Members question the fcc chair about Digital Currency, shareholder protection and climate related financial disclosures. This is an hour and a half. Today we will receive testimony from security and Exchange Commission chairman regarding the work and agenda of the fcc. I thank you for your willingness to appear before the committee today and mr. Clean your willingness to testify the borrower side of the fcc. You ca came before this committa year ago and am sure dusty would continue to take steps to ensure the Capital Markets remained the deepest and most liquid in the world. I commend you and the staff for your actions taken over the past year. Actions worth mentioning include the final rule package on regulation best interest which is great as the appropriate balance in increasing transparency and investors relationships while preserving access to the advice relationships and investment products. They also propose modifying the accelerated definition to reduce the number of registered subject to the requirement. I encourage the commission to move forward quickly to all smaller recording companies. This summer they issued a concept release seeking Public Comment on ways to harmonize the Securities Offering exemption regarding the concept release i encourage the fcc to revise the date to allow for the advertising sponsors such as the investor groups. The fcc should consider expanding the ability for Small Businesses to crowd the fund. The definition of an accredited expander should be modernized to account for qualifying expertise not simply the monetary threshold. And its important that the fcc update the definition of a Family Office to allow Family Offices and clients that meet certain threshold to be considered accredited investors. The committee has held a number of hearings during my chairmanship discussing the need for the scope and appropriateness of the proxy voting process. In other aspects of the corporate governance. I commend the commission for its actions relating to the process. In august, the fcc issued guidance to assist Investment Advisors in fulfilling their responsibilities when voting talks hes in the clarified the proxy voting is provided by the firms generally constituting a solicitation. In november after numerous roundtables the efforts led by the commissioner for the shareholder proposals i encourage you to continue moving forward with these efforts expeditiously following the Comment Period. Its going to be collected in this consolidated database. The plan participants wer wroteo the fcc to request the customer used ip instead of receiving and storing Social Security numbers. You previously expressed concerns of the information to be collected and stored and stated that you believe the regulatory objectives can be achieved without the most sensitive pieces of investor information. They made a modernization forward this year and i look forward to hearing about the hub for the financial technology. Welcome, chair clayton, nice to see you. Putting in place the Financial System and hardworking families around the economy at risk the fcc has flown under the radar but often the agenda has been seen taking their side over and over instead of the investors saving for retirement or college or down payment. Taken together. I appreciate the initiatives including those to protect teachers and military Service Members for the fraud and misconduct in financial advice. Youve done so much damage by adopting what you call regulation best interest under that rule and Brokerage Firms can disclose but dont have to eliminate the firm level conflicts. Iit should be simple they need o work for the people with whom they serve to follow the guidance to create a uniform fiduciary standard for the brokers and advisers which would be the best way to give them confidence that their interest comes first, but you didnt do that. That isnt the only part of dodd frank you were working to undermine. Look at the proposal to amend the Whistleblower Program one of the most successful programs created. We need to breathe workers to stand up to corruption and abuse when they see in their workplace Financial Companies scamming people were engaging in other activities. The only way they are ever able to stand up to powerful wall street firms is if we give them protection. Theyve increased in some years by more than 10 . But after the proposal in 2018 introduced the cab on the whistleblower awards, the number declined for the first time in 2019. The proposed cab they had to put out a statement to clarify. I know that whistleblower is a dirty word to sum in this town it always is to the serial wall breakers. I dont see how you can make changes in the progra a programs without understanding the decline as a result of your actions. Over the americans struggling to save and invest for the future both proposals get more difficult for the shareholders to hold Corporate Executives accountable. The proxy advisers make it harder for the traditional investorinvestors to have timels to independent research and analysis from the Advisory Firms they hire the rule would give corporations access to Investors Research be for the public Retirement Systems and Investment Fund managers and foundations that manage americans money. They say the changes necessary because of errors and accuracies but youve provided scant evidence of those errors and instead they would give companies the new tool to intimidate the proxy advisers and threatened their independence. The overhaul of the shareholder proposal would make it easy for the Corporate Management to avoid dealing with important issues critical to investors. They would stop proposals, could stop proposals for the votes on issues such as a disclosur the f the corporate political spending, separating the roles of the chair and ceo and nondiscrimination policies. Im disappointed in the directions youve taken on the rules that have for decades through president s of both parties and as a teacher of both parties allowed investors to hold management accountable all while executives were further entrenching themselves and protecting the hardearned savings should begin with a simple concept of putting their rights first. I hope the fcc will remember that. But over the last week and this week weve had the financial regulators come before the committee. Weve had the fed and the fdic all defending the same policies and corporate interests all afflicted with a collective and misha about what happened in the last decade or so. The president promised to look after the ordinary hardworking people that theyve put in charge of the agencies they betrayed the workers over and over again. I would like to offer for the record a letter for the retirement system raising concerns about the fccs rulemaking. Without objection. You may make your presentation. Thank you, mr. Chairman. Senator brown and members of the committee i appreciate the opportunity to testify about the work of the securities Exchange Commission. I want to start by thanking you for your support for the commission and its people. People. The dedicated women and men are the most important asset. With the resources congress provided last year weve been able to lift the freeze until around 140 new positions with highquality individuals that i believe will serve investors while. The interests of the main Street Investors have been front of my mind and with that perspective, the staff has long held i would like to highlight a few aspects of the work over the past year. First, modernization has been the key avenue for advancing all aspects of the mission. In june the Commission Adopted a package of rules and interpretations designed to enhance the quality and transparency of the relationship the main Street Investors with their