SEC fall rulemaking list draws Republican commissioner criticism over priorities

The recently released updated list includes many of the agenda items the SEC put forth in the spring. Beyond mandating ESG disclosures, the agency has also proposed:

• A rule for investment companies and investment advisers on ESG-related claims and disclosures made regarding certain funds;
• Rules to address identified market weaknesses exposed by the “meme stocks” craze, including the effect on the market of short sellers, gamification of stock purchases, and payment for order flow;
• A rule to examine whether special purpose acquisition companies (SPACs) are structured to favor certain investors over others; and
• Implementation of 11 rules from the Dodd-Frank Act of 2010 that are still not completed.

Adding further context to the list is a question-and-answer interview SEC Chair Gary Gensler conducted with the Wall Street Journal published Sunday. In the interview, Gensler indicated the agency will delay publication of its eagerly anticipated rulemaking on climate change disclosures for public companies until at least January. Other rulemaking that will mandate disclosures on human capital management and cyber risk will also be published in the new year, he said.

Gensler also noted the agency is seeking to align its climate change disclosure rule with an international framework and mentioned the Task Force on Climate-Related Financial Disclosures (TCFD). Such a prominent mention of the TCFD framework could provide a window into the SEC’s thinking about areas to which the new climate change disclosures will be pegged.

Commissioner criticism

The SEC’s updated agenda was criticized by Republican Commissioners Hester Peirce and Elad Roisman for failing to include “any items intended to facilitate capital formation and miss[ing] opportunities to foster fair, orderly, and efficient markets and further investor protection,” they wrote in a joint statement published Monday.

“Instead, the agenda is brimming with plans to redo recently completed rules, add new regulatory obligations, and constrain investor choice,” they added.

Peirce and Roisman said Gensler’s rulemaking list will restrict choices for small- and mid-sized companies seeking to raise capital, particularly the SEC’s proposal to lower thresholds at which an issuer is required to register a class of securities with the Commission.

“Lowering these thresholds may both contradict the express will of Congress and potentially undermine our mission to facilitate capital formation,” they wrote. “A likely unintended consequence of lowering thresholds will be to limit the opportunity of employees, smaller investors, and other non-institutional investors to invest in promising businesses.”

The Republican commissioners were also critical of the agenda’s failure to provide any more clarity on digital assets and cryptocurrency.

“… [T]he Agenda—through its silence on crypto—signals that the market can expect continued questions around the application of our securities laws to this area of increasing investor interest,” they wrote. “Such silence emboldens fraudsters and hinders conscientious participants who want to comply with the law.”

During his Q&A with the Wall Street Journal, Gensler reinforced his previous statements (and the SEC’s position in several legal battles) that digital currencies should be regulated by the agency.

“With regard to these digital currencies, if you’re still raising money from the public, that still comes under the securities laws,” he said.

Gensler and the SEC’s Democratic majority have also proposed re-examination of several rules passed while Jay Clayton was chairman during the Trump administration.

Potential targets include controversial rules laying out what commercial oil, natural gas, and mineral extraction companies must disclose about payments they make to U.S. and foreign governments and amendments to its popular whistleblower program meant to limit the size of large awards.

“Not only are the Commission’s most recent amendments to each of these rules barely or less than a year old; none have been effective for more than a few months,” Peirce and Roisman wrote. “As we said when we initially raised these concerns, we have not seen any new information that would warrant opening up any of these rules for further changes at this time. So, why the rush to revisit them?”