Transcripts For CSPAN2 Sec. 20240703

[background noises] the Senate Committee on banking will come to order welcome back chair gensler. Markets to provide for their futures for far too long our markets advance regulators the answer to the interest of the powerful few on wall street, big banks and private Fund Managers Corporate Executives looking to keep profits for themselves instead of investing in their workers and innovation and the american prosperity. New Technology Risk further concentrating power on wall street at the expense of americans fraudster use, Cyber Attacks deep fake Ai Technology to scan american savers based with that unfair Playing Field that favors entrenched wealthy interest over hardworking americans the sec has its work cut out for it to protect families whose hard earned savings are invested in the market. Many on wall street have suggested sec has been moving too fast recently. We have heard all of the complaints. I amov sure we will hear them again today for too many rules, too fastd too hard to comply with. But americas marketst are the greatest in the world because we have strong Investor Protection. Because we have effective b regulators at the sec and elsewhere who work to make sure we have transparent and honest markets that americans deserve it. We know all too well we dont have its wood regulators at the behest of a lobbyist and the politicians who always do their bidding ignore changes or are too slow to respond. It was 15 years ago this week the newman brothers collapsed putting us in the middle of a financial crisis because industry ran wild. Look at the private fools private equity and hedge fund manage tens of joints of dollars in assets. At the end of last year Pension Funds and endowments now some Retirement Savers. Private equity funds alone controls over between was incredible because i use that word sparing that we are between 15 and 20 of our whole Economy Private equity firms control that. That numbers going up every year. But all the americans to savingo savings are controlled by these firms have been able to get much information about how theyre using peoples money. They is comparable performance data, disclosure conflict of interest by fund manager. Americans have in the dark about all of it until now. The private funds rule will change that thank you and force them to tell people how much money the private equity firms are charging. It should be no surprise the groups that complain the proposal was too strong, too hard to comply with an unnecessary, weighted only days before running to the venue of choice the fifth Circuit Court ngof appeals of course its alws the fifth circuit the most extreme and partisan circuit in america and always same playbook we see over and over wall street corporate interests trying to use the courts to go around the public. By the companies trying to hide showings in stock buybacks for one thing. Sec update of corporate buyback disclosure will also provide muchneeded data and how executives are allocating corporate resources. That increase transparency will combine with our first ever stock buybacks together stop throwing trillions of dollars in buybacks and rich executives instead start investing and workers and an innovation for the commission took important steps to address fraud increase executive accountability under your leadership mr. Chair the sec finally took steps to complete two safeguards required under daughter frank the first erwas proposing the rule prohibiting conflict of interest in the market for mortgagebacked and assetbackea securities that sounds technical during the financial crisis of 2008 wall street bank predatory hedge funds but against the Housing Market because of billions inn damage. The second daughter frank provision requires companies to work to clawback compensation from executive who earn bonuses based on flawed results the committee has been working to enhance executive accountability by recently passing i think the Ranking Member for this for about a 21 two a bipartisan bill to hold Bank Executives responsible when they mismanage their banks. Look forward to passing the Senate Becoming law for the past year advance transparency by requiring companies to notify the market when they experience cyber attack we know this is a growing risk every industry. Now there are standards that ensure investors and policymakers know when they potentially devastating attacks occur. Scc continues to pursue enforcement action against all kinds of scam artists. Those who target the vulnerable and crypto frauds. More work tora do. We know its looking ahead at emerging risks posed by new technologies including Machine Learning and Artificial Intelligence. Must make sure brokers and Investment Advisors put customers first when they is new technology. This committee will be discussing the impact ofme ai wn Financial Markets and consumers in the coming weeks. Im eager to see sec finalize its Climate Disclosure rule there has been significant opposition to the proposal who would have expected otherwise. The transparency it will provide will be valuable to investors last week the Committee Heard testimony about the challenges the property Insurance Market the increasing climate events every year 151 billion or more events so far this year increasing all the time it is well documented. Puts workers at risk. It is clear why investors demand man information. When they lack transparency americans lose money that collapse was not alone every day before and after the collapse there is another crypto scam taking advantage in another few Million Dollars loss the problems that socks