broker dealer or investment advisor. These measures brings legal duties and invaded disclosures in line with what the reasonable investor would expect while preserving access in terms of choice and cost to a variety of investment services. I am so grateful to the experienced and dedicated staff for bringing the long overdue rationality and clarity to this important area. We are also working to respond to the substantial changes that have taken place in the markets including the more capital that is produced in the private markets than the Public Markets and Many Companies are staying private until they are very large or not going public at all. Weve expanded key aspects of the jobs act increased the attractiveness of the Public Market for companies while maintaining or enhancing Investor Protections. Increasing the attractiveness of the public Capital Markets is just one side of the claim. We are also exploring whether through Fund Structures or other measures we can in race to type and quality of opportunities Mainstream Investors have in the private market. I believe we should strive to ensure the individual portfolio can look like a wellmanaged pension fund with robust protection that reflects the individual nature of the account. This is a challenge but we are making progress. In other areas modernization efforts are making a difference for the markets. These efforts not only include rulemaking is that the monitoring of the market function and market risk. I want to highlight the teachers and servicemembers initiatives where the focuwhere we focused l endorsements on educational resources. My message here is simple. If you are ripping off teachers and servicemembers are veteran, we want to catch you, punish you and give the money back. Returning funds continues to be a priority and this year weve e returned over 1. 2 billion. I previously testified about the legal impediments we face from the bad actors into situations wherin the situationswhere the l concealed. I very much appreciate the bipartisan work in congress to address the challenges and welcome the opportunity to continue working with you. Finally weve substantially increased efforts of entrepreneurs and an array of market participants. In particular we allocated Additional Resources that live between the coasts. I believe this is important. Thank you again for the opportunity to testify and i look forward to your questions. Thank you very much. As i highlighted in my remarks, theyve taken in a critical steps to modernize the guidance and rule. The process and shareholder proposals. Based on the staff expertise in your public remark he mentioned thayou mentionedthat you expectl address the universal proxy. When can we expect to see the actions to this process . Weve taken an approach to the agenda of which is if it is on the nearterm to be intended to get it done within a year and those items on the agenda. I would hope that we would be able to move them forward in the coming year. I appreciate the attention that you have given it. Can you speak to how the announcement has affected and how other regulators are working to be responsive to and innovate to work at developments and trends us . I appreciate the question, and it highlights what happened with that announcement. Im not going to speak at the particular product. Its not appropriate for me to do that. But the announcement was a focal point for the regulators of different types to recognize the digitization of the plumbing and other aspects of the Financial System including payment transfers. It is coming. I will say the natural economic forces taking that out of the te system for the lack of a better term. We have to recognize that its happening. Recognize the mission, safety and soundness of the Investor Protection and ensure as it takes place we are being true to those principles tha but we shouldnt be fighting that decision because if we do, it will go around us. I assume when you say it is coming, it is here. As i have said many times again leaving aside the specific proposal. And frankly through other currencies than the u. S. Dollar so i encourage you and the other regulators to focus on this carefully. Who among those are regulated and how well they regulate as well as what will be the specifics of how we set the rules of the road so i encourage you to pay careful and close attention to this. On ways to harmonize the exemption is a positive step. There is a proposal of a round of the accredited definition and in your remarks, you highlighted one of the issues with the investor definition which is based on both. There are a number of people that have the sophisticated ability to assess investments who may not meet those thresholds and we should do a better job of identifying them. That said, the private markets have risks that are significant compared to the markets and we need to be called innocent of that. Thank you. Senator brown. For a dozen years wells fargo recommended shareholder proposals asking the company to celebrate the role of chairman and ceo and the ability like this would hav would have cutofs fargo investors after fours years of giving that. We know separating it is a sensible proposal because after they found itself mired in scandal and abusing its employees that decided to separate the positions and took a victory lap. How do you justify the proposal continuing to push for the sensible governance reforms . Whonce again the majority suppo, how long does it stay on the proxy . Right now you get more than 10 of the vote you can keep it on the proxy in definitely. The shareholder engagement were very different. Our proposal looks at increasing them. But still, if you were able to garner more than one in four in favor of the proposal, it would be able to stay on the proxy. Commissioner jacksons office studied that work for a decade now from 200422018 and they found the proposed rules would have excluded 35 for the independent board chair and the Board Diversity proposals that 40 of the political spending disclosure proposals. These are all areas that corporations need to do better. It wouldnt create a tap could you create that it would be consistent with the requirements in not create the cab . Any characterization is completely miss misguided and the mandate is for the commission to decide between the amount of how much they should be entitled to. I can tell you what the proposal was intended to do i believe in transparency and how those decisions are made and i believe they gave the discretion between them to make the decisions. And i want to say personally, im not speaking for the rest of the members of the commission, i think the program has been extremely beneficial to investors. Its had a Chilling Effect and we have seen the numbers change china last year. People mischaracterize things. Id have to step in and clarify. I guess you are arguing the Chilling Effect is gone because you clarified it. It was slightly down from last year but still people are identifying issues for us and we had another 17,000 of those and i think we investigate them and tried at least initially within the first week is that they are received. But we closed Comment Congress wasnt concerned about a reward being too big if anything it Shows Congress was unconcerned about the potential awards being stingy. I want to talk about the collapse of the work the company laid off 2400 workers, 20 of its workforce due almost entirely to the degree of crim crimes. Bloomberg reported in september that they were investigating the work for fraud and other security violations. We do not comment on whether we are or we are not investigating. I thought that might be your answers will banswer somebody pa different way to get it hypothetically speaking at a Real Estate Company was