SEC Chair Gary Gensler will face a potentially contentious hearing when he testifies before the House Financial Services Committee on Capitol Hill this week. The hearing, which is expected to be robust, will address a range of issues that Gensler has been pursuing, many of which are at odds with the current House leadership.
One of the key topics outlined in the hearing memo is the recently issued Staff Accounting Bulletin No. 121. This bulletin requires reporting entities engaged in digital asset custodial activities to record a liability with a corresponding asset. The SEC’s proposed rulemaking to modify the definition of “exchange” to include “communication protocol systems” is also on the agenda, which would expand the SEC’s authority over digital asset trading platforms.
Another important issue is the SEC’s proposed changes to safeguarding advisory client assets. These changes would require SEC-registered investment advisers to store all clients’ assets, including digital assets like Bitcoin, with “qualified custodians.” The proposal also includes requirements for a written agreement between custodians and advisers, increased examination requirements, and enhanced recordkeeping rules.
Climate-related disclosures are also a focus, with the SEC proposing a 500-page rule that would require publicly traded firms to disclose detailed emissions data and climate risk management strategies. The rule would also mandate certain companies to disclose greenhouse gas emissions from their supply chains.
Cybersecurity disclosures are another concern, with the SEC adopting final rules that require public companies to disclose cybersecurity incidents within four business days. The proposed amendments to Rule 14a-8, which governs shareholder proposals included in proxy statements, are also on the agenda, potentially altering the rate at which these requests are granted.
Equity market structure is another area of focus, with the SEC releasing four proposals that would overhaul regulations governing equity markets. These proposals aim to make significant changes to how national market system stock orders are priced, executed, and reported.
During the hearing, Chair Gensler will also address proposals related to position disclosure, open-end fund liquidity risk management, conflicts of interest associated with predictive data analytics, investment company names, money market fund reforms, and enhanced disclosures for investment advisors and investment companies regarding ESG practices.
The upcoming hearing comes as the Commission prepares to change the Definition of an Accredited Investor, Form D filings, and regulations under 12G. These changes could undermine private markets in the US, which are crucial for innovation, economic activity, and wealth creation.
The Republican-controlled committee has expressed dissatisfaction with Gensler’s tenure as SEC Chair, and some Democrats have also questioned some of his policy decisions. The hearing will be live-streamed on the Committee website on September 27, 2023, starting at 10 AM ET.
Overall, this hearing presents an opportunity for Chair Gensler to defend and provide further insight into the various policies and proposals pursued by the SEC under his leadership.
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