are everywhere and crypto. The failure to provide real disclosure and the risky bets with customer money that supposed to be safe it was just the biggest and the ugliest and adds up to billions of dollars. Meanwhile bad actors flocking to t crypto. Fund crime and Human Trafficking and terrorism we need to protect workers and families in these markets we need to clean up scams and fraud. Congress considers Digital Asset legislation but the scc is using its tool to correct on abuse and enforce the law. Our economy and markets move part sec must keep moving forward to put americas First Americans who work hard and scrimped to say for the family futuress deserved it to investor savings and markets that are fair andnd honest and transpare. Look forward to hearing more about how the sec and american workers. Think it mr. Chairman. Thank you chair for being with us today. When calling for this hearing since february 14 the Committee Held an oversight hearing on the crypto crash. A lot has happened since your appearance last september. Weeks print several things and called up the relevant held them accountable for the action. When it comes to the scc weve had to wait a whole year to speak with you in person. Complete and timely attention to inquiries is critical to ensuring independent agencies remain transparent and accountable to the American People. Yet sadly your agencys fallen short on this obligation to be transparent and responsive to oversight. I have serious concerns with the weight you are leaving sec. The u. S. Economy more specific their Capital Market system is a global Gold Standard one of our countrys greatest strategic and competitive advantages over our peers and our adversaries. However the United States can only retain these benefits to innovate, launch, and grow new job creating ventures americas Global Competitive edge is innovation and the american spirit to create. As the sec chair your goal should be to fuel in the marketplace expand the ability of americans from all walks of life. Whether that be Aircraft Mechanic in North Charleston or a farmer in fort dodge, iowa. To access a wide spectrum of options for the hard earned dollars without progrowth regulations we are limiting opportunities for our kids and our kids kids being able to take control of their own financial futures. Is why it is especially troubling that under your leadership the sec has failed to implement these progrowth roles. Instead your agency has turned out seemingly endless Assembly Line of new regulatory hurdles to capitol formation and Market Access. Let me go through some of those rules. The compliance burdens of your proposed Climate Disclosure rule are expected to quadruple the cost of being a Public Company. That is just for one single rule. Your tax on private markets as a is aprivate funds route for smal businesses and small and diverse managers out of the market ultimately limiting jobs and opportunities for many in the local economy. Meanwhile your proposed overhaul of equity Market Operations will harm Market Access for Retail Investors and increase firm capitol especially for small and mediumsize businesses. You have issued several proposals aimed at reworking the Regulatory Regime including mutual funds used by millions of americans while providinged paperthin rationale for why these reforms are needed. Despite it being a rule of Artificial Intelligence given excel spreadsheets is beyond the scope to ultimately stifle innovation. Finally and i certainly could go on with more your proposed revision to the current rules for safeguarding customer assets are so overreaching you place your fellow regulators at the cftc the fed and trevor at treasury between iraq and hard place. These proposals and rule makings on the capitol market system. Failed to conduct thorough costbenefit analysis much less look at the overall impact of these proposals that has limited the time the public can have to analyze and comment on these rules in the proposal. This is kind of like using all of your draft choices to pick a quarterback and forgetting about the offense of line. Rulemaking must be justified and supported bike the Economic Analysis which brings me full circle vertebral makings must be done and a thorough transparent manner which includes responsiveness to congressional oversight. Including the minorityre members of this committee. The American People have a right to know what their government is doing and your refusal to the constitutionally mandated oversight represents a dereliction of your duties to the American People. A few final thoughts before i close a few opportunities exist for all and are prioritized for opportunity for future generations than give americans in every corner of the United States the chance to better their economic standards and build generational wealth for its cleared of this administration, under the sec chairman is the preferred medicine to precede policy injury. This should not be the case. Look forward to your testimony in our discussion. Thank you Ranking Member scott. Well hear from gary with the chair of the securities and exchange commission. Chair please proceed. Thank you so much. And brown, Ranking Member scott, members of the committee it is so good to bemb back in front of you. And thank you for inviting me here today for its customers like to note my views are my own is chair of the sec im not speaking on behalf of my fellow commissioners or sec staff. Bird 90 years of federal security laws and our work to oversee them have played a crucial wall for the public in both good times and in times of stress. The Core Principles the u. S. Securities