going public at the ceo matthew had been given positions, could that be something that the fccs decision to look into . Im going to take a step back and say transactions between the principles of companies, family members and other interests or something where transparency is essential. If the assault on the Compensation Committee to determine their salary would that be considered something that they might want to look into . Type of fisto take the fish e identifying should be transparent. If they trademarked a word like we and it was disclosed it that might be something of concern . s connec those are required to be disclosed. Is the ceo had credibly been accused of transporting Illegal Drugs and a private jet across International Boundaries and spending millions of the money on lavish parties with famous djs. Our Disclosure Requirements around the background and character and activities require disclosures. I want to commend you for your work. They found the perspective almost ninemonth spur the review before it went public and they claimed they could assume 100 occupancy rate of the buildings were some financial metric known as contribution margin or community adjusted, whatever that means. So its good. Its unfortunate that they caught it at the last minute. Its things hthe things he did f record and at least one of them across International Boundaries i hope is under investigation by the department of justice crime i hope the Enforcement Division is investigating adam newman because despite all that, he is a the billionaire that received a payday to walk away from the smoking rubble of his company or ahas he preferred to call it not a company but a state of consciousness. He was able to extract that because the structure gave him ten votes per share. A kind of stock that enabled him to hold the companies hostage until the other investors paid him to go away and stop destroying his value and 185 million in case they needed tips on djs or other types of tequila. Its a lot of money for any executive. Leadership requires strong character and accountability and that puts corporate leadership. Thats where it was absent in this case. Aided and abetted by the biggest banking law firms and a lot of us often well it is they show younger americans have doubts about capitalism and are open to socialism. For the poverty socialism inflicts upon its people, but people like adam newman and what he did was the reason people in america were open to socialism. Im tempted now to respond. As several of my colleagues have indicated, youve proposed two major rules. One whiff of the Advisory Firms and the others related to shareholder proposals. These are competitive rules and i presume that you will receive significant numbers of letters of comment that have to be analyzed. I think it reflected the potential pitfalls and also just looking at the Council Institute of investors conducted a study since the median number of days that has been promulgated and adopted his 416 days, thats more than a year and some are rather innocuous rules. I would ask that you commit to be very careful and analyze the comments that are comin were cod do that in a way. The consequences to be significant, could we get that commitment . I believe i have on my calendar for tomorrow. We are open to engagement on this. Earlier this year, the assessed 50 milliondollar panel would lead to a Major Accounting Firm owned to pass work after receiving stolen information about inspections of the firm that would become the way the oversight board. The numerous corporate professionals at the firm cheated on internal training exams by sharing and manipulating test results. In addition to the fine against the firm, the principle of the firms second ranking individual was convicted of wire fraud and other crimes. These proceedings suggest there may be problems both on top of that, Financial Times last month did a very lengthy article about behavior in the firms which i think you are aware of and have read this i presume in which whistleblowers came forward with experiences it was a toxic article and unflattering. Do you see these issues as significant and second, what two or three actions do you anticipate taking this year with respect to the issues . I do consider them significant into that people can rely on as the bedrock of the Capital Markets system. On a regular basis its an International Issue and weve asked the chief accountant to take on the role to try to ensure highquality Audit Standards across the globe. U. S. Investors should stand the Audit Quality is not uniform and in fact i dont believe that it is as highquality in many places outside of the united states. The only thing is to try to lift it and we try to do that. I can tell you we are engaged on a number of fronts improving highquality. Thank you senator reid. Senato. Senator kennedy. Thank you, mr. Chairman. Good morning i want to talk about the Public Accounting oversight. What does that board do . They oversee the three functions. Standardsetting and then enforcement. Basically they review the audits of Public Companies. Is that right . Gas and broker dealers. To make sure they are accurate. We hav had about 156 companies m our friends in china on the u. S. Exchanges. How many are owned by the Chinese Government . Trying to come up with a precise number would be a fools errand. Im certain if the government has a Significant Interest in the companies, the stateowned companiestate ownedcompanies ard more prominent. How many of the companies or complying, how many of the audits of companies are working with the v. Pc aob review of their audits . They request workpapers from the companies and with respect to those, access to the workpapers has generally not been available. So basically they are Listing Companies on the american exchanges. They have Companies Audit their companies that we are not able to review the audits because the Companies Say no. That is correct, and it is a problem. We are trying to remedy that directly. Recently because directly it has taken in my view, too long. The chairman and i sat down with the heads of the audit firms who are generally invoked through affiliates to ask what they are doing to ensure and give us comfort that it is not the same quality as the officof the samen other jurisdictions. That isnt a onetime dialogue. I expect to engage with them again and want to make sure they understand how important it is, so engaging at the level of my office and ahead of the pc aob. We want to encourage companies all over the world including but not limited to china to raise capital because the markets are very efficient. But theres a reason and that is to make sure when they are audited they are telling the American People and other investors and the Chinese Companies dont seem to be cooperating. And it doesnt seem to be Getting Better so a lot of investors they are basically flying blind and of course we have had troubl tripled in the t with auditing companies. I would like to take a look at the act and it basically says they have three years to cooperate with the pc aob. There is one issue and i will look at it. Just because a company is the listed doesnt mean that u. S. Investors will not continue to invest. Let me put it another way it will get the attention of the companies, will it not . It will get the attention of investors that those things are valuable. Not all of them but many of them will be born again and start. Thank you mr. Chairman. Im increasingly concerned about the ability of the four factors to manipulate u. S. Companies particularly in the media and technology sectors. In 2017 the Economic Security review commission highlighted this issue when it recommended congress modified the fcc regulations to require Greater Transparency