Transcripts For CSPAN2 SEC 20240703

Exchange Commission Chair and we take you to that hearing now. [captions Copyright National cable satellite corp. 2023] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] fraudsters use Cyber Attacks and ai attacks to scam cyberspace. It is unfair Playing Field entrenching the rich of her hardworking americans. The sec has its work ahead of it to protect those families whose savings are in the market. Things have been moving too fast recently. We have all heard the complaints. Too many roles too fast too hard to comply with. Americas markets are the greatest in the world because we have strong Investor Protection and regulators that have worked to make sure we have transparent fair and honest markets that americans deserve. We know with regulators and lobbyists and politicians that do their bidding, ignore changes, and are slow to respond. This put us in the middle of a financial crisis in the past because financial funds ran wild. The sec managed tens of trillions of dollars for Pension Funds and Retirement Savers. Private equity fund alone controls somewhere between, i use this word in sparingly but this is incredible. 1520 of the whole Economy Private equity firms control that. All the american savings are controlled by the opec firms and theyve not been able to get much information of how their using peoples money independent audits, disclosure and conflict of interest by fund managers. Americans have been in the dark about all of it until now. The private funds rule will change that now and force them to tell them how much money the private equity firms are charging. No surprise that the groups that complained said this was too strong they waited only days before running to their venue of choice fifth Circuit Court of appeals. It is always the most extreme partisan circuit of america willing to dues shall interest bidding. Same playbook we see over and over with wall street corporate interest trying to use the courts to go around the public. What of these companies trying to hide . Trying to stop buybacks for one thing. That is why the sec buyback disclosure will provide muchneeded data on how they have these resources. Today other together they should encourage companies to stop throwing buybacks. They should start investing in their workers in innovation. Under your leadership, mr. Chair the sec took steps to implement safeguards under dodd frank. The first was proposing a rule or having interest conflict in the market. It sounds technical in the financial crisis of 2008 wall street banks bet against the u. S. Housing market and cost damage. The second requires companies to clawback compensation from executives viz. Committee is working to enhance accountability. And this is by a vote of 21 against two. I look forward to the recoup act passing and becoming law. The past year the sec advanced transparency by requiring companies to notify the market when they experience Cyber Attacks. We know this is a growing risk in the industry and now we know this is a standard and ensures policymakers know when the devastating acts occur. The sec is continuing to pursue enforcement action against scam artists and those that target vulnerable investing people will trying to get away with inside trading and crypto fraud. We know as we look ahead at emerging risk there is new technologies including Machine Learning in our and Artificial Intelligence. The sec has to put customers first when they use new technology. This committee will discuss the impact of ai on Financial Markets in the coming weeks. Im eager to see the sec finalize its Climate Disclosure rule. Last week this Committee Heard testimony about the challenges in the property insurance market. 50 built 51 billion 15 1 billion it puts workers at risk. Investors are demanding the information and they deserve to get it. We only need to look at the event in the Crypto Market the past year to see what markets black transparency what happens when markets black chair and see transparency. Lack transparency. Ftx was not the loan bad apple, it is just the most explosive example of problems in crypto. It seems like every day after that collapse there was another crypto insider taking advantage of people and another few Million Dollars loss. That is because the problems with ftx are everywhere in crypto. That is with customer money that was supposed to be safe. Ftx is the biggest and ugliest. For consumers it is millions of dollars gone. But some still flock to this to fund trafficking and human terrorism. We have to clean up and fraud. I am glad the sec is using is law to crack down on the abuse of this. And the economy and markets move forward and the sec must move forward adding americans first. Americans who work hard and scrimped to save for their family futures deserve to invest in markets that are fair, transparent, and honest. I look forward to how the sec is working to protect investors. Thank you. Thank you for being with us today. Ive been calling for this hearing since february 14 when the community headed committee had in overhearing it a lot happened since your last appearance last september. When it comes to the sec we had to wait a whole year to speak with you in person even when a company like ftx collapses we still have to wait. Timely correction to inquiries is critical for agencies to remain accountable to the American People. But this agency has fallen short on being transparent and responsive to the oversight. I have serious concerns with the way you are leading the sec the u. S. Economy and our Capital Market system is a global standard. One of our countrys greatest strategic independent advantages over our peers and adversaries. However, the United States can only retain these benefit if entrepreneurs innovate, lunch, and grow new job creating ventures. Americas Global Competitive edge is innovation and the American Experience to create. As sec chair your goal is to fuel the innovation in the marketplace and expand the ability of americans all walks of life whether that is building an air calf aircraft or farming in iowa. To access a large spectrum of Investment Options without these regulations we limit opportunities for our kids and our kids kids from being able to take control of their own financial futures. That is why it is especially troubling that under your leadership the sec failed to implement these progrowth rules. Instead your agency has turned out a seemingly endless Assembly Line of regulatory hurdles to Capital Formation and Market Access. Let me go through to those rules. First for compliance burdens of your proposed Climate Disclosure rule are expected to crawl drupal the cause of being a public company. That is just for one single rule. Your tax on private markets through the private funds rule will hurt Small Businesses and put small managers out of the market. Ultimately limiting opportunity for many in the local economy. Meanwhile, he proposed overall the equity Market Operations will harm Market Access for Retail Investors and increase terms cost capital especially for small and mediumsized businesses. Using several proposals aiming at working the Regulatory Regime with the open End Fund Industry including mutual fund. Used by millions of americans Retirement Savers while providing issues paperthin rationale for why these were needed. Despite it being labeled the role of Artificial Intelligence the paragraph emerging existing technologies and excel spreadsheets is beyond the sec scope. It will ultimately stifle innovation. Finally and i could go on with more, but your proposed revision to the current role for safeguarding customer asset are so overreaching you placed your fellow regulators at the cftc, the fed and treasury between a rock and a hard place. These proposals and rulemakings will have a tremendous effect on our Capital Market system. Under your leadership the sec has failed to conduct thorough analysis and look at the overall impact of these proposals. It has limited the time the public can have its time to analyze and comment on these rules and proposals. This is kind of like using all of your draft choices and forgetting about the offensive line. Rulemakings supported by Economic Analysis. It brings me full circle. Rulemaking must be done in a thorough transparent manner which includes responsiveness to congressional oversight including from the minority embers of this committee. The American People have a right to know what the government is doing and your agencys blatant refusal to respond to our constitutional mandated oversight to the American People. Your final thoughts before i close i think opportunity should be for all investors and it should. 19 policies open more doors for future generations and give americans in every corner of the united dates a chance to better their Economic Standing and build generational wealth. Its clear under this administration and your comment that regulation, not innovation, is the preferred medicine for every perceived policy injury. This should not be the case. I look forward to our discussion. Thank you. Chair please proceed. Thank you. Members of the committee. It will be good it is going to be back in front of you. Thank you for inviting me here today. My views are chair of the sec in not speaking on behalf of my fellow commissioners or the staff. For nine years the federal security laws and the work i have to oversee them as played a crucial role to the public in good times and times of stress. The Core Principles of regulation has contributed to economic success. It really has contributed to our economic success and geopolitical standing and this assess of our success of our Capital Markets. We served investors building for a Better Future and issuers on the other side of the market raising their innovation and ideas. Its about a 100 trillion Capital Market in total. Our mission is to protect investors on one side, facilitate Capital Formation on the other, what is in the middle . The markets fair orderly and efficient. The sec is also a cop on the beat watching out for your constituents. The dedicated staff and agency does extraordinary work of limited resources in the face of significant growth. More and increase complexity. The sec headcount shrank from 2016 through last year. We shrank. With congresses help, along with his committee, we just got back to a touch more than where we were seven years ago. Americans are blessed with some of the most sophisticated and largest Capital Markets of the world. We cannot take this for granted even a Gold Medalist must keep training. That is