Market Regulation have contributed to economic success. I find Ranking Member scott and i probably agree on this. It really has contributed to our economic success and our geopolitical standing success of our Capital Market. At this Remarkable Agency we serve investors building for a Better Future and issuers on the other side of the market raising further innovations in their ideas. Its a 120dollar Capital Market s in total. Capture a threepart mission. It is to protect investors on one side facilitate capitol formation on the other whats in the middle . The markets the sec as a cop on the beat watching out for your constituents. Dedicated staff of thec agency does extraordinary work with limited resources in the face and significant and yes increase complexities. The headcount shrank from 2016 through last year we shrank a touch more than they were seven years ago less with the largest most sophisticated we cannot take this for granted. Even a Gold Medalist must keep training parade that is when we are updating our rules for technology and Business Models of the 2020. My written testimony details those efforts im sure well get into questions on this role or that climate, crypto and the like. I would like to put all in context we are updating our rules to promote efficiency, integrity and resiliency in the market. That is our goal. We do so with an eye toward investors and issuers alike to ensure the markets work for them rather than investorsss working for the market intermediaries. We are working to help lower costs, increase access and promote Financial Stability in each of the proposals we have made in the last two years, further thatpo threepart missin as laid out by congress. Our division of economic risk analysis provides robust Economic Analysis. It considers the cost. And the benefits as well as the effects on efficiency, and capitol formation we greatly benefit from public input regarding the economics, the policies themselves, and the Legal Authority. Now, in the last two years will provide the public ample time to comment with an average of 70 days to comment from the time we put a proposal and we publish it on our website. Since january of 22 we have actually set in place the minimum 600 days and sometimes 100 since its posted on the website when they close though we often continue to get additional comments for meetings and otherwise staff consider as well. Based on the feedback the Staffing Commission consider possible adjustments to the proposal. This process tends to take 12 24 months. And during that period of time, as we moved to possible adoption we only do so after we consider those comments and we do so based upon those comments or adjustments. Of the rule makings we made nearly all of them have changed their markable staff member with the resiliency in this committees question. On both sides it could be interested in your work ihold you accountable. The five minute rule starting questions. Thank you center brown i appreciate yourha courtesy. Drink gensler thank you for being here i appreciate it. You know, so many of the folks know someone who still involved the question is this. We dont need access to capitol but we do need access i wish we did not the sell grain needs regulation on them for so thats where you are at. Far too often inso my opinion i will get a survey as to how much grain i have raised. How much grain i have on hand. How much cattle, chicken, pigs, horses. Its a real pain in the butt. You get to do this over and over again. Surveys are not something i am real crazy about. Im busy trying to make a living. We have had previous conversations about making sure the proposed climate rule does not lead to burdensome requirements to add additionaliv workload in the neck and being generous when im saying paint and the neck to agriculture producers who do business with public created company. Which by the way is by far and away the vast vast majority of people in production. I appreciate you have been receptive to those concerns. We have discussed previously in wthis hearing that it is not te commissions intent to have farmers or ranchers in montana or any other state or in the other producers have to report on goods they sell to publicly traded companies. I want to sure that still stands true, is that right . What side does stand right sir. We oversee Public Companies pray that is it. One, we are not a climate regulator we are a securities regulator. In right now to give you an example of the top 1000 companiess by market cap of abot 80 make Climate Risk Disclosures. We are just trying to bring comparability to that we have heard not just from you but many farmers and ranchers across this greatt land. From small and Mediumsize Enterprises who have said we dont want to fill out the survey. And not somehow indirectly those private companies. You are fully aware it is going to take more than your intent the bleed out of regulation is something that happens all thegu time. I just want to make sure that it is Crystal Clear people in production and agriculture are not going to be faced with the surveys. It cannot prejudge a final rule it does take five of us on a commission to push out a final rule. But staff has heard these comments there are at 1000 of them. Ive asked about solutions. Walked us through. You answered my next question but walk us through the companies required for three emissions what do you envision that reporting to look like . Well again, because Public Companies currently report some Greenhouse Gas emissions that they produce called scope one. As you call it scope three there is supply chain. That is not as well