Reuters has reported that former CFTC Chair Gary Gensler will be President-elect Biden’s choice for SEC Chair. According to the article, in light of his “reputation as a hard-nosed operator willing to stand up to powerful Wall Street interests”—notwithstanding his former life as an investment banker—the appointment is “likely to prompt concern” among some that he will promote “tougher regulation.” The NY Post attributed his nomination to the most recent Democratic wins in the Senate, which allowed selection of “the more progressive candidate. Only two weeks ago, people close to the Biden transition team had penciled in centrist Robert Jackson Jr….as the SEC frontrunner because he was seen as more likely to win confirmation by a GOP-controlled Senate.”  Jackson is a former Democratic SEC Commissioner appointed in 2017. Gensler is an MIT professor and has been leading the Biden transition planning for financial industry oversight.

The WSJ reported that “Mr. Gensler’s nomination would please liberal Democrats who cheered the former regulator’s tough approach to rule-making during the Obama administration, when he spearheaded the overhaul of derivatives markets mandated by the 2010 Dodd-Frank Act and oversaw enforcement actions against investment banks accused of manipulating benchmark interest rates.” As head of the CFTC, he implemented extensive new swaps trading rules and, according to the Washington Post, “gained a reputation as a tough regulator by issuing hefty fines over the Libor currency manipulation scandal.”

Commentators cited by the WSJ expressed hope that the SEC under Gensler would move quickly to undo recent policy changes, including the recent changes to the shareholder proposal rules and harmonization of private offering exemptions. (See this PubCo post.) The WSJ expects that, under an SEC with a Democratic majority, other priorities may “include requiring companies to disclose more information about risks related to climate change and about workforce diversity and political contributions.” The Washington Post reported that representatives of conservative think tanks have already issued statements “urging the SEC under Gensler not to pursue new reporting standards on environmental, governance or other social questions.”

According to Reuters, “Gensler is expected to take a tough line on enforcement, and to pursue rules that address Democratic policy priorities on such issues as climate change and social justice. In particular, policy experts expect Gensler will pursue new corporate disclosures on climate change related-risks, political spending, and the composition and treatment of their workforces. Democrats also are keen to reverse new investment advice protections which they say do more harm than good, to restore some shareholder rights, and complete post-crisis executive compensation curbs.”  

The NYT also identified standardized political spending disclosure as likely to be a high priority of the new administration. In addition, the NYT expects new rules about “stock buybacks, potentially by imposing preconditions or more disclosures”; requirements for more disclosure about board diversity, comparable perhaps to the recent Nasdaq proposal (see this PubCo post); mandatory climate risk disclosures and “clearer rules on cryptocurrencies and the blockchain, an issue that Mr. Gensler is uniquely qualified to address, having taught courses about digital money at M.I.T. the past few years.”

Political spending disclosure shows up high on everyone’s list of expected actions. That may be in part because issues regarding political donations have been thrown into sharp relief recently in light of the stands taken by a number of companies to pause or discontinue some or all political donations in response to the horrific events of last week. Keep in mind, however, that Section 631 of the most recent appropriations act, the ‘‘Consolidated Appropriations Act, 2021,’’ prohibits the SEC from using any of the funds made available “to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions,  contributions to tax exempt organizations, or dues paid to trade associations.” Similar provisions to that effect have been included in appropriations bill for several years and have even been sticking points in negotiations. (See, e.g., this PubCo post and this PubCo post.) Unless Congress acted—and the provision would be repealed if the current version of HR 1, For the People Act of 2021, were signed into law—there could be a delay in adopting political spending disclosure requirements at least until the next round of appropriations.

Posted by Cydney Posner