SEC’s Regulatory Agenda and New Chairman Gensler

President Gary Gensler

On April 17, 2021, Gary Gensler was sworn in as the new SEC chairman. Mr. Gensler was previously chairman of the US Commodity Futures Trading Commission.

Chairman Gensler has publicly identified a number of regulatory priorities in congressional comments and speeches. In May 2021, Chairman Gensler testified before the US House Appropriations Committee about the breadth and scope of capital markets, including the growth in the number of registered advisors and the need for additional resources at the SEC. The Investment Management division (IM division) has since requested an increase in its budget to hire 15 additional full-time employees in fiscal 2022 to monitor markets, assess industry risks and support investigations. The IM division currently has 221 employees.

Chairman Gensler has announced plans to increase investor protections, particularly with regard to cryptocurrency. He has expressed the need for regulators’ authority to oversee crypto investments in the market, stating that he believes many cryptocurrencies qualify as securities and should fall within the purview of the SEC. Chairman Gensler also announced plans to address the rise in meme stock trading and order flow payment (in which broker-dealers route retail orders in exchange for payments), as well as environmental, social and governance (ESG) investments by funds and disclosures. of public companies on climate risk.

Chairman Gensler also noted the need to update transparency rules, such as the beneficial ownership reporting rules under Section 13(d) of the Securities Exchange Act and the associated reporting deadline. He has also expressed the need for more robust disclosures about securities-based swaps, citing recent defaults by the Archegos Capital Management family office. Separately, the IM division recently included an item on its regulatory flexibility agenda that the division is considering recommending that the SEC propose changes to the family office rule (Rule 203(m)-1) under the Investment Advisers Act, indicating that additional regulation may be forthcoming.

SEC regulatory agenda

On June 11, 2021, the SEC announced an update to its regulatory agenda for 2021, which includes the following regulatory topics:

• Change of retention rule for advisers

• Changes to the cross trading rule for funds (Rule 17a-7 under the Investment Company Act)

• Money Market Fund Reform

• ESG-related rules for advisors and funds

• Liquidity and Dilution Management of Open-End Funds

• Advice on proxy voting

• Public company disclosures related to climate risk, workforce diversity, board diversity and cybersecurity risk

• Modernizing the market structure within equity, treasury and other fixed income markets

• Transparency around share buybacks, short sale disclosure, ownership of securities-based swaps and the equity lending market

• Unfinished work under the Dodd-Frank Act, including rules around securities-based swaps and reward-based compensation schemes

• Special purpose acquisition companies (SPACs)

There are 49 items on the new regulatory agenda at various stages (pre-rule, proposed rule, and final rule). Given the recent focus of regulators on ESG investing, as discussed below, we expect regulation in this area for registered funds and advisors in the near future.

Sources: Gary Gensler sworn in as a member of the SEC, SEC Press Release 2021-65 (April 17, 2021); SEC Announces Annual Regulatory Agenda (June 11, 2021); CFTC Former Chairman of the Board Gary Gensler; Testimony to the Subcommittee on Financial Services and Government, US House Appropriations Committee (May 26, 2021); US SEC chairman signals major overhaul of stock exchange, brokerage rules (June 9, 2021); Dave Michaels and Alexander Osipovich, SEC to Review Market Structure as Meme Stocks Stir Frenzy, The Wall Street Journal (June 9, 2021), available by subscription; Jesse Pond, SEC Chair Gary Gensler Says More Investor Protection Is Needed For Bitcoin And Crypto Markets, CNBC (May 7, 2021); Prepared comments during London City Week, Speech (June 23, 2021); Regulatory Flexibility Agenda (March 31, 2021).