developed currently. And in our proposal we said no private entity farmers, ranchers, Small Businesses, needed to report that. The Public Company if they are reporting it on five until they could estimate it. We have heard comments that is not good enough from you and from others. That is why we are looking at how we can find appropriate path forward. Because again about 80 the Top Companies are reporting on climate risk rate over 50 plus are reporting scope one into not scope three so we are looking through that. It is important to note these are republican traded countries are family farms are incorporated but not publicly traded. That is correct sir. Our jurisdiction is overly publicly registrants i will call it. With respect to the charm and chairmanand hope someone gets io would love to find out youre doing in this area. I think several people will. Correct think it mr. Chairman i appreciate senators allowing me the slot for my questions. I do have a number of questions on climate. Focus next on your described one of yourth rules as being the cop on the beat to protect investors. Ive heard from many how they have impacted by the troubling trading of the Meta Materials investors across the country share these same concerns. They have a lot of questions about what happened, the inability to sell the stock and potential irs implications to get answers about what happened they sent letters, it made freedom of information request by the sec and finra as well. And as of this point i dont think we have a full response. You know my office has engaged get answers as well. Can you confirm the sec is reviewing the trading halt december 22 and will you commit to publicly releasing the s ecs a finding on this regulation . Let me step back. Finras supper they have a set of rules and they are organized. Those rules are approved after Public Comment. But they then move it forward fd implement their rules. The manner you raised around Meta Materials in december of 2022 if i recall under the rules they did not seek the secs advice or permission on that. That is something that they did separately in that matter. Rex is the sec not investing these actions at all . The secs role is to investigate many things in the capitol markets we do not speak to specific investigations. We do on a regular basis examine the compliance with their rules and examine them on a regular basis on whether they are following their own rules as pup out to Public Comments per. Are you examining their process and their compliance with their own rules in regard to an mmt . We regularly examine because theyre such an important part of the capitol markets, we examine them annually i think is part of our division of examination has a whole unit that examines on a regular basis. Him up this question relates to you or both but the investors have asked for aggregated share count of the mmt lt and the blue sheet data to ascertain whether the shares were subject to counterfeit. Have finra and analyze for potential fraud or wrongdoing . Wheat seek to analyze fraud and wrongdoing wherever it might be in our capitol market. And we are certainly well aware of these matters. We cannot speak about specific possible investigations or even confirm or deny whether we have them. We sometimes closed an investigation and we dont find something. But certainly we can follow up with staff about the specific questions about data. I do believe im hearing you say there could be an Investigation Underway. If there is an Investigation Underway into these matters if that investigation findsn answs to set information not going to be made available to the public . We only make information as a result of any investigation public if we settle or bring charges. That really help us protect the public and protect individuals we dont bring charges. How are investors and frankly congress to know whether you have even undertaken session investigation of such an investigation has resulted in an y outcome . Again trust in our capitol markets has been a cop on the beat. But we close investigations that do not result in litigation or settlement. That is between us various registrants for Market Participants that have beenic closed. They have a right to say if its been closed or not. You can follow up obviously. Quick to see the my time has expired. An chairman. Chairman. I look forward to senator just let us know youd like to pay. This week is the 15th anniversary. Lehman brothers has discussed the financial crisis showed us all how everyday people can have their lives turned upside down. Doing to wall street greed and now its pushing down your attempts to make them to tell the investors the real facts about their business. What steps is sec taking to ensure to make informed choices. Investors have to have complete and information. The Public Companies to have the full fair and truthful information as the discussion of center tester about climate risk or what you mentioned around a cyber risk. Material information is part of what they need to make their choices. Also in crypto to the extent a crypto token is a security and investors get a chance to make their decisions based on that irfull fair and truthful disclosure. Crapshoot noted in your testimony sec finalize the funds role that require private equity and hedge funds to increase transparency for their investors. How will providing Additional Information on fees and performance help protect workers with Pension Funds especially also Charitable Endowments and for other investors . This field has grown significantly over the years. Measured as you said well over 20 trillion of assets. Standing