regarding the government ownership of Media Outlets and by labeling of media content sponsored by the Chinese Government. And i offered a positio provisie risk review modernization act to make sure its requiring the state owned companies to disclose their attempts to purchase companies. But they also have a role to play. Section 13 of the Securities Exchange act of 1934 requires investors to become the Beneficial Owners of more than 5 of an issuers Equity Securities to report certain identity to be coke identifying information. It could undermine the free flow of information to the American People so my question is how do they monitor the markets to make sure the Foreign Investors are not accumulating significant shares in the Public Companies especially without following the requisite disclosures . Your question is a really good one. The only ones i ever ask our. [laughter] they have control over a public company. Thats something that the markets investors need to know about. The rules that essentially trigger over 5 off just for an individual holder but concerned efforts i think are extremely important to the investors. We do try to monitor and look for violations of the rules. But i want you to know, and i am not going to get into too much detail in our ability to track who. Its very robust. Sometimes when investments occur through overseas accounts, it isnt as robust. And thats what im concerned about, so i appreciate your acknowledgment of that. Would it be fair to say that you do not have the ability to independently verify the information in the 13 filing or more importantly whether they should have filed a title but failed to comply with the law . Im not going to go so far as to say we dont have the ability. Im looking for ways to enhance the ability. Let me ask about that. Given the need to know if the media is being funded by Foreign Investors, would you agree they should monitor . By looking where you find the wrongdoing would it be of value to know which sectors the violations are taking place . They are noticing whe when you find a suspected violation under what penalties are the assessing. We have seen violations in different contexts. Its different from others. Im aware of the public filings of a long Radio Station but ultimately found the Foreign Ownership because of litigation they didnt know who the creditors were but found it exceeded the cap. They brought that to the attention under their due diligence. Then there should have been a 13 d. Filing, but there was not. So the question is in circumstances like that, here you have a foreign entity, a group of creditors abroad that are now owning an access of the percentage permitted under the fcc who didnt make a filing which is the only way that a company would no whether or not they have that ownership existing in the publicly traded stocks so then the question is what happens to that entity. If we are to have teeth at the end of the day to try to protect ourselves against Foreign Ownership that exceeds the allowable entity under the law we need to have some teeth in the process and i really hope that as the chair you will look at that because it comes to the essence of our information we are all making decisions on based on the Public Information of the media but when its controlled by a foreign entity you have to wonder whether or not its an investment or an attempt to ultimately make influences. Understood. Thank you for being here i think you and your team are doing a great job. I did want to touch on something youve had a discussion over as a proxy adviser i know youve put out amendments i think on november 5 and i appreciate that you are taking this seriously moving forward with guide in him the potential amendments. Im particularly interested in making sure the proposed rules given text to companies and opportunities to consult with advisers and address any potential errors and conflicts of interest but as you look forward how do you think that the proposed rule can help ensure they continue to play an Important Role in the marketplace but also balance out some of the issues that weve talked about in the conflicts of interest . Proxy Advisory Firms like this play an Important Role. Its very efficient to crunch the data on a collective basis and provide that information. They can provide other services. With thbut the proposals are lot is three things one is to make it clear that the antifraud rules apply in the material misleading statements something i think we should address. Conflict disclosure if you have conflicts to the extent that they would be material to the investor you should disclose them and then the last one and frankly the more tricky one is to try to improve the accuracy and completeness of the information investors from all areas on which to make that decision. I think all of those can be accomplished in our framework. We do in many other areas ensuring that we have transparency around conflicts and ensuring that the rules apply to people with significant influence in the marketplace to try to improve accuracy that is what we are striving for and we welcome comments. Are you looking at other areas of rulemaking moving forward in the automatic voting and any other priorities . I cannot say beyond that any specifics other than what i mentioned which is the plumbing is fairly archaic in the proxy area and also the universal proxy theres been enough debate about that we can now move forward with proposals. I have heard concerns over litigation and how it may increase in this space. Have you looked at this and do you have anything you would be looking at . Im happy to hear from people that have an increase in the litigation. The proposal makes it clear there is no new right of action created by the proposal. Another area i want to touch because weve had some of our members and i to some of the fos on the commission expressed concerns about buybacks. I think its a business trying to figure out the best way to deploy its capital. Would any kind of restrictions, what would the consequences be to the mom and pop shops or investors over time if we limit optimization or depletion of capital, but negative impact could that have on the average investor . Its difficult to say without any degree of precision, but i agree with the premise of the question jays Capital Allocation decisions, whether to buy a company, whether to invest in a new line card to pay the dividend or buy back stock. Those are board of director decisions understanding the idiosyncrasies of the companies and what they believe is best for the longterm interest of the company. If you put a point on it, i am not qualified to make that decision for them. In your current capacity i dont think that its an appropriate fold in the current capacity. Thank you very much. Senator smith. Hello again. Nice to see you again. I would like to followup on the line of questioning senator brown and senator reid started around the pools. Last month as they voted on the party lines to adopt the rules dont make it harder for investors to seek votes on shareholder proposals so i am concerned about this and i wanted to ask about something specific. In your statement would make approved the commissions you cited several Public Comment letters and said something to the effect of how they struck you the most because they came from longterm main Street Investors including a marine veteran, Police Officer and Public Servant and mom. This is all great except it turns out there is a question about the validity of the comments and according to Bloomberg News several of the letters you cited were not actually main Street Investors at all and their investigation found out the retired teacher said she never wrote the letter and the military veterans it turneveterans itturned