ICYMI – WSJ: Gary Gensler’s SEC Regulation Raceway

Recently, the Wall Street Journal published an editorial criticizing U.S. Securities and Exchange Commission Chairman Gary Gensler for limiting public comment periods on proposed rules to just 30 days. This shortened comment period applies to a pair of complex proposed rules that would expand SEC control over private markets.

Last week, the American Investment Council released a letter filed with the SEC calling on the agency to withdraw its proposal to create new burdensome rules for private fund advisers. In the letter, the AIC questions the SEC’s authority to issue the rules and outlines numerous concerns about the implications for businesses, workers and retirees who rely on the private funds industry for capital or investment returns.

The full editorial from The Wall Street Journal can be found below.

Gary Gensler’s SEC Regulation Raceway
The Wall Street Journal
By the Editorial Board
April 29, 2022

Progressives lobbied President Biden to appoint Gary Gensler as Securities and Exchange Commission Chairman because of his record as a hell-for-leather financial regulator during the Obama days. But now even some House Democrats are asking the Chairman to tap the brakes.

“We write to express concern over some of the Securities and Exchange Commission’s comment periods for complex rulemakings that may hamper the ability for the public to provide effective and meaningful input,” 47 House Members, including 28 Democrats, wrote Mr. Gensler recently. They cite two new proposed rules that would expand SEC control over private markets.

One rule would impose stringent disclosure requirements for fees, expenses and annual independent audits on private fund advisers that are similar to those for public advisers. A second would require private funds to report more information to the SEC about investment losses, among other things, supposedly so the agency can monitor systemic financial risks.

Consuming a combined 600 pages in the federal register, the draft rules represent an enormous power grab for an agency whose purpose is to protect mom-and-pop investors from fraud—not sophisticated investors from risks they willingly take. House Members warn “these rulemakings will have complex and sweeping effects on the industry and its stakeholders.”

The rule-makings aren’t exactly beach reading and will require teams of lawyers and analysts to sort through their implications. Yet Mr. Gensler provided a mere 30 days for public comment. “This abbreviated period will likely hinder engagement from Congress, investors, and other market participants,” the House Members write.

House Members want Mr. Gensler to extend the public comment period to at least 90 days, which was the norm for highly complicated rules during previous administrations. The Office of the Federal Register suggests that agencies may provide up to 180 or more days for “complex” rule-makings. Mr. Gensler’s drive-by regulation seems to be a pattern.

Energy companies this week also asked Mr. Gensler to extend the 60-day public comment for a proposed 506-page climate disclosure rule, which would require businesses to report their greenhouse gas emissions including those of their suppliers and customers. “SEC should give the public ample time to consider the full impacts of this wide-ranging rule designed to deny financing to the energy sources that meet 80% of global demand now and well into the future,” they write.

Under the Administrative Procedure Act, agencies must take into account public comments. If they disagree with the comments, they have to explain why. A short public comment period will mean fewer detailed comments, which will let the agency finalize the proposals faster with few changes.

The SEC has undertaken more than 50 rule-makings that would affect nearly every investor and public company in America, and many private ones too. Mr. Gensler is rushing to complete as many of them as he can before next January, when Republicans appear likely to take control of the House and could use their appropriations power to rein him in.

While the Congressional and business objections may not get Mr. Gensler to slow down, they could encourage an eventual legal challenge. Judges might not look fondly on Mr. Gensler ignoring Congress’s warning about following proper regulatory procedure.