on one side are the investors. They are Pension Funds the workersnd and Fire Fighters in yourur district and in your stae benefits. We have proposed and finalized based on Public Comment rules that bring Greater Transparency about the fees, the performance and what is called side letters the advisors have in this marketplace. That helps promote competition. That helps promote the efficiency of the market. The costs come down that means the return for retirees goestu. Thank you as promised there will be at least one question about Digital Assets and crypto frauds and scams in the crypto causes consumers millions. Same were all over wall street. Push investments in speculative or Bogus Companies in some cases. Investors cashed out putting their interests have their client interests we cleaned up our markets are Investor Protections like strong disclosures, conflict of interest rules always at work in progress thank you for that. U. S. Markets as we know it lead the world in transparency and integrity. Question, crypto markets lived up to the Investor Protection principles we have with other markets with that help protect americans from crypto abuses that cost consumers billions . If they were to live up to the investor in their current laws right now unfortunately there is significant noncompliance in the field is ripe with fraud. Thank you. Senator warren start a bill to start standards of disclosure we know the worker developing training is so critical to so many industries. Ive a question for the record on the important issue anything senator warner will be asking about that later. Alaska question the majority of the Largest Companies already disclose information and Greenhouse Gas on a voluntary basis. They do so because investors demand that information. Without a clear standard that information is not easily digestible. But as the rule what is the role in making these disclosures which investors are clamoring for making them useful and able to be compared and analyzed . Whats its role congress came over the decades to help investors to be able to compare information the companies are putting out. It is about material information. And investors as you rightly said are making decisions today based on the Climate Risk Disclosures including Greenhouse Gas disclosures of Major Companies in america. That is already happening. Our role is to bring comparability and consistency to this. That is what we put out a proposal we got over 16000 comments like other roles we are likely to make adjustments like the a discussion i had with senator particularly weve got a lot of comments around with three disclosures that is were trying to move forward on. Thank you, senator scott. Quick thank you chair. You and i had a discussion about the importance of being responsive that i want to have that conversation with you but i want to ask a couple of questions that i think are relevant. Chairman, in april chairman mckinley and i took a letter regarding our proposal with mutual funds and Retirement Savings we expressed our concerns with the inherent unfairness of creating a twotiered market that was significantly impact at a time. Interesting. At a time when so many are struggling with rampant inflation not to mention the Liquidity Risk was significantly alter Investment Strategies for everyday retailers. Its saying Something Like proposal like yours brings a large and diverse stakeholders out against it. Given the current tendency towards rushing to finalize roles my fear is you will finalize this proposal without properly addressing concerns and the concerns of so many in the industry as well of those in the retirees and customers. Or worse, finalize this proposal with an entirely new structure like we have seen in the Money Market Fund. Are you willing to resend this proposal to not create a twotiered system in an unfair advantage for large swath of investors . As we move forward is a lot of comments as you said about this proposal. That open and fund mutual funds as people call it. To ensure at times of stress their pricing matches up with the remaining shareholders in that mutual funds are not bearing delusion. Weve got a lot of comments including your letter which we appreciate and will make considered choices based on the economics. And as you said based on ensuring investors come first request is incredibly important. I see the challenges that will be presented to customers who are purchasing the mutual funds. And twotiered system im talking about. Despite urea services of the everyday investors most directly impacted by these proposals would have sufficient opportunity for a process. Your agency provided just over 90 days to sift through nearly 1700 pages of proposed rules wrapped into one proposal. The same proposal includede roughly 1200 questions from your staff, from industry feedback. If you have over 1000 questions i fail to see how you could say with a straight face that you have issued a proposed rule and not a request for information. Its a reasonable amount of time for the average investor or Small Business to digest a complex proposal that includes rulee makings by answering roughly 1200 questions . Again and just 90 days. I feel very proud of the agencies to seek that Public Comment in the equity market proposals as you mentioned we voted them in december of last year. We kept the public file, open until the end of march so 100 plus days from we put on our website. We continue to get meetings and comments and the staff takes those into consideration as well. Next i will cite 1200 questions answer and a 90 day window seems a bit of a high bar. But the dodd frank act