Today, SEC Chair Gary Gensler is set to testify before the House Financial Services Committee. This hearing is expected to be intense, as the Republican-controlled committee has been critical of Gensler’s aggressive approach to rule-making. Gensler’s actions have thrust the SEC into the climate debate and have also impacted the digital asset sector. Additionally, his politically charged path may have consequences for private firms’ ability to raise capital.
When it comes to cryptocurrency, Gensler has chosen a regulatory approach that relies on enforcement rather than seeking recognition as a transformative leader. He has opted for a simplified compliance strategy, categorizing all digital assets as securities. Gensler defends this position by emphasizing that the crypto asset securities markets require protection under our securities laws. He points out that Congress included a comprehensive list of items, including the term “investment contract,” in the definition of a security. Gensler suggests that the majority of crypto tokens meet the criteria to be classified as investment contracts and, therefore, subject to securities laws. This means that most intermediaries dealing with cryptocurrencies must comply with these regulations as well.
Regarding ESG (Environmental, Social, and Governance) matters, Gensler presents the SEC’s expansion into the climate debate as an effort to address climate risk. However, he contradicts himself by acknowledging the need for climate disclosure to help investors make informed decisions. Unfortunately, this push for expanded climate disclosure will result in increased costs for both public and private firms. Ultimately, these costs will be passed on to consumers, which could undermine economic activity.
The hearing memo details the numerous issues that the committee is expected to address. The prepared testimony, a longer version of what Chair Gensler will present at the beginning of the hearing, can be found below.
The hearing, scheduled to begin at 10 AM today (September 27, 2023), can be watched on the committee’s website.
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