why we are updating our rules from the technology and Business Models for 2020. My written testimony shows these efforts and i am sure we will get to this role or that role crypto and the like. We are upgrading our roles to have efficiency, and integrity in the market. We do so to ensure that the markets work for issuers and investors rather than investors working for the market. We are working to lower costs, increase access, and have financial stability. Each proposal made is part of the mission laid out by congress. Our division of economic risk analysis provides robust Economic Analysis. And it considers the cost and benefit as well as the effects of efficiency, competency, and Capital Formation. We favored the input from the economic policies and the sec Legal Authority. The last two years we provide the public with ample time to comment with average of 70 days of time to comment from the time we put in a proposal and put it on the website. Since january of 2022 we put in a minimum of 60 days and as long as 100 days when posted on the website. When commenting closes we often continue to get additional comments through meetings that staff can consider as well. Based on the feedback we can consider possible adjustment to the proposal. The process takes 10 1224 months. During that period of time as we move to the possible adoption we only do so if we consider most comments. And we do so based on those comments make adjustments. The finalize 22 rulemakings we have made, nearly all of them have changed based on public back. Feedback. I am grateful to work alongside biz staff and fellow commissioners to moat the integrity and resiliency of the market. I look forward to taking the committee questions. Thank you there will be a huge turnout on both sides because of the interest in your work and holding you accountable and asking you questions. I will more than usual enforce the five minute rule. Thank you. I appreciate your courtesy. Chairman thank you for being here. You know as many of those know i am involved in production area culture agriculture. If i do not cut the crop the crop does not get cut. The question is this i wish we were all in the situation where we do not need access to capital but we need access to capital. I wish i were in a situation where i do not have to sell grain to multinational corporations and i believe we need regulation on them because i think they control the marketplace for too much but that is where we are unfortunately. Every once in while in the mail in i will get a survey of how much grain arrays and how much grain i have on hand, cattle, chickens, pins, horses it is a real pain in the butt and you do this over and over again. Surveys are not something i am crazy about im busy trying to make a living. We had previous conversations about making sure the proposed climate rule does not add a burden of requirements. To add an additional workload and pain in the neck i am being generous when i say that to Agricultural Producers who do business with Public Transit company which by the way is by far the vast mass majority of those in agriculture. I appreciate you being receptive to those concerns, but we have discussed previously in this hearing that it is not the commissions intent to have farmers or ranches in montana or any other state or other users having to report on goods that they sell him publicly traded companies. I want to make sure that still stands true, is that right . That is right. That is right. We oversee Public Companies. We are not a climate regulator we are a securities regulator. Right now to give you an example of the top thousand companies by market cap 80 of them a Climate Risk Disclosures. We are trying to bring comparability to that and we heard not just from you but many farmers and ranchers across the great land that a lot of small and Medium Enterprises say they do not want to fill out the surveys. I asked them to take a close look at the comments to make sure that we are only regulating the Public Companies and not somehow indirectly private companies. You are fully aware it will take more than your intent for this to happen. Ugly down of regulation is something that happens all the time. I just want to make sure it is placed Crystal Clear that people in production and agricultural will not be faced with these surveys. No i cannot prejudge a final rule it takes five of us to push out a final rule, but staff is heard these comments. Theres a thousand of them and i have asked staff to come up with solutions. Ok you answer my next question with that answer. Walk us through the company on emissions. What do you envision that would look like . Again because Public Companies currently report some Greenhouse Gas emissions that which they produce, scope one and as you called it scope three the supply chain, that is not as well developed currently. In our proposal we said that no private entity, farmers, ranchers, Small Businesses needed to report that. And the company if they reported it and they found the material they could estimate it. But we heard comments that that was not good enough you and others and that is what we are looking at about how we can find appropriate path forward. Again, about 80 of the top 1000 companies are currently reporting on climate risk. Over 50 plus percent are reporting scope one and to not scope one and three so we are looking at that. So we know these are created companies. A lot of family farms have incorporated but they are not publicly traded. That is correct in our jurisdiction is over those public registrants. With respect to the chairman i hope somebody gets into crypto that i would love to find out what you are doing to protect consumers. I yield. Im sure they will i recognize the next senator. Yes thank you for letting me have a slot for my questions. I have a number of questions on climate rule and open ended Fund Liquidity rolled the crypto rule and so forth. I will focus my questions this morning on what you described as the fact that one of your roles of being the cop on the beat for protecting investors. Ive heard from many idahoans about how they been impacted by the trading of the m mlt traders. Investors across the country share the same concern. They have questions about what happened, the inability to sell the stock and potential irs implications. And to get answers about what happened they sent letters and made freedom of information requests of the sec and interim as well. As of this point, i do not think we have the full response. You know my office has engaged to get answers as well. Can you confirm that the sec is reviewing trading from december 2022 and will you commit that the public will be releasing the sec finding on the investigation . Let me step back. Then raw is separate from the sec and they have not said the rules have been organized. The rules are approved by the sec after Public Comment. But they move forward and implement their rules. The matter that you raised around metamaterials as i recall the name of it, in december of 2022, under finra rule they thought trading they did not seek the sec advice or permission all that. That is something they did separately in that matter. So is the sec not investigating those actions at all . The sec role is to investigate many things in the Capital Markets. We did not speak to specific investigations but we do on a regular basis examine finra with compliance on their rules. And examine them on whether they are following their own rules as putting out to Public Comments. Are you examining their process and compliance with their own rules with regard to this . We regularly examine there is such a important cap part of the Capital Market. We examine them annually i think. Part of our division has a whole unit that examines them on a regular basis. I dont know if this question relates to you or finra or both, but the investors have asked for the aggregated audited share count for the mm tlp and for the blue sheet data to ascertain whether mm tlp shares were subject to counterfeit and naked short selling. As finra and the sec analyzed mm tlp for any potential fraud or wrongdoing . We seek to analyze fraud and wrongdoing where ever it would be in the Capital Market. Certainly we are well aware of the matters, but i cannot speak about specific possible investigations or even confirm or deny whether we have them because it protects the markets when we sometimes close the investigation and we do not find something. Certainly we can follow up with this specific question about data. Am i hearing you say, i believe i am hearing you say there could be an Investigation Underway but you cannot give data about it, but if there is an Investigation Underway in these matters and if that investigation finds answers, is that information not going to be made available to the public . We only make information as a result of any investigation public if we either settle or ring charges in the company court. That really helps protect the public and protect individuals when we do not bring charges. How are investors and frankly congress to know whether you have even undertaken such an investigation or whether such investigation has resulted in any outcome . Again, i think the trust in our Capital Markets is being the cop on the beat but also when we close investigations that do not have a result they are either a litigation or a settlement. That is really between those various registrant or Market Participants that have been closed. They have a right to say if it has been closed or not. Thank you you can follow up with written question. I see my time has expired i will followup with you on this issue. I look forward to it just let us know when you would like to. This week is the 15th anniversary of the collapse of lehman brothers. We discuss the 08 financial crisis showed us how everyday people can have their lives turned upside down due to wall street greed now wall street is pushing back to make investors tell the real fact about their businesses. What step is the sec taking to ensure that investors have the information they need to make informed choices . Investors get the basic bargain. They have to have complete information. That, if they are Public Companies, to really have the full, fair and truthful information is the passion we have with climate or the discussion you had around cyber risk. Material information is what they need to make their choices. Also in crypto to the extent that crypto token is a security that investors get a chance to make their decisions based on the full, fair, and truthful disclosure. You noted the sec