SEC Chair Gensler, Commissioners Venture to Capitol Hill to Testify

In late September, Securities and Exchange Commission (SEC) Chair Gary Gensler appeared in front of the House Financial Services Committee alongside all four SEC Commissioners. The hearing covered a variety of topics including closed-end funds, crypto assets and custody, the pace of rulemaking, Treasury clearing rules, short selling, access to capital, artificial intelligence, and cybersecurity, among other issues. In his opening remarks, House Financial Services Committee Chair Patrick McHenry (R-NC) noted, “It’s not just the courts that have taken issue with Chair Gensler’s reckless agenda. More than 250 Members of Congress from both parties have signed dozens of letters opposing actions taken by the SEC.” Ranking Member Maxine Waters remarked the Commission’s strong enforcement actions have returned nearly $1 billion for investors.

In her questioning, Representative Ann Wagner (R-MO) noted that through informal guidance the Commission staff have prohibited a closed -end fund from investing more than 15% of its assets into private funds. She highlighted that much of the growth in the markets comes before a company goes public and that retail investors do not have equal access to these markets. Representative Wagner noted that the Increasing Investor Opportunities Act (HR 2627) would overturn this informal guidance. She asked how the Commission could prevent retail access to these markets. Commissioner Mark Uyeda noted frustration with this staff position and that opportunities should be given to retail investors to take advantage of these markets.

When asked about swing pricing, Gensler noted the number of comments in opposition, and further added that until the banking regulators address asset flows into collective investment trusts (CITs) the Commission has a “hold on this.” While discussing artificial intelligence, Chair Gensler remarked, “AI is one of the most transformative technologies of our time,” but added “it does present challenges.” He noted there exists inherent risk around technology, including the concentration of financial services using two major Cloud providers, as well as risk in how entities are utilizing AI technology, as they do so in numerous ways. In another portion of the hearing when discussing digital assets, Commissioner Hester Peirce remarked the agency has “fallen down on our duty as a regulator.” In response, Gensler contended the Howey test is still clear as a framework for securities regulation.

Click here to watch an archived video of the House Financial Services Committee hearing.