Tag: SEC Chair Gary Gensler
Gensler remarks on market stability
In remarks at an open meeting of the SEC this week (focused on proposals related to cybersecurity and data protection in the markets), SEC Chair Gary Gensler’s opening remarks addressed the bank failures of last week in the context of enforcement and market stability.
After bank failures, SEC Chair reassures that the SEC is on the job
So far, the SEC has been rather quiet about the impact of last week’s bank failures. Here is a brief statement from SEC Chair Gary Gensler.
PCAOB gains “unprecedented access” to inspect audit firms in China
You might recall that, for well over a decade, the PCAOB has been unable to fulfill its SOX mandate to inspect audit firms in “Non-Cooperating Jurisdictions,” including China. Years of negotiation failed to resolve the deadlock over audit inspections and, in 2020, the Holding Foreign Companies Accountable Act amended SOX to prohibit trading on U.S. exchanges of public reporting companies audited by audit firms located in foreign jurisdictions that the PCAOB has been unable to inspect for three sequential years. (See this PubCo post.) According to the U.S.-China Economic and Security Review Commission, as of March 31, 2022, Chinese companies listed on the three largest U.S. exchanges had a total market capitalization of $1.4 trillion. (See this PubCo post.) As a result, the trading prohibitions of the HFCAA were poised to have a substantial impact. After passage of the HFCAA, more negotiations ensued, and, in August, the PCAOB took an initial step by signing a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China governing inspections and investigations of audit firms based in China and Hong Kong. (See this PubCo post.) But that was viewed as just an opening; as SEC Chair Gary Gensler phrased it, the “proof will be in the pudding. While important, this framework is merely a step in the process. This agreement will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China. If it cannot, roughly 200 China-based issuers will face prohibitions on trading of their securities in the U.S. if they continue to use those audit firms.” To the surprise of many, last week, the PCAOB announced that it had secured unprecedented access to conduct these inspections. According to PCAOB Chair Erica Williams, for “the first time in history, the PCAOB has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. And this morning the Board voted to vacate the previous determinations to the contrary. This historic and unprecedented access was only possible because of the leverage Congress created by passing the Holding Foreign Companies Accountable Act. Congress sent a clear message with that legislation that access to U.S. capital markets is a privilege and not a right, and China received that message loud and clear. Investors are more protected today because of Congress’ leadership….” However, she added, she wanted “to be clear: this is the beginning of our work to inspect and investigate firms in China, not the end. The PCAOB is continuing to demand complete access in mainland China and Hong Kong moving forward. Our teams are already making plans to resume regular inspections in early 2023 and beyond, as well as continuing to pursue investigations.” What is the impact? To remove, at least for now, the immediate peril of delisting from U.S. exchanges that was threatening many U.S.-listed China-based companies.
Happy Holidays!
Jon Stewart interviews SEC Chair Gary Gensler—an acronym bonanza?
Here’s an unexpected pair: Jon Stewart interviewing SEC Chair Gary Gensler on his podcast, The Problem with Jon Stewart. In many ways, the interview was remarkably financially sophisticated, with acronyms like “PFOF” tossed around pretty casually, not to mention “naked shorts,” “best execution,” “dark pools” and “lit markets.” Somebody definitely did his homework.
SEC Chair Gensler faces Senate Committee—will the SEC moderate Scope 3 disclosure requirements?
Last week, SEC Chair Gary Gensler gave testimony before the Senate Banking, Housing and Urban Affairs Committee. While his prepared testimony largely revisited familiar themes, the Committee’s questioning offered a bit more insight. Committee Chair Senator Sherrod Brown cautioned at the outset that Republicans have “bellyached”—and he assumed would today—about Gensler’s “ambitious agenda,” but added that, “if Wall Street and its allies are complaining,” that means Gensler is doing his job. And right on cue, Ranking Member Senator Pat Toomey cast doubt on recent SEC actions that, he said, raised questions about how well the SEC was handling its responsibility to facilitate capital formation. Where was the SEC, he asked, when some crypto lending platforms “blew up,” resulting in billions in losses? And while the SEC has failed to provide regulatory clarity for the crypto market, he contended, it has instead been busy proposing many controversial and burdensome rules that are outside the SEC’s mission and authority. After West Virginia v. EPA (see this PubCo post), he warned, the SEC should consider itself to be on notice from the courts. In particular, some on the Committee—on both sides of the aisle—took aim at the SEC’s climate disclosure proposal—particularly Scope 3 disclosure—and Gensler’s responses made clear that he heard the criticisms, both from the Committee and from commenters, and that there would be some changes to the proposal as the SEC tries to “find a balance.” But far would those changes go?
Is the stand-off with Chinese regulators regarding inspection of auditors over?