has a private fund role and they want to pose increase transparency for investors. How will providing Additional Information on fees and performance help workers and investors . This field has grown significantly over the years. Well over 20 trillion dollars. And investors often are Pension Funds with workers, teachers, firefighters in your district and state. They benefit. We have proposed and finalize based on Public Comment rules to bring Greater Transparency. About the fees, performance, and side letters in these privately funded in the marketplace. It helps promote competition and the efficiency of the market. If the costs come down, that means the returns for retirees go up. Thank you as promised, there will be at least one question or certain questions about Digital Assets and crypto and fraudulent scams it can cost consumers millions. Decades ago this was on wall street with unscrupulous pushing or Bogus Companies in some cases investors cashed out their interest ahead of their client interest. We cleaned up the market through disclosures and interest rules. Always a work in progress, but the u. S. Market leads the world in transparency and integrity. If we lived up to the protection principles in other markets with that help protect the abuse the cost consumers billions . If they were to live up to the Investor Protection built into the current law it would help investors but right now unfortunately there is can significant noncompliance. It has to deal with fraud and abuse around you and misconduct. I think senator warner will ask about some things later. Last thing some of the Largest Companies disclosed information about Greenhouse Gas emissions on a voluntary basis. They do that because investors demand the information without a clear standard the information is not easily digestible or comparable across companies. What is your role in making these disclosures that investors are clamoring for. Making them useful and able to be compared and analyzed . It is a role that Congress Gave us over the decades to help investors compare information that companies are putting out. It is about material information. Investors, as you said, are making decisions today based on the Climate Risk Disclosures including Greenhouse Gas disclosures of Major Companies in america. That is already happening and our role is to bring comparability, consistency to this. And we put out a proposal. We have over 16,000 roles. We are likely to make adjustments. Vet is what we are trying to move forward on. You and i had a discussion about the importance of being responsible. And i want to have that conversation but before that i want to ask a couple questions. In april chairman mchenry and i sent you a letter regarding proposal with mutual fund in retirement setting. We express the concerns of making a twotiered market that would impact Retirement Savers at a time interesting. A time when so many are struggling with rampant inflation. Not that there significantly alter Investment Strategies for everyday Retail Investors. When a proposal like yours brings a large and Diverse Group of stakeholders out and against them given the current sec tendency to finalize rules, my fear is that you finalize this proposal without properly addressing my concerns and concerns of so many in the industry. As well as retirees and customers. Or worse finalize this role and proposal for a new structure like we see in the money market rule. Are you willing to resend this proposal so as to not create a twotiered system an unfair advantage for large swath of investors . As we move forward with this, we got a lot of comments. It is about open end funds, mutual funds, to ensure that at times of stress they are pricing it matches up when somebody redeems from a mutual fund. The remaining shareholders in the fund are not bearing what is called dilution area we have a lot of comments regarding your letter with chair mchenry. And will make considerate choices based on the economics making sure investors come first. It is incredibly important. I see the challenges that will be presented to customers are choosing the mutual fund. And the twotier system im talking about. But despite your reassurances of a public and everyday investors mostly impacted by the postal would have sufficient opportunity to provide feedback through the notes and comment process. Your agency provided over 90 days to sift through nearly 1700 pages of those proposal roles wrapped into one proposal. The same proposal do you think 90 days is a decent time by answering 1200 questions. It again in just 90 days . I feel very proud of the agency and the work to comply with the administrative procedures act. They seek the Public Comment in the equity market proposals as you mentioned. We voted them in december of last year. We kept the Public Comment file open until march, the end of march. 100 plus days from when we put it on our website. And we continue to get meetings and comment and the staff takes those into consideration as well. I will say 1200 questions, Small Businesses, investors to answer in a 90 day window seems a bit of a high bar. The dodd frank act required about 400 roles from financial regulators and 67 of those would come from the sec. Today it feels like we are living in the Twilight Zone asking people to comply to unrealistic time frames with too many questions. Frankly as you can tell too many rules from my perspective. The sec has put forward proposals about the 20 what is more troubling is that these rules stand to completely change our Capital Market structure that benefits market more than any other time in history. The breakneck pace you are pumping out regulation should not be applauded. It is unjustified and it is Market Participants. How do you square your mission which has fair, orderly and efficient markets with the people that you create. Thank you. I would note we take our threepart mission seriously. Bloomberg, wrote an article that we are actually behind three predecessors chair clayton, chair schapiro and chair pit have 22 final roles. All three of my predecessors did more final roles in their first two years than in four months. We are not working against the clock it takes 1224 months to finalize a rule. We reopen 18 of the rules. There will be changes in most of these rules based on Public Comment and economic feedback. Thank you. Recognize the next senator. The use of Artificial Intelligence is increasingly prominent in a number of industries inc. Being the financial sector. Tools can provide what is some of the potential risk as Data Analytics and Artificial Intelligence have been used extensively even before the recent chat gtp. It is used in robo advising and broker chat but also by more sophisticated investors who may be listening to this testimony and having computers analyzed. In making market decisions. They also drive efficiency in the Capital Market. Good efficiency in the Capital Market. Compliance and Insurance Companies are using it to also claims processing to process Money Laundering. There are some risks in our Capital Markets. Some of which could lead to the conflict in the market. We put out a proposal to address those conflicts. Some are hard to grapple with. It may be that the financial crisis in a number of years or 10 years is because we find everybody in the Mortgage Market may rely on one model. We go by gosh i did not realize there was one ai model. I want to point to something you previously commented on. The chairman explain ability may mask underlying systemic racism and bias in ai predictive models. Minorities already face disparate or should it disproportionate and ai tools have the ability to entrench those gaps. While we think about what ai can do in the positive sense of the Capital Market, the sec should be focusing on mitigating water potential negative risks. Is that something you are focused on . We are we put out a rule for comment proposal around conflict in the market. And they take into consideration their interest. And maybe putting that ahead of their investors. You also ask an important question about theres also biases in the data themselves. The data often reflects the biases in our great land. Unfortunately, Investment Decision and Investment Advice may be based on those biases. Outside of our jurisdiction and other agency jurisdiction, credit allocation could be based on the hard to explain data and biases. I share your concern, but at the sec we are focused on the issues around robo advisors. Two years ago the sec Advisor Committee unanimously had four recommendations for the action that they could take to improve diversity. Can you tell me what progress has been made on the other two recommendations particularly this closure and regarding diversity in workforces and leadership . Thank you with regard to that recommendation, one thing we did, it was about the time the Committee Hearing last year, the staff put out an answer to a question we frequently get as to whether somebody can take into consideration and Asset Managers Workforce Diversity and still be in compliance with the fiduciary duty. We answered that in the affirmative consistent with the rest of their requirements and law. And the full recommendation went further. The full recommendation of the Investment Advisers committee went further without this was an appropriate thing to answer that important question. I hope you will look at casting vote on some of the recommendations that they unanimously did. Finally, just to follow on the question on the open ended fund, this is the most significant change to mutual fund in generations. The question for me is what does the Economic Analysis of the condition conducted and how does it show that the changes are necessary. When i look at the Consumer Federation of american saying the negative impact of this rule have, it could be adversely affected by the proposal, but it comes to mind what was the analysis that brought you to where you are . It was based on some real event. In the spring of 2020 as covid was breaking out, many funds in the stress time were getting redemptions. People repoll and out of the fund and some of the funds were then calling off the fed reserve or saying sec saying we need support because there was such rapid redemption. So it is trying to address some of those things. The law says some of those things we should look at things to make sure a funds price when somebody redeems doesnt delude. We are looking at that and looking at it closely. Again we heard comment and we tend to make adjustments along the way based on the comment. We are taking