out theyr and cousin of this virginia Advocacy Group that was paid for by the corporate supporters of this initiative. Bloomberg went on to say one of the retirees said he did write a letter bearing his name into the Public Servant cited she just allowed a Public Affairs firm to use her name without even knowing what it was about so i wanted to just ask a little bit about this. Given that you cited these letters does this have any effect on your thinking about whether this is a good idea . A couple of things, one is we are having an investigation done on this issue so i believe this does suck that out. I am very interested in hearing directly from individual investors in particular directly not filtered by groups. One of the reasons we conduct a town halls in connection with the rulemaking is when you interact directly with investors you have a lot of good information. During the Comment Period i encourage as many investors as they can to share their thoughts with us. We will be doing town halls where they have the opportunity to speak directly with me. That you are investigating these letters to understand what happened here and how they got included. We were in contact. Shortly after the article came out we contacted the general. Do you think it should be illegal to submit comments under a false identity as happened here . Im not going to get into that. I think the comment process is an open process to the extent of things happened im just going to leave that for now an it at d see what happens in the investigation. Im glad to know you are investigating this. If you are basing decisions on what to do about comment commeno public interactions that turn out to be fueled by corporate Advocacy Groups, that i think is a problem. Thats why we have an open process and Comment Period. Im going to ask another question. I serve on the Agricultural Committee so this question relates to that to a certain extent. In august Trading Commission agreed to settle allegations that they have manipulate had me wheat market and the Settlement Agreement was unique because it included no factual findings or conclusions of law and prevented the commission from making any public statements about the settlement. This has been concerning to me because i think the u. S. They t. Citizenship have the right to know what federal agencies are doing when they are settling cases. My question to you is how common is this practice . Is it happening at all that you are aware that the fcc . You are asking a very openended question. I am not aware of any situation of the type that you described and i want to make sure i carve out any kind of National Security or intelligence area from what i am saying as far as ordinary commercial actors, i am not aware of any. That is a concern to me as well. Thank you. Thank you mr. Chair. Thank you for joining us. I will start by commending you for your leadership at the fcc. I appreciate that you do youve helped accelerate over the last year and i also appreciate the openness of your comments today in response to questions and conversations we have had in office and as members of the committee. I do want to raise a concern about what is occurring often referred to as regulation by enforcement. One commissioner recently asserted when they see a widespread problem affecting investors it showed, quote, issue its own guidance or promulgate a rule and put an end to the problem before it hurts investors and come enddoublequote command a believe its better for investors than the large Enforcement Initiative and provides regulated industries with an appropriate notice of what the fcc expects of them. Do you agree or have a comment of what was conveyed . To your question highlights regulating a broad market. If you see widespread conduct thats clearly problematic there is no reason to provide guidance you just go out and deal with it. If you see widespread conduct that is an area people could reasonably conclude one way or another i feel is guidance and filed guidance is the way to do that. Life is complicated. A lot of things fall somewhere in between. One of the things you and i have talked about is the shared clash initiative. Where we were was much closer. Its not all the way at the end of the spectrum but i appreciate that the spectrum and i think our Enforcement Division and Inspections Division understands that. Part of my job is to make sure they understand that and make the appropriate selection on how to pursue the conduct. In that regard you said before the staff statements and guidance do not create enforceable legal obligations yet i think we often see they point to risk alerts and proceedings by other participants as a justification for the appropriate notice. I was used february 2018 election Disclosure Initiative regarding disclosures for conflict of interest from certain fee arrangements as an example. Fcc staff pointed to a 2016 risk alert as evidence that they were given sufficient notice about what the fcc expects from regulated firms in disclosures such as the use of may versus will. However i understand that the initiative has penalized firms for activities dating back to 2014 and beyond. In other words, to the notice that you are claiming occurred. Is there something here that i should be worried about . I dont think theres something here in particular. But the principles that you articulate or something we should always be concerned about. We should not be in the business of gotcha, but we do need to be in the business of making sure that we enforce. If theres to be a change in the wall that should be the commission. That isnt really the issue and i dont know exactly what the due process means in todays world the notice has always been something that is included in the due process in order to come i would hope those that you have the ability to regulate if they knew what position the fcc was, they would comply voluntarily. If theyr their seemingly was ne it denies them the ability to voluntarily comply and it eliminates the opportunity for them to have the due process. Senator cortez. Thank you for appearing today. Im going to talk a little bit about my concern and what can be done and what you are giving to prohibit requests from clients. Let me give you an example. I sent a letter along with some of my colleagues to limit the ability of broker dealers and Financial Advisors to inherit money from the clients and its a big concern. I know its the former attorney general there is fraud associated and granted i understand some family members could have exceptions for certain relationships but most importantly concerned about the fraud that is associated with it. My question is twofold to you think they should prohibit Financial Advisors to receive the request from the client is and what are you doing to address that issue . On that specific question. On the area of the elderly many of whom are in a position wheren where they may have diminished capacity or not have support, we are very concerned about that. What specifically we are doing, we are doing a lot at the fcc to recognize that many of our investors are getting older and we need to deal with that fact including implementing the senior say fact which allows brokerdealers to hold off on disturbing funds if they think that something inappropriate is going on. Im happy to engage with you further on this issue. I would officiate that because i think its an issue that needs to be addressed and i look forward to seeing what you doing to address the issue. I also appreciate your attention to preventing Retail Investors from falling victim to fraud. The thing that has proposed a rule for dishonest brokers and their firms to operate, last month along with my colleagues they sent a letter asking them to strengthen the