Bonds

SEC taken to task for over-regulation

Muni leaders are concerned that a flurry of regulations enacted by the Securities and Exchange Commission, some spurred by attempts to reign in the cryptocurrency market, is spilling over into other markets.

The issues were brought to a head by two letters addressed to SEC Chair Gary and a subsequent grilling during a hearing by the House Committee on Financial Services Tuesday.

The hearing was heated at points which did not surprise industry veterans. “This is the first time Chairman Gensler will have appeared before the committee under the new majority, so I expected a fair bit of friction,” said Michael Decker, senior vice president of research and public policy at Bond Dealers of America. 

Several members of the Committee referenced the widening scope of the agency’s purview, including Rep. Ann Wagner, R-Mo., who said “Its 53 new regulations, even when a very brief, half-baked cost benefit analysis is provided, fails to consider the aggregate regulatory burden on retail investors, small business, and capital markets. The bread and butter of the United States of America.”  

Much of the debate on the agency’s recent work hinged on a letter authored by Committee Chair Patrick McHenry R-N.C., which drills down into rules governing the registration of digital asset trading platforms in order to regulate crypto trading. Muni leaders took the opportunity to weigh in on what they see is as on overly ambitious regulatory agency agenda.  

“While we support some of the policy goals being pursued, we are deeply concerned that the potential cumulative and interactive effects of the numerous and overlapping proposals are not fully understood and have not been subject to sufficient cost-benefit analysis,” said Kenneth E. Bentsen, Jr., the CEO of the Securities Industry and Financial Markets Association.

Gensler is generally regarded as a major contrast with his predecessor under the Trump administration, Jay Clayton. While Clayton was known for a more laissez-faire approach to regulation, Gensler carries the reputation of a chief dedicated to writing rules. He has faced criticism for “overregulation,” which is common among chairs who take a tough regulatory stance.

During the hearing Gensler was pressed by Rep. Wagner on the agency’s intentions to rewrite Regulation Best Interest, another hot button issue.  According to Gensler, “It’s not on our unified agenda.” 

Reg BI was finalized in 2019 and is designed to increase protection for investors by establishing a standard of conduct for broker-dealers regarding their fiduciary relationship with investors.

A second separate letter from Financial Services Committee member, Rep. Byron Donalds R-Fla., addressed to Gensler laid out concerns that the SEC is in the process of tweaking Reg BI.

“We commend Rep. Donalds for his outspoken leadership on this critical issue,” said Chris Iacovella, CEO of the American Securities Association. “Congress is right to have concerns that this SEC seems to be on a crusade to weaken the investor protections in Reg BI. Rewriting Reg BI would frivolously waste taxpayer money, setback every American seeking financial independence, and end investors’ personal choice over how to invest their money. ASA opposes any changes to a rule that works.” 

The Committee and Gensler also tussled over banking failure concerns, consolidated audit trails, security swap regulations, mortgage insurance linked notes, short selling, and climate risk disclosures.  

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