the comment seriously. From you and other senators who have raised ms. , cfa and others. Time is out. Im going to say i will follow up with questions. Thank you. To the next senator. Thank you. It has been a while since we had an opportunity to visit with you. I do not send a lot of letters to you and when i do i try to make them as precise and clear as possible. We did send a letter on may 10 this year along with other members and in it we asked for three prison this specific items and we receive one back with detailing of rules that were being promulgated but no response to our other two requests. Like i say i do not ask for a lot of different items but i do expect that when we do ask we get an appropriate response back. Raking Ranking Member scott basically said he did not feel that you were being responsive. My question to you is is there a policy that you have with regard to request for information from the minority on the committee versus the majority on the committee . I would like to look and meet with you and see what the questions were. I am glad to followup and meet with you in person or over the phone if you wish. We were responsive to individual members to their questions on policy and other questions that we respond to. We do, if there is an oversight request that comes as i understand it from the roles of the senate and the rules of the house. Generally from the committee and the majority. In terms of the daytoday questions, we like to engage with you as you wish. As a site i do not ask for a lot but when i do i expect that we will get a response back clear on our request. We did not and i will followup with you because i think it is important. In this particular case, and this aggressive role with making attempts. You have 48 new ones and a total of 60 that you are working through. Let me just play with one of them for a minutes. The technology clearly has played a role in expanding the Market Access for institutional and Retail Investors. You said yourself we can use technology to make finance more inclusive and accessible, but you have not brought that attitude to the commission as is evident by the sec new predictive Data Analytics proposal. Although it name the proposal as targeting emerging Technology Like ai Machine Learning, the proposal creates a restrictive Regulatory Regime that will govern any Analytics Tool inconsistent with decades of legal and Commission Regarding the handling of conflict of interest. The new predictive Data Analytics proposal reveals the commission has a hostile Attitude Toward Technology or at least appears in ignorance towards it. Was israel intended to encompass all computational tools not just ai and Machine Learning . It is actually technology neutral. It is an important concept. It is like if an Investment Advisor, think about a robo advisor, is telling you their advice and it is only based on your family and your wellbeing and so forth, great, thumbsup, but if they are also taking into account their own interests, profits, revenues and the like, therein lies a potential conflict. Whether they are using Machine Learning or some other Data Analytics, predictive it Data Analytics there may be a conflict and this proposal is to get Public Feedback on how to in essence neutralize this. You received a lot of responses back . We think the Comment Period may close september 10 so i think it is an open Comment Period right now. I think we we get a lot of comments after the focus of early 21 when workers were using prompts. Im hoping that you take a look at that and we hear more about it before you make a final determination. Also, chairman earlier this year they proved commission propose the client access rule which has drafted and it is working to transform the way the bank holds client cash regarding that it is shifted. For the first time it would require banks to segregate client cash deposits. If the sec is concerned asserting itself in the core of the Banking System with deposits, credit, Payment Systems and within the credential regulators. Did that sec have the authority to regulate these banks . We put out a proposal that is based upon new authority that Congress Gave us in 2010 about the assets held and Investment Advisors and custodial asset. That is why we are updating this. For decades we had fire authorities as well which is a yes to your question around qualified custodians they can be banks, brokerdealers, something called future commissions merchants. We have a role to say what is required of the custodial arrangement so that the Investment Advisors are not losing, using, or misusing the client. Impact i am out of time but i followup on this issue. I look forward to it and i am glad to meet in person as well. Net senator recognized. Good to see you. I will follow up on the conversation you are having on ai. Let me ask you, beyond disclosing conflict of interest when you talked about the new rule you are looking at, should trading houses and Money Managers require to disclose their use of ai in other areas . It is a very good question, submerging technology and while we do not generally say that a broker or Investment Advisor needs to disclose whether they are using a excel spreadsheet or Machine Learning, i think there is new challenges with ai. The lack of explain ability and the chance for bias and biases and how it is used. The conflict as we are talking about. So, it may be Something Congress would want to take up. Such disclosures. It tends to be that at the sec we are technology neutral. You touched on this. Is there currently the ability to audit and investment ai algorithm biases to ensure that client retail customers are receiving advice in their best interest . It is a very good question. The consumer computer scientists as well as policymakers need to grapple with, but the nature of Artificial Intelligence is that it is sometimes having so many factors, millions or not even billions of variables that it is looking at, it is very hard to explain. Humans are very intelligent, but these models are hard to ask lane and thus there can be biases that are hard to ask lane. As explain it. So i think it is a policy worth further regulation. How do you envision the sec using ai for market surveillance , analysis and enforcement activities . We already do in some market surveillance enforcement actions. We look for patterns in the market some of the self regulatory organizations do it as well. That is one of the reasons we asked congress for greater funding this year in 2024 to build up our Technology Budget for the emerging technology. Thank you. I will jump to cryptocurrency. The enforcement that you are undertaking with respect to crypto. There was a challenge of the time because you were understaffed, do you feel comfortable now that you have a staff that you need in particular on the enforcement side when it comes to the fraud that unfortunately we are seeing related to some crypto . I would widen it out. The agency is only 3 larger than what we were seven years ago so i would say we are not large enough as an agency. The market has grown. In terms of crypto, ive been around finance for 44 years now. I have never seen a bill so rife with misconduct. It is daunting. Thank you. Let me jump to the clawback of competitive compensation. We see when a Company Fails thousands of people they can lose their jobs and investors lose their money but too often we see the ceo and executive walk away with millions of pop options and salary. Can you expand on the sec recently completed roles on executive compensation and how is the sec improving rules that limit insider ability to trade in self stock. We have done two things. Many things. Two are mandated by congress. There was erroneously produce financials and and negative got race paid based on that. They have to give the money back when the financials are revised. And Congress Mandated it in 12 years later it had not been done and we got that done. The third thing was something called it was about how it executive sold their stock to the public and they get compensation. And we basically said you have to wait until the next order Financial Results are published. At least a 90 day cooling off period to follow the plan that will be on automatic pilot. And then at least 90 days have to go by before you can sell. That only went into effect about six months ago. Thank you. As i mention with the outset of the hearing we are more strictly enforcing than i normally do the five minute rule because there are it looks like 20 members showing up. I recognize the next senator from his office. Mr. Chair, can you hear me . My assistant said you could not hear me. Of got to be brief. In response to the letter we got a 1. 5 page response which in my judgment was not responsive to the question. One, does the secs analysis on the roles consider the interlocking nature of the rules . Just because you may not have been on audio at the beginning, which roles . Regulation best execution, completion role, pressing increments, and disclosure of Order Execution information. Each of the proposals have a robust Economic Analysis that speaks to each of those individual matters. One which was a disclosure, one which is the agency itself adopting a best execution role, one updating the market structural. Each of those individually address the economics of each of them. Individually. Are you saying there is no reason to understand the interlocking nature of them . You are analyzing down a stovepipe but are you doing the kind of analysis to understand how they are going to work in tandem . There are two of the things we do. It is a good question. We do ask questions about that and we receive a lot of comments. Secondly, if we were to finalize anyone of those four rules, we do those on other roles, we incorporate that into the economic baseline. Everyone of our analyses, one of its tenants has a baseline. If we were to finalize one of these roles prior to others, we incorporate that into the Economic Analysis. I am going to submit a couple of questions for the record. The response was a bit disappointing. It referred us back to the sec website. I want to touch on something that the senator asked about, the safe guard advisory asset rulemaking. Given the impact it has on for baking activities, at what point in drafting did the sec consult or refer with regulators . Mr. Gensler our staff has ongoing discussions. This was a new authority we got in 2010 and the team that had been working on it had been working for 12 years so there has been ongoing discussions over years. In terms of this