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House Committee on Appropriations, Subcommittee on FSGG Hearing on the FY23 Budget Request for the SEC and FTC

House Committee on Appropriations, Subcommittee on Financial Services

and General Government

FY23 Budget Request for the Securities and Exchange Commission and

the Federal Trade Commission

Wednesday, May 18, 2022

Topline

  • The largely hearing focused on the Securities Exchange Commission’s (SEC) short rulemaking and comment periods and cost-benefit analysis, climate disclosure and materiality standard, Consolidated Audit Trail (CAT), registered investment advisors, and cryptocurrency.
  • In his opening statement, Chairman Mike Quigley (D-Ill.) discussed the issue of short comment periods and the need for the SEC to ensure robust public engagement.
  • In his opening statement, Ranking Member Steve Womack (R-Ark.) discussed the SEC’s aggressive rulemaking agenda and said now is not the time to further burden the economy with rulemakings that saddle American business with new costly requirements.
  • Gensler focused on ways to enhance efficiency, resiliency, and transparency of the markets and feels the Commission is giving adequate time for public comment on proposed rules.

Witnesses

Opening Statements
Chairman Mike Quigley (D-Ill.)

In his opening statement, Quigley suggested that the SEC and FTC serve to protect consumers across vast parts of the economy. He said they set rules for corporate America and make sure Americans have the information to make prudent decisions. He applauded both chairs for reinvigorating their agencies. He discussed the responsibilities of each Commission and the investigations both oversee. He also briefly discussed the budget request for each agency and stated that he was pleased to see that the SEC recently extended some of its comment periods. He said robust public engagement ensures that critical feedback can be provided in the rulemaking process and minimizes the risk of costly litigation. He concluded by encouraging the SEC to consider further changes to ensure substantial public comment.

Ranking Member Steve Womack (R-Ark.)

In his opening statement, Womack said the current economy is fragile from recovering from the pandemic, experiencing inflation, and struggling with supply chain issues. He said now is not the time for federal regulators to further burden the economy with rulemakings that saddle American business with new costly requirements. He discussed the responsibilities of each Commission and their budget requests. He said the SEC is moving forward with an aggressive partisan agenda with rules that are complex and have a far-reaching impact. He also discussed the short comment periods the SEC is giving the public and said they do not provide a sufficient time for the public to comment and to provide in-depth analysis of the potential impact of a rule. He added that short comment periods give the impression that the SEC has already determined the outcome and is not really interested in public input. He commended the SEC for extending the comment period for a few proposed rules but stated that the SEC is trying to do too much too quickly. He concluded by discussing his concern that the SEC is involved in areas that are outside of its core mission, such as climate-change.

Testimony

The Honorable Gary Gensler, Chair, U.S. Securities and Exchange Commission

In his testimony, Gensler began his testimony by discussing two years in economic policymaking: 1933 and 1934. He said those two years were when the gold standard of securities law were enacted. Gensler stated that the Congress should do everything possible to can to maintain and enhance the gold standard of the markets. He gave Congress two ways to do so, one approach is to work with the Commission and staff to update their rules for modern markets and technologies and the second is to ensure that the SEC is adequately resourced so we can remain the cop on the beat. Gensler discussed the growth in the capital markets over the last five years and stated that as capital markets have grown, the SEC’s budget has shrunk. He also briefly discussed the budget for each division within the SEC and separate appropriations for the SEC’s new headquarters. He concluded by saying Congress must always think about ways to enhance the efficiency, resiliency, and transparency of our markets.

The Honorable Lina Khan, Chair, Federal Trade Commission

In her testimony, Khan stated addressed the Commission’s FY 2023 budget request, spotlighted the work the Federal Trade Commission is doing to ensure open, competitive, and fair markets on behalf of consumers, workers, and honest businesses, and highlighted some of the challenges the Commission is facing. She concluded by saying FTC remains committed to using its resources to effectively police unfair methods of competition, prevent unfair or deceptive practices, and enforce the laws Congress has tasked the agency with administering.

Question & Answer

Short Rulemaking and Comment Periods

Rep. Mark Amodei (R-Nev.) asked how large is the size of the SEC staff that handles the Commission’s rulemaking agenda. Gensler said there are currently some vacancies but that there are rulemaking units in each program office which are about six to ten people, plus the economic unit and general counsel office. Amodei asked if there is the same amount of staffing within the SEC as there has been in previous years and the comment periods are less, how could the current rulemaking agenda be good for the end product with less time for public comment. Gensler said the SEC received 120 Dodd-Frank mandates adding that the Commission has tried to publish proposed rules on their websites for 60 days from the time the Commission votes on the proposed rule. He said the Federal Register sometimes takes a week up to two months to publish a proposed rule on their website. Gensler said stated that the comment period deadlines are either 60 days from the date the proposed rule was published on the SEC website or a month after the rule has been published on the Federal Register, whichever is later. He concluded by saying he feels the Commission is giving adequate time for public comment.