requires a 400 rules for regulators and 67 of those come from the sec. Today it seems like we are living in the Twilight Zone asking people to comply to unrealistic time frames with too many questions and as you can ty help too many rules from my perspective. According to the committee and capitol markets under your leadership is 47 proposals 22 of them for the first several months of your leadership. Whats even more troubling is israel santa completely change our capitol Market Structure which benefit the average investor today than in the other point in history. The breakneck pace you are pumping out regulation should not be applauded. Regulations proposed under your leadership are unjustified and confusion for industry marked the participants alike. How do you square your mission which is fair and orderly ordert markets with the up evil of market functioning to create not only hes getting ready cut me off. I think you i would notes we take our threepart mission very seriously. The Bloomberg Law it regionally wrote an article we are actually behind three pet predecessors is 22 final rules of three of my predecessors did more final than their twoor years. We take this very seriously. But we are not working against a i clock that tends to take 12 24 months if we were to finalize we reopen 18 there will be changes and most of these roles based on Public Comment and economic feedback. Thank you ive gone over time. Thank you, senator menendez of new jersey is recognized for. Thank you the use of artificialna intelligence is becoming increasingly prominent and a number of Industries Including the Financial Sector. The tools can provide enormous benefits to investors but they also come with a variety of potential risks. Can you describe how the Financial Sector is deploying ai . What at some of the potential risk ucs ai tools become more widely used in the capitol markets . Predictive Data Analytics and Artificial Intelligence already have been used and used extensively in finance even before the recent chatgpt. It is used in a rowboat advising its also used by more sophisticated investors who may be listening to this testimony right here and having computers analyze it Sentiment Analysis for they have efficiency in the capitol markets. Good efficiency in the capitol market account opening documentation and compliance and Insurance Companies are using it to do claims processing. To comply with any Money Laundering. There are some risks though. There are some risks in our capitol market. Some the proposal to address those conflicts. Some are harder to grapple with. That may very well be the financial crisis in a number of years or in 10 years is because we find everybody in the Mortgage Market may be relying on a one model we gulp my gosh, i didnt realize it was one ai model. On to point to something you previously commented on. The challenges of explain ability may mask underlying the stain is him. Minorities already face disproportionate trouble and accessing capitol poorly built ai tools to entrench or expand those gaps. It seems to be what we can think about what ai can do in the positive sense in the capitol market should be focusing on mitigating what our potential negative risks is that something youre focused on . We put out rule for comment and proposal run conflicts in the market would a robo advisor is taking into consideration their interest and maybe putting that ahead of their investors but you also ask an important question about there is often biases and that they do it themselves. The data being collected unfortunately decisions outside of our jurisdiction and other agencies jurisdiction could be based on those hard to explain the data and biases. I share your concern but at the sec we are absolutely focus on some of thoseed issues around Investment Advisors, robo advisors. Two years ago sec asked Management Advisor committee unanimously for actions the sec could take to improve diversity in the Asset Management industry you and ive spoken about this on several occasions. The last time you were here they had adopted two other recommendations the others were still being considered. Can you tell me what progress has been made on adopting the other recommendations . Particularly for enhanced disclosure by Investment Companies and regarding diversity workforces and leadership . Thank you sir. With regard to that recommendation one think we did do was about the time of this Committee Hearing lastt year. The staff put out an answer to a question we frequently get is whether someone can take into consideration and Asset Managers Workforce Diversity and still be in compliance with their fiduciary duty. We answered that in the affirmative consistent with the rest of their requirements and the law. Gleeful recommendation went further the Advisors Committee wentec further we thought this s an appropriate thing to answer that important question. I hope youre looking at casting votes on some of these recommendations but that unanimously did. Finally just a follow on on a question on the open ended funds. This is the most significant change to mutual funds in a generation. What is the Economic Analysis these changes are necessary if we look at the Consumer Federation saying the negative impacts this could have Retirement Savers in particular be adversely affected by the proposal. Me it comes to mind what was the analysis that brought you to where you are . This based upon some real events i would was breaking out. Getting redemptions. The pulling out of the funds we need supportay here. Because there is such a rapid redemptions trying to address some of those