rulemaking, since that has been out, there has been discussions but i could not tell you how many times the staff had been working on it. Sen. Tillis i am going to submit for the record letters on a couple of subjects. On this particular subject, it appears to me theres not been in extensive vetting and discussion with the credential regulators. We will submit that for the record. Unless i can be convinced that there was significant engagement , why do we put this rule on hold until we got a more. Response . A more full sun response . Mr. Gensler we put things off her proposal, we get Public Feedback, sometimes we repost. We have done that in abrupt times. A number of times. We adjust based on the Public Feedback and we have done that on a new the everyone of the proposals we have adopted. Sen. Tillis i am curious about the analysis you have done to determine how the rule would in fact market liquidity. I would like to get that and ask them for the record. I dont think you could answer that in 45 seconds. I am also curious as to whether or not you have completed an analysis. If you have, i would like to see it. The requirements for the proposal, just a quick answer, have you done much in the way of work and can we look forward to a Detailed Analysis on the liquidity question and on the impact on investors. Sen. Tillis week mr. Gensler we do on each of our rules look at the economics. Depending on the rule, some are germane to liquidity and some are less germane. We do that in the Detailed Analysis and that is put up to comment. Sen. Tillis can we get that information for the record . Mr. Gensler yes, but it might be that which is already on the public record. That is the analysis we have done. Sen. Tillis thank you. Sen. Brown senator warner of virginia is recognized. Sen. Warner i have a five minute timeline. I have two topics, lily get them right away. First is the question around Human Capital disclosure. We have talked about this many times. Seven years ago, 70 to 80 of corporate value was in equipment. We are now 90 in Human Capital. Investors want to have that kind of information about what companies are doing in terms of investment in their workforce. Last year chairman brown and i sent you a couple of letters. Yesterday we were introduced the workforce investment act. Before my colleagues say this is some rearing of esg, this is something that chair clinton under President Trump took the lead on. Given the fact that there is this consensus that companies and investors want to know how they are doing in terms of recruiting, training, and maintaining, last september you testified this was one of the members one of the things on your agenda. Where are you . Mr. Gensler we wanted to see the data and see what happened off of that rule from 2020 and build off of that and really be targeted are under turnover and workforce issues. There is some consensus around that, just trying to find that is targeted to important issues around the workforce and the cost of the workforce, the turnover of the workforce, the retention and training. Sen. Warner in have a big agenda i know you have a big agenda. I would urge you to move expeditiously. I dont think we can find a ceo anywhere in america that does not say their workforce is their number one asset. The fact that we have such little reporting on that is any area in which we need improvement. I want to move on to ai. I concur with senator menendez. I see upside but i see huge downside. You are an ai expert from your work at m. I. T. , due july 17 speech your july 17 speech. As we think about how to get our arms around this, i think two enterprises in our society that are most subject to interference from ai in terms of undermining public trust is faith in our elections, and there is talk about how ai can manipulate. The other entity reliant on public trust is Public Markets. I am concerned we have seen of the bit of activity here, whether it was the fake fire on the pentagon and that interfered with the market. I am not im surprised we have not seen more interference in fortune 500 companies not just in terms of deepfakes but in tools that might create false complaints about audits or false filings in terms of regulatory entities. How are you thinking about making sure our Public Markets at the trust in those markets are not undermined by the rise of ai across the board . Mr. Gensler you are absolutely right. Fraud is fraught and if you are using ai, that is a risk to the markets. I think we have good laws. These technologies will challenge those and we will look forward to working with you on that. Deception is deception and i would not let anybody tell you there is no human behind the are rhythm. Behind the algorithm. There is still a human setting the broad hyper parameters. These are the top level what the auger rhythm is training on. I would not know that there was a deepfake on me that i resigned that was put out in the middle of the summer. Somebody will try to influence stock market prices one way or another and my shop had to could we say no. Mr. Gensler the fact that sen. Warner the fact that those fortune 200 and 500 companies i am surprised that has not been more. I hope as we think about this we not only go after the generator of the rhythm but we also realize the distribution model, particularly the large think which model, we cannot repeat the mistakes made in social media with the get out of jail free card. Thank you. Sen. Brown senator hagerty of tennessee is recognized. Sen. Hagerty . Thank you. You referenced authorities granted to the sec by doddfrank. I would like to sort my comments by addressing some of those before i get into questions. Several of the recent proposed rules put forward by the sec, notably the private and analytics rules, your authority is based on a tortured interpretation of section 913 of doddfrank. This report has said that major regulations require clear congressional authorization. Section 913, the provision you rely heavily on, provides limited authority to regulate in this space, not blanket authority for the sec to ignore all the other bitingly which of the law and reread the standard of care for brokerdealers and Investment Advisors. If congress wanted to grant a limited authority to the sec, do think it would have put an expensive power in a subsection called other matters . That is clearly not the case. Basically any law can be started by reading a sickle section in isolation. In the Predictive Analytics role rule, the sec defines a competent interest as any interest of the firm. You also continually ignore its clear limitations which are intended to come by the sec authority to certain sales practices and conflicts. What appears to be happening is you are targeting a subset of the industry despised by the left. By applying a different standard for emerging tech, the sec is not acting as a neutral party. The sec seems to be targeting any of the newer entrants. In the case of the private fund rule, the sec had ample Enforcement Authority to recover funds. There must be another purpose for this rule. What you appear to be doing is trying to change the negotiating dynamics between two sophisticated parties in favor of one over the other, a clear abuse of power. Where these problems that an etiological driven agenda, important matters, critical to the secs mission, fall through the cracks as you Waste Resources on matters like this lets get to a matter where the sec should be focused and that is Chinese Government connected broker deals. Congressional oversight letters have highlighted the trend of brokerdealers with connections to the Chinese Government. These chinese linked firms are operating tell businesses in the u. S. Including promethean and tiger securities. Some of these companies have registered representatives located in china. Chinese law is different than u. S. Law, they dont play by the same set of rules. My question is, how can the sec oversee registered representatives and employees in these firms located in china and why should these firms be to do business with ricoh customers in the u. S. . Mr. Gensler you raise a good question. Regardless of brokers locations, china or europe or anywhere, they want to be in our markets. They have to participate and play by our rules. They have to be subject to them and subject to examination and have openness to that. Sen. Hagerty how can you examine and impose the rules on these guys located in china . Mr. Gensler having gone through a lot of challenging negotiations with the chinese authorities over a separate matter about auditing and inspecting auditors, i share your concern. It is quite a challenge. With congresss help and the holding affordable Holding Foreign Companies Accountable act, we have been able to through the auditing board inspect those auditors. Sen. Hagerty i would encourage this application of resources to really focus on these actors. I would like to turn to another point. The u. S. Court of appeals for the district of columbia unanimously ruled the secs denial of Grayscale Bitcoin etf was arbitrary and capricious. They argue that the product is mathematically interesting washable from already approved futures products. Can you explain what the sec needs to see in a filing to approve a spot bitcoin etf . What questions do you need answered from issuers about the Market Infrastructure in order to allow this to happen . Mr. Gensler sen. Brown be brief and we are moving on mr. Gensler we are still reviewing the decision. We have multiple filings around a and exchanged products, not just the one you mentioned but multiple others. We are reviewing them and im looking forward to staffs recommendations. Sen. Brown senator warren of massachusetts. Sen. Warren the job of the sec is to protect investors and not the fossil fuel industry. When you are nominated, you said chad corporations should not be of the hide their Climate Risks from investors. Without a strong Climate Risk Disclosure rule, that is what companies will continue to do. You have amended to protect investors. You have strong public support to do this. I just want to say it is time for you to get this job done. Instead of spending my time fencing with you over when you are going to get this rule out on climate and a strong rule on climate, i want to shift gears and talk about private equity. When private equity funds acquired they and the companies they buy dont have to apply rules to publicly traded companies and brokers cyber District Youth furniture securities. The sec finalized new rules to man some but not all of private equities most abusive tactics. Even so after the rule change, have equity funds can use registration exemptions intended for Small Businesses to raise trillions of dollars in private market without filing public disclosures. That is a great deal for rabbit equity, not such a good deal for investors for private equity, not such a good deal for investors. More and more people are at risk because they are sucked into markets that have weaker rules. Do you have a ballpark estimate of how much money investors poured into the private equity markets private markets including private equity markets where they are covered by the weaker sec Disclosure Rules . Mr. Gensler the private funds total assets under management are sen. Warren how much was poor in last year . Mr. Gensler it is in the low single digit trillions. Sen. Warren does 4. 