proposed rule 4111 to expel firms in a broker with history of fraud. Another finalizing this now and it should be passed to the fcc for you to take a look at, my question is will you ensure rule 4111 is clear that unscrupulous natural cannot continue to operate and secondly, when will the fdcpa approve or when you and to separate looking at that rule and approving it or having a common with respect to 4111. Generally our view, its a privilege to work in the security markets and a privilege that you can lose and should lose if you misbehave. I want to be careful not to prejudge havent seen the text of the rule but i have long been supportive of the concept that are in the rule including, if youre going to hire somebody who has a history with the registration of the requirements that should reflect that youre taking more risk than someone who does not. Thank you. Let me also, i appreciate the concern around Digital Currency, this is an area that along with the chairman of paying very close attention to and i know your comment is here and we should not go around it, i absolutely agree and im hopeful as we move forward that you are putting resources to addressing and taking a look at this and what can be done but at the same time coming back to congress and talking about what we can do with you to be prepared for the future of Digital Currency. Because it is coming and we need to be prepared. Thank you. But i do have one final question with respect to the enforcement i was glad to see the fcc had taken action against crypto currency firms that fail to comply with prior interim requirements from raising funds for investors. However, according to a recent article at the wall street journal, three of the companies mr. Deadlines to repay people who bought their token. What is fcc doing about crypto currency companies that fail to comply with the fcc settlements one, and 2d have enough resources within the Enforcement Division to address these issues . Let me try and summarize what can happen with settlement. We try to structure settlement and i think were trying to structure in a way that tries to get the most money back to investors over time. Sometimes that means allowing payments over time. Enter tar enterprise to continuo get the money back. And sometimes they feel. Because they were not Good Companies to start with. That paradigm applies to the situation that you identified. In terms of resources. I think we can do our job, when i first took this job i did not know what i would do with significant Additional Resources now i feel better but we can have Additional Resources particularly in some of the emerging areas and we can put them to good use and your job how to how i feel about it. Thank you. Thank you, senator cramer. Thank you chairman for being with us in your candor. I want to go down on the certified audit trail which is great by design to collect a lot of personal sensitive financial information. Information on every retail brokerage client in our country which should amount to buy my calculation over 100 million clients. That in itself itself, that much data intensive information has challenges in an addition to that, with 3000 people in 24 organizations have the ability not only to access but default downward into their systems. I did not used to be paranoid what ive come to a point where the ability for institutions to secure that much data with this broad application concerns me. I would love for you to help me feel more comfortable with the fcc is doing to protect against attacks and cyber challenges with that risk. The cat is a good example of how we should look at a lot of large data projects. I agree with your concern and the question is, not what data would be like to have, but what data do we need to have to do the job. We are going to reprocess with the sros and others, i think we can significantly limit i said speaking for myself, from information from individuals should enable us to do her job and have a cat function in a way it was envisioned to function. So that reduces the risk because the data is not as sensitive and of course the other side of the coin is what type of security protections do put in place and how do you ensure that those security protections can evolve as the threat of all. Thats a general summary but were working on reducing the Sensitive Data and ensuring folks have insight into it and we continue to improve the security protection. Just go further my understanding that the firms are required to sign the cat reporter agreement which in essence, shield sros from liability. Anytime we start to shield in institutions or individuals from liability i was asked why is that necessary. If the safeguards are in place, it only adds to my insecurity if you will. From my point of view, this is a highly risky and i believe a breach will eventually happen but i hope the sec can prevent the obviously print. Im aware of the issue around the allocation of potential liability in a meeting tomorrow with representatives of the sro committee and the Dealer Community to discuss the issue. I appreciate that. Busy day tomorrow. It sounds like a. Thank you, mr. Chairman, thank you for being here. I want to ask you about the Commission Engagement on the task force for climate related financial disclosure, how are you working with the task force . We are working there are International Bodies sfb, iosco, and output that you there, we are working with all them on this issue because market disclosure issues of this type are global issues not just domestic issues. And i would say on medium to light heavy we are fairly engaged to some other issues. Specifically what are you doing. We are working the reports and working on repose proposals. I think it goes beyond that. I personally have recently met from the io and spoke with them. Trying to bring to bring decision useful information to the marketplace. Thats a good way to look at a. You say were not quite there yet . It is hard. Are you actively enforcing your 2010 guidance on Climate Disclosure . If what you mean by actively enforcing it, are we actively Monitoring Companies to see if theyre following it and to the extent that they are not addressing that. I think the answer is a clear yes. One way you can more actively enforce it is to put issuers on notice that Division Corporate finance will be examining. Thank you. I think people listen more carefully if you say you examine for this. To be clear, we have been examining and i would encourage people to look at the comment letters that become available publicly. I had this problem in a number of categories, and politics that are mostly in terms of your commission and mostly through that part of the problem but a couple of other problems, one we have to develop instruments and process that work across platforms and the planet so when you do disclosures youre comparing apples to apples but the other part of this, whether or not you as an agency are leading versus waiting for tc fd and others and see how things play out in the ecosystem that is working on this, would you consider the sec a leader, follower or participant. Where you put yourself in the. Definitely a participant, i would say a leader of a useful lens, including articulating ways that we can use the information that is being generated to further our what i would say is monitoring oversight, there are a bunch of voluntary regimes as you know, tc fd in the carbon disclosure project. And some organizations that come under your jurisdiction are making voluntary disclosures under tc fd and others in a separate less informative disclosure as it relates to climate risk to you. Do consider it appropriate for the commission to look at those voluntary disclosures and incorporate into risk and also. I dont know that