Regulatory veteran may seek greater disclosures and investor protection measures and clamp down on SPACs.
Regulatory veteran Gary Gensler was nominated by Joe Biden while he was still president-elect to lead the US Securities and Exchange Commission (SEC), a move that is likely to lead to tougher oversight of the securities industry.
Many in the securities industry have none too fond memories of Mr Gensler, who headed up the US Commodity Futures Trading Commission (CFTC) from 2009 to 2014 where he imposed greater transparency requirements on the derivatives industry. He also championed the Volcker Rule, which restricted certain bank proprietary trading activities and curbed exposures to certain types of alternative funds. The former Goldman Sachs banker also keenly pursued firms that broke rules landing them with large fines.
“Mr Gensler is a knowledgeable and experienced choice. As chair of the CFTC during the Obama administration, [he] earned a reputation as an aggressive regulator following the financial crisis, particularly in his pursuit of the Libor (London interbank offered rate) manipulation cases,” said Paul Hastings litigation partner Nicolas Morgan. “On the other hand, he does not have the criminal prosecution background that Mary Jo White [a former SEC chair] had, which may suggest a more career regulator approach than a 'tough on crime’ approach.”
Greater disclosures
Industry sources have speculated that Mr Gensler may prioritise clamping down on the flurry of special purpose acquisition companies (SPACs), or blank cheque companies, and will drive greater disclosures and investor protection measures, and look into some fund fee structures. Another area of focus is likely to be on highlighting environmental, social and governance (ESG) factors and possibly crypto currencies, an area where he is an expert. Indeed, the SEC said it is hiring Satyam Khanna to fill the newly created position of policy adviser for climate and ESG.
“[Mr Gensler’s] regulatory approach to swaps is a good indicator of how he may approach more esoteric instruments at the SEC, including digital assets. This would be a positive development for those who believe the lack of regulation is hampering growth of the digital asset space,” said Ashley Ebersole, a partner at Bryan Cave Leighton Paisner and former SEC enforcement attorney. He explained that Mr Gensler spent much of the post 2007-09 global financial crisis period dealing with complex derivatives instruments and the Libor scandals.
[Mr Gensler’s] regulatory approach to swaps is a good indicator of how he may approach more esoteric instruments at the SEC, including digital assets
Some experts think he will toughen the Regulation Best Interest (RegBI), the broker investment standard implemented by his predecessor, Jay Cayton, and believed by its critics to be insufficient to protect consumers.
“So you’d expect the SEC to continue its laser focus on consumer protection, including through an aggressive enforcement posture,” said Mr Ebersole.
“We welcome the news of Gary Gensler’s nomination, and hope he will bring changes to the SEC to ensure the US markets are resilient in the face of climate change,” said Mindy Lubber, CEO and president of the sustainability nonprofit organisation Ceres. She called on Mr Gensler to establish mandatory, consistent, industry-wide rules for climate change disclosure immediately.
If Mr Gensler is confirmed by the Senate, the Democrats will have a three to two majority at the SEC. He is also popular with the progressive wing of the Democratic party including with the likes of senator Elizabeth Warren.
This article first appeared in The Banker’s sister publication Global Risk Regulator.