5 trillion sounds right to you. Mr. Gensler we can get back to you but it is probably in the ballpark. Sen. Warren it is right. Do you know how much money investors put in the same time period into the Public Market where they got much better protection . Mr. Gensler what youre highlighting is as much as activity in some smart activity sen. Warren do you know what the number was . Mr. Gensler i suspect you are going to tell me. Sen. Warren i am. It it was 1 trillion. The sec is regulating a Public Market that handles only about one in four new investment dollars while almost three out of four dollars are going into a private market that has much weaker rules. Those weaknesses are meaningful. Even after the rules change. For example, private equity firms selling exempt securities dont have to report audited Financial Data to the public. They dont have to disclose did the showing a company has lost all this contract or is getting sued for billions of dollars. It seems to me like that is an invitation for fraud. The sec was built so that investors could have confidence in the honesty of markets. Now three fourths of investments coming in are not getting those basic protections. How do you explain to the American People that the sec, whose job it is to make sure markets are honest, is standing by while private equity and the companies they own scoop up investor money without any public verification that the books are honest or that they are not hiding huge risks . Isnt it your job to fix that . Mr. Gensler part of what we did in a finalized you a few months ago was require quarterly reporting on their fees, performance, and side letters and at least annual audits of those documents. Sen. Warren since we are pressed for time, i not disputing that you have done good things, you have. But these look like two giant holes to me. The question i am asking is how do you explain to investors who now represent three quarters of the new investment money that you are not even making these guys do an audited financial statement. Mr. Gensler the rule we just finished has any honorable any annual audit in in that for the private funds themselves. Sen. Warren let me just say, i really think given the risks in this market, i appreciate what you have done, there is more to do and i hope we can do it as quickly as possible. Sen. Brown thank you. Center vance from ohio is recognized. Sen. Vance i want to ask about a few things. Lets start with the top with you. In 20 you are the cfo of Hillary Clintons failed president ial campaign, is that correct. Mr. Gensler i was proud to be chief Financial Officer to the clinton campaign. Sen. Warner sen. Vance s and also true that with the attorney general of new jersey . Mr. Gensler he was the attorney general of new jersey. Sen. Vance the attorney general of new jersey is the guy who refused to enforce immigration laws and cooperate with ice and he launched eight separate investigations against donald trump during his time as attorney general. Is it also correct that you your general counsel was previously deputy general counsel under nancy pelosi and instigated two impeachment hearings against donald trump . Mr. Gensler i believe she was. Sen. Vance one of your senior report and councils is married to peter strzok. My point is that you seem to have a very troubling pattern of hiring at an impartial agency, the people who have a vendetta against the former president. I fear and i worry that that has implicated itself and affected the policy of the sec. When did the sec take its first forced action against a spec a spac . Mr. Gensler we would have to get back to you. I dont know what decade that was. Sen. Vance according to my research, september of 2021 is the first time the sec launched enforcement action against a spac. I want to recap a few things. You were Hillary Clintons finance director. Third, you brought in the litigator on two houses between trials against donald trump. You have any other enforcement counsel married to peter strzok. Senator warren urged you to investigate the truth social company and in december 2021, a few weeks later, you launched an investigation using a novel legal theory against the former president s social Media Company. That the some coincidence. Doesnt it . Mr. Gensler it is good to meet you in person, but i think youre not correct. Sen. Vance what was i not correct about . Mr. Gensler we follow the facts of the law wherever they are. With regard to the spac company field, there have been abuses. One in 2018 that we found. There are times that we open investigations. Sen. Vance the problem i have is not with you investigating spac mergers, but using a novel legal theory against your bosss , joe biden, chief political rival. Every social Media Company had banned the former president so you could use any argument that the sec was using its power to silence the power of the former president. Let me offer another observation. We are rightfully concerned about the weaponization of the department of justice. I am increasingly worried that we should be more worried about derivatization of the securities and exchange commission. It looks more and more like not an impartial regulatory body protecting investors and consumers put a regulatory body using his power to silence political rivals of the current president of the United States. I have one final statement final question. Have you spoken to anyone at the white house about your investigation of Donald Trumps truth social. Mr. Gensler i dont speak to the white house about anything in our enforcement or investigations. Sen. Vance you for the answer. I am mindful for the time. I have little hope that i could persuade you that hiring committed partisans and using the regulatory powers of the sec in a way that looks and is politically partisan is a true threat to american democracy. Maybe i can appeal to your sense of self interest. If you has use the sec in a politically motivated way, eventually you will be out of power. Turnabout is fair play. Mr. Gensler i am very proud of the agency and the division of enforcement and my fellow commissioners in considering these matters. The one matter the senator mentioned settled earlier this year and it was not what not with the former president and it is with the company. It is all a matter of public record. Sen. Brown senator van hollen is recognized. Sen. Van hollen thank you for your response to the last question you just received. I have known you for a long time and i have known you as a person who always follows the rules in public interest. I am glad to have you chairing the sec. You brought a focus on transparency, to adapting to changing Market Conditions and of the investing public. I want to thank you for your efforts to strengthen the rules against insidertrading. Senator fischer and i introduced a Bipartisan Legislation urging the sec to move in that direction. You and the others did by tightening the safe harbor rule to prevent it from being used as a backdoor for insidertrading. I want to commend you on your role along with the in implementing the legislation that was passed, authored by senator kennedy and myself, on Holding Foreign Companies Accountable in order to make sure Companies Based in china were not using funny accounting rules to mislead investors about the health of their financial Balance Sheets. Senator kennedy and i are working on the whole informant sizable Holding Foreign insiders accountable. We look forward to working with you on that limitation. When it comes to greater clips closure greater disclosure and transparency, i wanted to turn to you on the issue of private equity. There have been a number of questions surrounding the need for Greater Transparency in private equity given the size of private equity in our market. I want to ask you about any aspect of that that has not come up, which is the role of sovereign wealth funds investing in private equity. Because congress has tightened the rules, we see less direct Foreign Investment by chinabased sovereign wealth funds. We have seen a big increase over the years of investment from sovereign wealth funds or state backed investors such as the state administration of foreign assets and the China Investment corporation. On the one hand, private Equity Managers here argue these are nonvoting members, these are passive investment, no direct control over the decisions or operations of these funds. On the other hand, as the size of these investments grow, number of people have raised concerns. Chairman, i would like to put in theconsent the Financial Times article dated may 30, 2023 titled has china become too cozy with private equity . Sen. Brown so ordered. Sen. Van hollen in that article it says because of the lack of transparency it is a black box. A china expert at the center for strategic and International Studies in washington. Its not something the u. S. And others have been able to address because it is so opaque. That was the quote from that individual. The article goes on to point out that we have no visibility in these investments and talks about the fact especially after the russian invasion of ukraine and sanctions against russia this became a more important issue for investors in private equity. Could you talk briefly about how you think about this, the need for greater disclosure in private equity broadly and i know theres an ongoing case but can you talk about this issue of foreign sovereign wealth funds and their Huge Investment in private equity and whether that raises concerns for Greater Transparency . Mr. Gensler under our laws, Investment Advisors in the u. S. Can advise Asset Managers including sovereign wealth funds all around the globe and if they are properly registered the advisor has to be complying with their laws. We do have a