im fully examine for this, not just in this area but in many areas we look at companies and Public Disclosure that require statutory disclosure and whatnot and compared what theyre seen in other places and Ask Companies please make sure you reconcile these force to the extent. You think you can be useful, theres a number of ways to look at that one problem is you have different ways to disclose a climate related risk do you think the fcc can lead or assist in developing a more consistent comparable thorough disclosure of a climate risk . Let me say this, i think we have a great deal of expertise in assisting in disclosing risks in a way that investors can use it. And were trying to bring that to bear in all areas and what we do including the. Thank you. Senator rounds. Make you mr. Chairman. Good morning. I want to followup on the issue of consolidated trail, it seems to me that you suggested there will be modification or we can expect modification based upon the amount of data that can be collected. Im concerned because clearly there is a high probability that there would be breaches and as an example having an employee to take home a notepad with data on it, any type of a process in which employees can gain access and then lose if nothing else. These seem to be ways in which data could be lost and were talking about the consolidation of data from a lot of different entities into one location in which seems to be making for a prime opportunity for nefarious activities. My question is number one, when we talk about the limitation of liability as senator cramer suggested, it bears to mind that somebody still has not lost and the question is do you believe the rules as are being laid out or the guidelines as we see them and limitations for some, are these fear the way that their set up to limit the liability and will you go so far to review that process of limitations that are being put in place today . The short answer is yes, do you want the longer answer . Yes, i do. The longer answer is your premises right. When you allocate responsibly you generally try to allocate it to the people can that can best address the risks who are responsible for. That is something that is in my mind as i look at the sink. I just want to bring attention, i think this is a serious issue and it does not mean you dont need to consolidate an auto trail but if youre going to go that route then theres gotta be something in which data has to be kept in a secure entity and if you cannot do that, which im not sure that you can then perhaps we should look at a more limited amount of data and it sounds to me like youre looking at that but along the line making certain that where the possibility of risk is that in the blame does not lead the location. There is a responsibility and authority combined for the production of the risk. Understood. I want to give you an opportunity should i say, that clarifies the suggestion that libra might be ridiculous. I want to go into this with the following. I know theres been a number of folks that whether or not its libra which is an attempt to do something different, if we simply walk away from that and say that is ridiculous and the product is ridiculous which is the way i heard it, we pick winners and losers. Im not asking judgment, if my comments that any product is ridiculous, i tell you what, i dont know. What i do know is, there is a great deal of friction in the marketplace the digitization can reduce. We need to make sure to the extent that the happens and were still being true to our statutory missions are crossed the federal Financial Regulatory Committee in our Investor Protection in efficient markets, at the banking i dont want to fispeak for them but safety and soundness. We cannot lucite of those things because of a new technology but we cannot rely on Old Technology to ensure we do those things. You looking at definitions now that come from a 90yearold law. Let me cut to the chase, do you see a difference between and see it as a separation between crypto currency and perhaps a Digital Currency, do you see this as being the separating issue where you have a Digital Currency today and in some respects it reverses integration. You have an obligation in this case as a regulator where you look in a book. Let me say this, theres a lot going on, its complicated. Weird have a great deal digitization in our Financial System, i do believe there is a difference between a sovereign backed medium of exchange in a private medium of exchange. I want to say to you and this committee, i have heard you and i appreciate that we meet something, we should be engaged with you. And i thank you for that. Thank you mr. Chairman. Thank you sir. Senator van hollen. Thank you, mr. Chairman, welcome mr. Chairman. A couple of things first that i want to associate with kennedys remarks over legislation require that Chinese Companies withstand our exchanges and meet the same audit requirements that we require everybody else. It seems to be common sense. Second on a number of occasions weve had hearings that he raised the in the issue of the strong correlation between the timing of insider share selling and stock buybacks, since we last discussed that, commissioner jackson and others have prevented presented more evidence that the timing is not a coincidence and executives may be manipulating the timing at the expense of the shareholders. I am disappointed that you and the commission have not moved forward more rapidly to investigate this. I am disappointed instead your focus on strengthening the hand of already very strong ceos and corporations at the expense of their shareholders in many cases. With the proxy advisory regulation that you post. This seems to be an answer in search of the problem. There are issues and we know what you described as a plumbing and trying to figure it out and i agree with the conflict division provision. But what you are doing is saying if i go out and hire somebody, an independent proxy advisor to make recommendations to me about how i should but with my shares, that proxy advisor has to go to the company and the ceos and get them to essentially comment and they get to have a number of reviews. I really dont need a nanny to advise me. If i dont want to hire a proxy advisor, i do not have to. What troubled me more, you try to present this as a concern of main Street Investors prewhen you roll this out, you attempted to create the impression that this was something a lot of main Street Investors care about. I tell you, i sit on the committee and served on the house, senate, ive not had a main street investor come up to me and say this is a concern. If there are other look forward to it. But you got duped when you rolled out. Senator smith asked you about that but the reality is in addition to the fake letters that she mentioned, people who you cited who apparently says now she did not write the letter, there were a number of letters that you cited that were cruelly orchestrated by a group called 60 plus. For those of us who have been around for a little while we know what 60 pluses. Its a dark money front group that corporations use for messaging. They dont have to disclose their donors. It sounds great and makes it sound like theyre taking care of seniors. But we found out their donors include corporations like chevron and exxon and so it turns out that a number of the letters you cited were relatives of the head of 60 plus. Are you aware of that . I have now heard this, i was not familiar with the group 60 plus. Were you aware of the retired couple you cited are the mother and fatherinlaw of the head of the 60 plus association . Maybe because you just told me. Are you aware they told the reporter that had no connection with the letter . No. Are you aware that