For well over a decade, the PCAOB has been unable to fulfill its SOX mandate to inspect audit firms in “Non-Cooperating Jurisdictions,” or “NCJs,” including China. To address this issue, in December 2020, the Holding Foreign Companies Accountable Act, was signed into law. The HFCAA amended SOX to prohibit trading on U.S. exchanges of public reporting companies audited by audit firms located in foreign jurisdictions that the PCAOB has been unable to inspect for three sequential years. (See this PubCo post.) The U.S.-China Economic and Security Review Commission reported that, as of March 31, 2022, Chinese companies listed on the three largest U.S. exchanges had a total market capitalization of $1.4 trillion. As a result, the trading prohibitions of the HFCAA could have a substantial impact. Years of negotiation to resolve the deadlock over audit inspections notwithstanding, China and Hong Kong have still not permitted PCAOB inspections, largely because of purported security concerns. (Interestingly, the WSJ reported that, in a “departure from what officials have said previously, the Chinese stock regulator said on Friday that audit working papers generally do not contain state secrets, individual privacy, companies’ vast user data or other sensitive information.”) In May, in remarks to the International Council of Securities Associations, YJ Fischer, Director of the SEC’s Office of International Affairs, indicated that, although there had been progress, “significant issues remain[ed],” and reaching an agreement would be only “a first step.” In other words, there was still “a long way to go.” On Friday, however, the PCAOB took that first step by signing a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China governing inspections and investigations of audit firms based in China and Hong Kong. According to a statement from SEC Chair Gary Gensler, the “agreement marks the first time we have received such detailed and specific commitments from China that they would allow PCAOB inspections and investigations meeting U.S. standards.”
SOX at 20! Happy birthday SOX!
SEC Chair Gary Gensler may just have some paternal affection for SOX, especially on the week of its 20th birthday. In these remarks to the Center for Audit Quality, he recalls having “a front-row seat” for the negotiations and signing of the bill, working as Senior Advisor to the late Senator Paul Sarbanes on this legislation. The bill passed the House almost unanimously and the Senate by a vote of 99 to 0—hard to imagine that ever happened, let alone only 20 years ago. In giving SOX its 20-year review, he discusses the significant role SOX played in restoring public trust in the financial system after the Enron and WorldCom scandals, but also offers some, let’s say, opportunities for improvement. (He also drops the hint that the SEC may be taking a “fresh look at the SEC’s auditor independence rules.”)
Is the SEC’s new climate proposal within the traditions of the SEC disclosure regime?
Earlier this week, SEC Chair Gary Gensler gave the keynote address for an investor briefing on the SEC Climate Disclosure Rule presented by nonprofit Ceres. In his remarks, entitled “Building Upon a Long Tradition,” Gensler vigorously pressed his case that the SEC’s new climate disclosure proposal (see this PubCo post, this PubCo post and this PubCo post) was comfortably part of the conventional tapestry of SEC rulemaking. Growing out of the core bargain of the 1930s that let investors “decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” Gensler observed, the SEC’s disclosure regime has continually expanded—adding disclosure requirements about financial performance, MD&A, management, executive comp and risk factors. Over the generations, the SEC has “stepped in when there’s significant need for the disclosure of information relevant to investors’ decisions.” As has been the case historically, the SEC, he insisted, “has a role to play in terms of bringing some standardization to the conversation happening between issuers and investors, particularly when it comes to disclosures that are material to investors.” The proposed rules, he said, “would build on that long tradition.” But has everyone bought into that view?
The ongoing debate at the SEC: just how tough should the climate disclosure rule be?
Who doesn’t love the latest gossip—I mean reporting—about internal squabbles—I mean debate—at the SEC? This news from Bloomberg sheds some fascinating light on reasons for the ongoing delay in the release of the SEC’s climate disclosure proposal: internal conflicts about the proposal. But, surprisingly, the conflicts are not between the Dems and the one Republican remaining on the SEC; rather, they’re reportedly between SEC Chair Gary Gensler and the two other Democratic commissioners, Allison Herren Lee and Caroline Crenshaw, about how far to push the proposed new disclosure requirements, especially in light of the near certainty of litigation, and whether to require that the disclosures be audited. Just how tough should the proposal be? The article paints the SEC’s dilemma about the rulemaking this way: “If its rule lacks teeth, progressives will be outraged. On the flip side, an aggressive stance makes it more likely the regulation will be shot down by the courts, leaving the Biden administration with nothing. Either way, someone is going to be disappointed.”
More heat about comment periods—is it a portent of something more?
SEC Chair Gary Gensler has certainly heard from Republicans with some frequency about proposal comment periods that they consider too abbreviated. The charge is that, under Gensler’s tenure, the time periods allowed for public responses to voluminous and complex proposals—which were initially set at 30 days, and then, in response to complaints, extended for a longer period under a slightly more complex formulation—just don’t leave enough time for public review and comment. (Of course, the not-very-secret secret is that the SEC typically accepts comments submitted well after the deadlines.) SEC Commissioners Hester Peirce and Mark Uyeda, as well as former Commissioner Elad Roisman, have all taken on the issue (see the SideBar below). And it’s not just commissioners that have tackled the comment period issue— Republicans in Congress have also voiced disapproval. Now, as reported by Politico, in a September 13 letter that has recently surfaced, a group of 12 Senate Democrats have joined the chorus. Although the letter is focused on the duration of comment periods, according to Politico, “Senate Democrats are privately urging SEC Chair Gary Gensler to slow work and take more time for feedback on a slew of regulations rattling Wall Street, as tensions surrounding the agency’s Biden-era agenda reach a boiling point.” Are problems with the comment period signaling a larger issue?