recent adopted rule about private fund advisor trends parents a transparency. Youre speaking about something the investors behind that. Though we have some role to play at the sec, is also a very Important Role for other agencies like the Treasury Department and a collection of other agencies not including the sec. Im certainly interested to followup and understand what you are thinking whether it is something legislatively or otherwise. We as an agency are neutral about which investors from which countries the in visor the advisor is advising. As long as they are complying with any Money Laundering laws and the like. Sen. Van hollen i look forward to following up. Sen. Brown senator lummis of wyoming is recognized. Sen. Lummis will start with staff accounting 121 which ive been harping on for about a year in relation to the responsible financial innovation act. Staff accounting bulletin 101 requires that Companies Including banks place Crypto Assets under custody on their Balance Sheets. And even fed chairman powell has agreed that this is unprecedented in Financial Regulation in the u. S. My first question is youve said repeatedly that this is to provide Greater Consumer protection and like we saw in the bankruptcy last year with thousands of customers were made unsecured creditors, isnt it true that placing custody assets on the companys Balance Sheet could result in consumer assets being seized by creditors in the event of bankruptcy and that that would hurt consumers . Thank you for mr. Gensler thank you for going down the more technical rabbit hole and i would be glad to go there. You are absolutely right about the celsius finding but what was interesting in that bankruptcy finding is a judge said these are not segregated protected assets. By and large, that the investors were just lining up in bankruptcy. That was regardless of a staff accounting the sec put out because celsius was a private company and the staff accounting bulletin with staff advice on how to do accounting in Public Companies. The reason the staff came to the conclusion which is different than for stocks and bonds in custody is because the laws in the u. S. Right now tend to be that you cannot segregate readily easily segregate those Crypto Assets the way celsius was taking it on and that judge said you are in line. Thats happened at voyager, ftx, its happened at each of these various bankruptcies. Sen. Lummis lets talk about the relationship of bulletin 121 to banks. It prevents banks from offering crypto asset custody because it requires the assets to be back to one for one by u. S. Dollars and if that standard to legacy custody banks like bny mellon, they would have to have trillions in regulatory capital. So that prevents the most heavily regulated Financial Institutions in the country from offering custody. So if your ultimate goal is to provide real consumer protection, shouldnt the sec withdraw staff accounting bulletin 121 to allow banks to provide custody . Mr. Gensler the staff accounting bulletin is about how to properly show that two investors in those banks. And its investors not the people getting the custody. The Bank Regulators are free to address how they treat capital however they wish to treat capital but this is just about is the Balance Sheet have those custodys. Crypto as a liability but also as an asset. We do not speak to how it is backed, that is up to the Bank Regulators. Sen. Lummis thank you. I want to turn to the secs pace of rulemaking. Lets use for example the proposal on the use of predictive Data Analytics. To regulate not just ai but in overly broad description of covered technology encompassing all uses of technology down to adding together numbers in a spreadsheet. Even numbers in a Financial Firm passthrough spreadsheets. My concern here is this rule will follow a pattern of others such as the Money Market Fund reforms proposal where on workability means the end rule looks different from the proposal. The documentation required to rule are so demanding the industry will not be able to comply. Would you commit to repurposing the use of predictive Data Analytics rule if or rather when the commission arrives at a different approach . Mr. Gensler we take Public Comment serious and we make adjustments based upon whether its been probably properly noticed and so we commit to taking Public Comments seriously. Sen. Brown senator smith from minnesota is recognized. Senator smith thank you so much chair gensler for joining our committee today. When you were here last fall i asked you about the Climate Risk Disclosures and i think you very effectively explain why this information and relevant ash had relevance to investors so they have good information and make informed decisions about their investment. Its been a year and meanwhile the rest of the world is moving forward. In the eu and the u. K. And the International Sustainability standards board have all recently taken steps to implement robust Climate Disclosure standards. And of course this will be reverberating across the globe economically in fact its estimated 3000 u. S. Companies will be subject to these eu standards. So my question is i understand you cannot comment on ongoing deliberations but could you comment on how you see u. S. Leadership on the issue. Why you think it is important and what level of urgency you feel to complete this rulemaking process . Mr. Gensler it is really about bringing comparability and consistency to that which is already happening. But many u. S. Issuers are already disclosing climate risk information and investors are making Investment Decisions and so we just look at it within that decades old tradition the sec addresses its self to material disclosures and comparability. Sen. Smith to this point of establishing and making clear what that standard is, what people, what standard and expectation we should have around disclosures, when do you think this might be done . Mr. Gensler we try not to do things against 00. Its really when the staff and commission is ready. We got about 16,000 Public Comments. The private funds rule being discussed earlier took us about 19 months or so from proposal to adoption. But again i do not want to predict on this one. This is a very heavy comment and a really important issues have been raised around the discussion i had earlier, but over a number of other matters as well looking at staff recommendations on how to deal with those comments. Sen. Smith thank you. I want to dive in, i was smiling to myself as the senator was talking about getting nerdy on you so i will dive in for my last question on something thats maybe equally nerdy. As you know the registration for index links annuities act which i led with senator tillis. It requires a tailored Registration Form the kinds of index links and annuities so that consumers that want to purchase these products have good and clear concise information. I want to thank you and your staff are working with us on this legislation and its implementation and im wondering if you can share updates on how that is going and what we might be able to expect a first draft. Mr. Gensler it is going well. Congress set a deadline of a total of 18 months to not only get a proposal, but one of the pieces we are working on is Congress Also in that legislation you coauthored we had to do some investor testing and so theres two pieces, the investor testing and also the proposal bringing that up to my fellow commissioners trying to get Public Comment and also with an eye towards adoption. Sen. Smith i appreciate your commitment to that. Mr. Chair i seatback my time. The chair recognizes senator britt. Sen. Britt thank you for being here today. I am here about aggressive rulemaking and that agenda. Over the last two years the sec has nearly doubled the number of rules that your two predecessors proposed within the same amount of time. The only time weve seen this case of activity is when the sec was implement doddfrank. Those provisions after the financial crisis. The difference here is your agenda is not being driven by congressional mandate or widespread market failures like we saw in 2008 and that makes me concerned. In fact its quite the contrary. 83 of proposals are not required by congress and we have yet to see a market failure that warrants this many new proposals and regulations. Even your own former Inspector General raised concerns about the pace of the activity within your agency and said staffing issues may affect the quality of the rulemaking. To add to this i believe you have failed to provide the public with justification for the sweeping regulations and have failed to allow for robust Public Comment due to fully understand the broad implications on the market. It makes me think what constituency is the sec actually listening to. I do not believe it is the average momandpop or a 401 k investor in the state of alabama. It seems to be a small handful of politically aligned investors. Encourage people to go public so more people have an opportunity to invest in sharing the fruitfulness of the market. I am concerned some of the things going on will actually deter people from doing just that. There are countless examples we have seen but i want to ask about the proposal i heard senator warren ask you about warner ask you about. When can we expect to see that proposal issued . Mr. Gensler thank you its good to meet you. I worked a lot with her former senator from your great state. Again we dont do things so much against the clock. We wanted to see what those first couple of years of filings look like. Chair clayton and the sec put something in it 2020. We looked at those, we look at the data and the staff is working through. Sen. Britt august 2020 is when that was implemented. It seems when you look at that you have a three year time period but the vast majority of that has been during the covid time period and the obligation on workforce and these things may not be an adequate representation of what they may be in the future. Do you agree with that. Mr. Gensler i think it was a very unusual time for our nation for sure but this is about the public filings and seeing how Public Companies had adjusted their disclosures. Sen. Britt from your perspective what significant from the 2020 implementation that needs to be adjusted or expanded here . Mr. Gensler what staff is looking at is the filings and how those disclosures are informing investors about a very important material asset, the Human Capital itself. And its around, possibly around the total dollars spent on the workforce and turnover. Sen. Britt so we dont know