the military veterans that you cited other brother and cousin of the chairman of the 60 plus association questioning. If a company had done this we can go after them for deceptive practices for misleading statements. I know you did not intend to do that. You became the vehicle for that. And you became the vehicle for that as you try to roll out this provision that it was looking out for main Street Investors. Wasnt that your intent . Regardless of this, i still believe were looking out for main street. It does not appear to me, this is the top priority in this does not make it had but it does mean you should be cautious before you say its a top roadie of mainstream. This is the top priority of a lot of corporate ceos that do not want to be secondguessed by proxy advisors. Isnt that true . So look, lets see what we agree on. Disclosure conflicts. I said in my remarks, that is number one, there is two in three will get to three. Disclosure conflicts, commensal responsibility for what youre saying, the antifraud rules should apply. Okay . The last one, i will tell you, i am open for discussion on all of them, the last one on how we ensure better accuracy, i am very open if people think that what will we are proposing is too onerous but we can get to improved accuracy in another way, i am open. As you know theres an ongoing lawsuit on this issue because the basis for your rulemaking is that the proxy solicitation the proxy o undr proxy advices the same as a solicitation theres a three 2 vote. There are Different Levels but that goes to the heart of the question of your authority. My question, are you willing to delay the real making process pending the outcome of the lawsuit . I will not commit to that today. What if you go through the process and the lawsuit says theres no authority to do it. Unfortunately thats a risk that we run. The advice weve gone that we should be very comfortable or where we are. My biggest concern right now is the way you tried to present this when you rolled it out. I am not backing away from the fact that we want to do whats in the best interest the letters that you cited were orchestrated by a Dark Money Group that is funded by many of the corporations that stand to benefit from your proposal. They are advocating for that, theyre using this group to funnel their money through and you become their mouthpiece. I think its important for you to retract those statements and let the public know that you were duped, you did not intentionally deceive anybody but the letters that you used to make the case that this was for main Street Investors were in fact orchestrated by a group that is funded by the very big corporations that are pushing hard for the role. Thats a deceit on the public, not from you but you became the vehicle for that. I hope you make it very clear that you find outrageous that the people who hope that you will do this, these are people who were pushing hard for this to happen and you became the vehicle for their fraudulent attempts to make it sound like this is all about street investor. Senator brown would like to ask another question. First to comment, thank you for your comments in the back and forth with the chairman. We hear always in this committee particularly from that side of the aisle from momandpop investors in all the trump nominees want to take care of the nominee and the momandpop investors and i think senator van hollens investigation shows often times the momandpop investors have some front to not take conspiratorial in this town and in these days but its clear thats whats happening for so many of the Dark Money Groups. Let me go to a different place, early in my Opening Statement i mentioned that i asked for inclusion of a letter from the employees retirement system and i appreciate that he crucially did that. They waited last year end the roundtable and proxy voting. Its a raise concerns and changes to the role that make proxy advisor advice more expensive, less independent, less timely and can only public tension participants. It would do all those things under the pretense of improving conflict disclosure but the rule would go far beyond that by giving companies to bites of the apple to review proxy research before it gets to an investor. How do the sweeping changes in institutions did not ask for and could compromise the research they pay for, how does that benefit investors . Senator, i think robust conflict disclosure when its material, does benefit investors, they should know what incentives people have when theyre making statements. I do believe if youre making statements in an attempt to influence or solicit votes, generally any broad principle should apply. On the last one, how to increase accuracy, like i said to van hollen, i remain open to ways to deal without but lets be clear of what were trying to achieve, were trying to achieve that the investor has a robust mix of information on which to make an Investment Decision. If that comes from a proxy Advisory Firm in combination with the company, so much the better. Thank you for that. It looks that a lot of us took the power to far in favor of companies and management needs to be more accountable and not lesson shareholders need more tools and not fewer in the direction that you seem to be going is not that. Lets be clear, say on pay and other engagement mechanisms, this what i want to achieve is that people who are making the Investment Decision in the voting decision have these good and accurate a mix of information they cannot. Thats what i want to achieve. Thank you. That concludes the question and no one i think you chairman claim for being here today and your strong leadership at the fcc. I appreciate it. For senators who wish to submit questions for the record those questions are due on tuesday december 17 and i encourage you chairman to please respond is probably as you can to them. This is our last hearing for this Congress Unless we schedule another one. We have had a lot of productive hearings, i want to thank all of our senators for making that happen in our witnesses and those have come before us. Its laid a foundation for what i expect to be a significant amount of productive effort. With that, this hearing is adjourn. Thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] the house will be in order. For 40 years cspan has provided america unfiltered coverage of congress, the white house, the Supreme Court in Public Policy event from washington, d. C. And around the country so you can make up your own mind created by cable in 1979. Cspan is brought to you by your local cable or satellite provider. Cspan, your unfiltered view of government. Live wednesday on the cspan networks, the house returned at 10 00 a. M. Eastern for work on Prescription Drug pricing and legislation dealing with agriculture workers, that is on cspan. On cspan2 9 30 a. M. , the Senate Continues to work on nominations including Lawrence Van Dyck of nevada to be a judge for the ninth Circuit Court of appeals, senators are considering a Suicide Prevention bill for veterans. The House Judiciary Committee meets at 7 00 p. M. To begin the task of considering articles of impeachment against President Trump but were introduced by House Democrats on tuesday. On cspan3 at 10 00 a. M. 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The best advice to young filmmakers is not to be afraid to take your issue seriously. Youre never too young to have an opinion so let your voice be heard now. For more information go to our website studentcam. Org. Secretary of state mike pompeo and Russian Foreign minister held a News Conference with reporters at the state department. They talked about current u. S. Relations with russia. This is 45 minutes. Good afternoon everyone. Welcome. Before i recap the