SEC Cost-Benefit Analysis Requirement   

Womack asked Gensler how the SEC is properly conducting cost-benefit analysis with so many rulemakings underway. Gensler said when conducting a cost-benefit analysis the Commission considers efficiency, competition, and capital formation. He said those three things are taken into account on all of their proposals adding that the Commission takes a considerable amount of time putting together their proposals and publishing them for public comment. 

Climate Disclosure Rule and Materiality Standard

Rep. Dave Joyce (R-Ohio) asked how does the SEC’s proposed climate rule impact investments in America’s energy producers. Gensler said the SEC has a long-standing role to help the conversation between the issuers and investors. He said what is currently happening are companies already making disclosures around climate risks and greenhouse gas emissions. He added that the SEC should play the role of bring consistent comparability and that data standardization can help issuers. He concluded by saying said he is not a merit-based regulator; however, the goal is to bring standardization to climate disclosures which he believes helps both the issuers and investors. Joyce asked what the reporting requirements of smaller companies. Gensler said the rule relates to public issuers and public companies reporting not private companies reporting. He said the SEC has been careful to tailor smaller companies out of the proposal.  Joyce asked would smaller business be liable for calculating and reporting their greenhouse gas emissions if they are privately held. Gensler reiterated that they would not and other regulators outside the U.S. are doing this as well which adds responsibilities to U.S. issuers that may be conducting business outside the U.S. He said the SEC wants to get things right through economic analysis.

Joyce asked if public companies are already required to disclose information that presents a material risk to a company, including climate related risks. Gensler said yes adding that over the past several years the SEC has taken the opportunity to add standardization to various disclosures. Joyce asked if current SEC leadership no longer view’s the material standard as the corner stone of the securities disclosure regime. Gensler said everything the Commission does is guided by the material standard adding that the Commission looks at what a reasonable investor will find important in their investment decision.

Consolidated Audit Trail (CAT)

Womack asked what the SEC was doing to address security concerns of Personally Identifiable Information (PII) within the Consolidated Audit Trail (CAT). Gensler said the SEC is working to ensure that key parts of PII are no longer collected and that the SEC is working with the industry to finalize the rule regarding date security.

Registered Investment Advisors

Rep. Matt Cartwright (D-Pa.) asked what Congress could do to better understand what is going on with Registered Investment Advisors Arbitrations (RIAA). Gensler said the SEC will work with Congress on a plan to gather information about RIAA practices so that Congress can ensure that American investors dealing with RIAAs are sufficiently protected.

Crypto

Rep. Brenda Lawrence (D-Mich.) asked what new tools or resources the SEC will need to address increased financial risks associated with digital currencies. Gensler said digital assets has captured the attention of people around the globe and there are innovations around it adding that when one is raising money from the public there should be full and fair disclosure. He also said the SEC is working with crypto platforms to get them registered. Womack asked where the SEC currently stands in creating rules for crypto. Gensler said the SEC oversees an issuer marketplace and that the rules are clear that if one is raising money from the public in anticipation of a profit, that is a security. Womack asked how many resources the SEC allocates toward regulating crypto. Gensler said he wishes the SEC had more resources to investigate this but that the SEC, over the last six years, have brought about eighty-five or ninety enforcement actions. He said he would like to grow the enforcement division overseeing crypto. Joyce asked what kind of benefits does blockchain technologies provided to the financial services industry infrastructure. Gensler said the use of block chain technology is very limited adding that it is important to protect the public in this field. He said that very few have adopted blockchain technology because of the higher cost associated with keeping the database.

FTC Budget Request

Womack asked if there have been partisan disagreements on the FTC budget request in the past. Khan said yes. Womack asked about concerns of the FTC’s decline of sustainability under Khan’s leadership. Khan said trends are on par with previous years and said the deeper question is to examine what it means for the FTC to be an effective law enforcer. Quigly asked if the FTC has changed its enforcement procedures and policies as it relates to mergers and acquisitions. Khan said there has been a surge in deal makings and that it has caused enormous strain for the FTC. She said the FTC is working to prevent monopolies.

Inflation

Rep. Mark Pocan (D-Wis.) asked how the FTC is addressing the rise of food prices. Khan said the FTC has taken steps to investigate supply chain disruptions and have been hearing stories about economic discrimination within the supply chain. She said the FTC also has been reviewing how to prevent grocery store mergers. 

Staffing

Quigley asked what challenges both the SEC and FTC are facing to increase key staff positions. Gensler said there has been high turnover within the SEC adding that they are working to get to a 6% greater headcount than where they were in 2016. Khan discussed the FTC’s lower pay scale and said they are working on an expansion strategy to expand their regional offices to combat staff turnover effects.

Robocalls

Lawrence asked if the FTC would use every tool available to address the issue of robocalls. Khan said yes adding that unwanted calls are the source of the highest number of complaints the FTC receives. She said the FTC has been working closely with the Federal Communications Commission (FCC) on this issue given that they have jurisdiction over the carriers whose networks are being used for robocalls.

 

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.