On Tuesday, the Senate Committee on Banking, Housing and Urban Affairs will question Gary Gensler, the Biden administration’s nominee for the role of U.S. Securities and Exchange Commission (SEC) chair.
The nomination hearing comes at a critical time for both the markets and the SEC itself. The SEC is not only currently conducting significant internal policy changes related to the Regulation Best Interest (Reg BI) package and the modernization of adviser advertising rules (among other key projects), it is also facing pressing questions about access and equity in the financial markets, as expressed by the so-called “meme-stock” phenomenon.
Ahead of the hearing, Gensler published a copy of his prepared opening remarks, available in full here. In his opening statement, Gensler explains that he has spent his entire professional career in and around the financial markets, in roles across the private sector and in state and federal government. Gensler now works in academia as a professor at the Massachusetts Institute of Technology (MIT) Sloan School of Management.
“I believe our markets are the finest in the world,” Gensler says. “But they didn’t become that way through happenstance. In the shadow of the Great Depression, Congress created the SEC to protect investors; to maintain fair, orderly and efficient markets; and to facilitate capital formation. In the decades since, we have seen that when the SEC does its job—when there are clear rules of the road and a cop on the beat to enforce them—our economy grows and our nation prospers. But when we take our eyes off the ball—when we fail to root out wrongdoing, or to adapt to new technologies, or to really understand novel financial instruments—things can go very wrong.”
Gensler will speak about his time as the chair of the Commodity Futures Trading Commission (CFTC), a role he occupied when the U.S. and global economies were still reeling from the financial crisis.
“My fellow commissioners and I took decisive action to increase transparency and reduce risk in the $400 trillion swaps market,” he says. “I’m proud that 85% of our actions passed the commission with bipartisan support. If confirmed as SEC chair, I will work with my fellow commissioners, the SEC’s exceptional staff, and the members of Congress to ensure our markets remain the world’s best.”
Gensler says he will focus on “strengthening transparency and accountability in our markets, so people can invest with confidence, and be protected from fraud and manipulation.”
Taking a page from the book of Boston Mayor Marty Walsh, whom President Joe Biden nominated as secretary of labor, Gensler also takes time in his opening remarks to cite his working-class roots.
“I’m a product of a working family,” he says. “Neither of my parents went to college, but my father was able to take his mustering-out pay from World War II and start a small business that would eventually send my four siblings and me to college. That is the kind of economic opportunity that should be available to each and every American—no matter who they are. I believe our markets are essential to providing that opportunity.”
Gensler goes on to suggest his academic experience has also helped prepare him for the role of SEC chair.
“In my current role as a professor at MIT, I research and teach on the intersection of technology and finance,” he says. “I believe financial technology can be a powerful force for good—but only if we continue to harness the core values of the SEC in service of investors, issuers and the public.”
As PLANADVISER has reported, Gensler is perhaps best known for being a senior adviser to U.S. Senator Paul Sarbanes during the drafting of the influential Sarbanes-Oxley Act, which, among many other provisions, established that top management of publicly owned companies must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity were made much more severe by the Sarbanes-Oxley Act.
Other relevant details in Gensler’s background include his service as undersecretary of the Treasury for domestic finance from 1999 to 2001 and assistant secretary of the Treasury for financial markets from 1997 to 1999. Furthermore, Gensler was chairman of the Maryland Financial Consumer Protection Commission from 2017 to 2019, and he served on the CFTC from 2009 to 2014, leading the Obama-Biden administration’s reform of the swaps market.
At this stage, the evidence suggests Gensler’s nomination is likely to succeed. Case in point, the American Securities Association (ASA) this week sent an open letter to the Senate committee strongly endorsing Gensler.
“It is our hope and expectation that Mr. Gensler will be a strong, independent voice for America’s working families, retirees and savers who invest in our markets for a better future,” writes ASA CEO Chris Iacovella. “I have personally known Mr. Gensler for over 10 years, and I worked very closely with him on the implementation of the Dodd-Frank Act while we both served the American public at the U.S. Commodity Futures Trading Commission. While he is a person of immense intellectual acumen, he is also pragmatic, reasonable and open to listening to all points of view as he develops policy. I have always found him to be honest and forthright in our discussions and very eager to engage in a constructive way on the specifics of highly detailed policies that impact our capital markets. For these reasons, the ASA supports his nomination.”
In the letter, the ASA outlined its desire to work with Gensler on several issues critical to maintaining confidence in capital markets, including:
- Protecting the personal information of retail investors by eliminating the collection of their personally identifiable information (PII) by the Consolidated Audit Trail (CAT);
- Maintaining Reg BI as the national standard of care for broker/dealers (B/Ds) when providing investment advice;
- Holding Wall Street accountable by examining whether “naked” short selling is happening, reviewing stock lending practices and proposing reforms to Reg SHO;
- Developing and implementing a capital formation agenda that increases participation and access for all Americans while helping small and middle market businesses raise capital they need to grow and create jobs;
- Implementation of the Holding Foreign Companies Accountable Act to prohibit U.S. listings of fraudulent companies controlled by the Chinese Communist Party (CCP); and
- Working together on disclosure, investor choice and bond classification related to environmental, social and governance (ESG) matters for public companies.
The Insured Retirement Institute (IRI) similarly published an open letter this week that includes suggested questions for the Senate committee, as follows:
- How would the nominee propose to preserve and promote access for retirement savers to professional financial guidance, education and information?
- Would the nominee support the continued modernization of the regulatory framework to facilitate the use of new, modern and innovative technologies by issuers and B/Ds to streamline processes and improve the investor experience through, for example, expanded use of electronic signatures and notarizations, and the designation of electronic means as the default method of delivery for required disclosures and other documentation?
- Would the nominee prioritize the development of a more effective registered index-lined annuity (RILA)-specific registration form to facilitate greater competition in this space and to address the misalignment between the current registration forms used for RILAs and the information needed by investors who might benefit from purchasing these products without having to wade through irrelevant, excessive and confusing disclosure documents?