fire insurance has been going up, which due to climate change is likely to only get worse, which is a material risk for investors looking to invest in various sectors in California.
The comment period for the market structure proposals, which include order execution disclosure requirements and a required auction process for retail orders, ended on the March 31. The comment period for the SEC’s custody rule proposal expires on May 8, and the cybersecurity proposals on June 5. These issues were underemphasized compared to the climate disclosure proposal at the last hearing.