when we will see that, im clear on that . Once you bring it forth how long do you expect to leave the Public Comment open for such an important rule . Mr. Gensler we will make that determination at the time. Sen. Britt what is the threshold, can you help me with that. Mr. Gensler all of them since january of 22 have been comment on average at least for 60 days when we voted out of the commission. And on average its been about 70. Even beyond that because it takes 12 to 24 months to finalize a rule we continue to take meetings, we continue to take comments and staff considers those comments. Sen. Britt last question. Can we expect to see a proper robust costbenefit analysis when you do release this . Weve been talking about it for two years. Im hopeful you will truly take into account the downstream effects of whatever you propose. I think some of the things weve seen have been halfbaked in my opinion and im hoping something with such large implications that we will see a very thorough analysis on how it goes all the way down to smaller entities that im concerned about. Mr. Gensler we do robust Economic Analysis on each rule. Thank you. I have several questions for you today and limited time so please keep your answers concise and specific. I hope i dont have to but i will interrupt if needed to keep moving on. One year ago in october 22 the office of ig offered a report on the serious management and performance challenges at your agency. Members of various divisions raised concerns about Resource Management due to the increase in the rulemaking activity. As we discussed i appreciate your desire to protect consumers and investors enter goal insuring the u. S. Capital markets remain the most sophisticated investment class. How we accomplish those goals matter. The ig report illustrates an sec with a market increase in attrition, difficulty in hiring a talent. These are fundamental problems that call into question the quality of rulemaking the agency is capable of producing. Ambitious agendas can result in poorly written rules that confer arizonas access to economic opportunity. What if you done since october of 22 to address these management challenges . Mr. Gensler part of it is hiring more people. We are proud to say the partnership of Public Service looked at us and we went up in the ratings that were the third highest rated agency but you are right. Attrition has moved up and are attrition moved up in part because it is a very tight job market and we are about six or 7 attrition. The average employee stays about 16 years. Sen. Sinema id like my staff to be briefed by your staff on the progress you made. I will followup with you. Mr. Gensler thank you for that. Sen. Sinema your own Division Managers raise these bandwidth concerns for the ig. Do you assess whether they have adequate bandwidth to conduct a particular rulemaking before directing them to engage in that rulemaking and if so, how do you make that assessment . Mr. Gensler with each of the main divisions, investment management, Corporate Finance have a rule team and we do that with the leads of those teams that are career staff. We also do that with the division of economic risk analysis about their bandwidth in each of those groups. Sen. Sinema the ig report also cites a shortened timeline ring the drafting process and shorter Public Comment periods that your staff indicates may be resulting in less feedback during the process. I want to ensure that stakeholders and the public have time to weigh in on these actions. More sophisticated have armies of attorneys on a tent retainer but Small Businesses and Retail Investors need more than 30 or 60 days to understand the impact on their business and provide feedback particularly since these rulemakings are very complex and there are multiple rulemaking processes at the same time. Does your agency Value Hearing from Small Businesses and Retail Investors and how are you ensuring they have adequate time and the use of their own resources to provide feedback on your agencys actions . Mr. Gensler we do value the input of Small Businesses, of every day investors. We reach out in many ways through social media and elsewhere to try and encourage people to comment on our roles and i would note this for the public whether large, sophisticated investors or every day investors, we continue to take meetings and get comments during whats generally a year to two year processes and they are very beneficial to us. Sen. Sinema sec staff also raised concerns with the increase in rulemaking activity had resulted in a trade off other Mission Related work because they had to borrow staff. Has bandwidth allocated increase rulemaking traded off bandwidth for enforcement . Mr. Gensler i think the biggest tradeoff is we shrank from 2016 to 2021 and we are right now 3 larger than seven years ago. But our Enforcement Division of about 1300 people which is about a quarter of our overall staff is not a tradeoff because policy shops are in different parts of the agency. Sen. Sinema your staff raise concerns with the ig good when moving more aggressively with rulemaking the sec is opening up to increased litigation risk. Weve seen some recent setbacks for the agency particularly in respect to cryptocurrency. How are you assessing the agencys litigation risk with respect to the breadth of rulemaking strategy . Mr. Gensler we take congresses mandates to us and the authorities we have seriously also how the courts interpret them and we are dedicated and committed to doing things within our authorities and Health Courts interpreted. We get a lot of feedback from the public on that. Sen. Sinema my time has expired pride ill followup and further questions later. Sen. Danes chairman gensler i want to express my ongoing concerns with truly unprecedented rulemaking agenda youve pursued since taking over the sec. I remember when i ran for congress the first time in 2012, we talk about the rising power of the Fourth Branch of government, of the executive branch if our Founding Fathers saw what was going on would be way too much power and rulemaking by fiat going on. Whether it be the crusade against Digital Assets or your attempts to use the sec to further the administrations climate agenda at the expense of taxpayers, there appears to be hardly a sector of the u. S. Economy that you view is out of reach of your rulemaking authority. In the nearly 28 months youve been in office, the sec has proposed or finalized 47 substantive rulemakings. Of these rulemakings, more than 80 were not required by congressional statute. This means that the vast majority of the agencies rulemaking agenda has been voluntarily undertaken. Chairman gensler you are not an elected official who is beholden to constituents, you are an unelected bureaucrat who has taken upon himself to reshape american Financial Markets to your liking to the detriment of innovation, investors and Small Businesses. One such rule thats facing broad opposition from across the ideological spectrum left and right is the agency swaying price proposals. Ive heard many concerns of the secs Swing Pricing is both unworkable and extremely harmful for montana seniors and individual investors. A hard close would also create significant and unavoidable disparities between investors based on their geographic location as well as their investment type. Even far left groups like the Consumer Federation of america have expressed opposition to the proposal. Noting that the tangible and significant cost associated with the proposed implementation of Swing Pricing are very likely to outweigh any perceived benefits. Given the broad bipartisan agreement that Swing Pricing will impose significant costs on investors with limited benefits to the broader markets, do you still intend to advance this rule in the face of what i would argue is overwhelming opposition . Mr. Gensler if i might i just want to mention something in the generic. We have about 50 policies on the agenda, a 50 project the agenda. My immediate professor predecessor finalized 64 adopting roles. It may be that you and i might have differences on the policies but it is not out of line with what happens. In terms of your specific question with regard to this rule, you are right we have gotten significant feedback, theres kind of three pieces, about the liquidity of the underlying funds, the Swing Pricing and then a third thing about the back office plumbing but really relevant to this. We got some very significant comments critically on the Swing Pricing. We are taking a close look at that to see what is appropriate and whether to make adjustments and as we go along i can precommit whether we will finalize or not. Sen. Danes by the way that comment made about the rising power the Fourth Branch is a bipartisan comment whether its republican or democrat in charge. Truly believe the Founding Fathers would say theres way too much power. Mr. Gensler theres probably a lot they wouldnt recognize. Sen. Danes turning to the secs proposed rule of requiring disclosure financing missions. One Significant Impact of this rule is that it will likely lead to widely inaccurate disclosures that will be of little practical use to investors. It appears to me this is another step in the agenda to discourage investment and finance industries to finance ideology. Ive serious concerns you have the Legal Authority to enact such a rule and i would urge you to drop this rule. My question is what would give the sec authority to circumvent congress and enact rules by executive fiat . Mr. Gensler we do all that we do based upon congresses authority. This is built on multidecades authority about disclosure and in fact president roosevelt called the initial bill the truth in securities act. Nothing could be further from the truth. We have no climate agenda whatsoever. We are not a climate regulator. Over 80 of the top 1000 companies in 2021 have been making Climate Risk Disclosures and 55 were making Greenhouse Gas disclosures. So its trying to build some comparability of that which is already happening. We got a lot of feedback. We will have to look at that feedback and think about what to do as senator tester and i talked about. We will have to think about a lot of other pieces of this its trying to bring comparability to that which is already happening. We are not a climate regulator. Sen. Danes im out of time thank you. Could you give a description of the power the equity sector over the last one he five years, how theyve moved into banking insurance, real estate, other things and do you believe that these entities are now competitive to