things. The law says we should look at things to make sure does not delete the remaining shareholders. Thats looking at that and lookt can that very closely. We have heard comments. Based upon thosehe comments we e taking this comment seriously and of course cfa and others. I dont. [inaudible] in a followup questions for the record. Chairman kinsler. Its been a t while i dont sena lot of letters to you. Ive tried make them as precise and possible. And it we asked for three specific items received a response back was a chart response or other to request. I dont ask for a lot of different items but expects we get appropriate response back rank member scott did not feel you were being responsive. Is there a policy you have with regard to request for information from the minority on the committee and majority on the committee. Follow and be with you in person or over the phone ifn you wishe are responsive to individual members to their questions of policy and other questions that we respondue too. We do if there is an oversight request. That comes as i understand from the rules of the senate and 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. I dont ask a lot but i do expect we get a response back to clear on our request. We didnt do the may 10 letter i will follow up with you sir i think its important. Making attempts that you have right now. We had 48 new ants epic a total of 68 you are working through. Let me play with one of them for a minute. The technology clearly has played a role a central role to expand the Market Access. You have said it yourself we have used technology to make finance more inclusive and accessible. If not broughtu that attics and proposal. Any analytics tool. Legal and commission precedent fiduciary interpretations and best interest as recently as 2019. I echo the new Predictive Analytics proposal with the rather hostile Attitude Toward Technology or at least appears in ignorance toward it. Mr. Chairman was this to encompass all computational tools not just ai in Machine Learning . Its actually technology neutral. And this is an important concept. If an Investment Advisor, think about it robo advisor is telling their advice its only based on your family and your wellbeing and so forth, great comes up. But if they are also taking into account their ownwn interest thr profits, their revenues and the like there in lies a potential conflicts. Whether they are using Machine Learning or some other Data Analytics predictive Data Analytics there may be a conflict there. This proposal was to get public t feedback on how to an essence neutralizes conflicts. He received a lot of responses back . We have i think the comment. My close october 10. It is an open comment. Right now put i would anticipate we get a lot of comments. Particularly after the socalled the focus when brokers using prompts. I hope you take a look at that. You hear more about it before final determination. But also chairman, earlier this year the Commission Proposed safeguarding p advisory have drafted for it ultimately transforms a way in which the bank holds client cash. Requiring cash to be segregated for the person would probably require banks to segregate bank deposits. My concern is the sec is inserting itself at the core of the banking system, the deposit, credit payments and specifically within thehe jurisdiction of prudential regulators. My question is does the sec have the authority to regulate . To put out a proposal that is based upon new Authority Congress gave us in 2010 about the assetsth held make Investment Advisors the custodial assets. That is my we were updating this. We have had prior authorities as well which is that yes to your question around qualified custodians can be a Futures Commission to commit the federal level and at the state level. Then we have a role to say what is required of those custodial arrangements so that the Investment Advisor is not using or misusing. My time has expired i will follow up with some additional questions for the record specifically on this particular issue. I look forward to it and want to meet important as well. Its nice to see you again. Am going to follow up on the conversation with senator menendez on artificiall intelligence. And let me ask you this. The conflict of interest you talkedyo about the new rule you are looking at. Should trading houses and Money Managers be required to disclose their use of ai in other areas . Is a very good question its an emerging technology. While we dont generally say that a broker or Investment Advisor needs to disclose whether they are using an excel spreadsheet or Machine Learning i think there is new challenges with Artificial Intelligence for the lack of explain ability, the chance for bias and biases and how it is used the conflicts as we are talking about. And so it might be Something Congress would want to take up such disclosures. But it tends to be at the sec. Technology neutral. This currently the ability to audit and investment ai algorithm for biases . To ensure clients and retail customers are receiving advice in the best . Interest . Its a very good question the computer scientists as well as policymakers need to grapple with. But the nature of Artificial Intelligence that is sometimes as so many factors. Millions if not billions of variables that it is looking at. It is very hard to explain. Humans are very intelligent. They are hard to explain it. It is something i think is a worthy policy for other consideration. How do you envision using ai for market surveillance . For analysis . And for enforcement activities . They already do. To look for patterns in the market. I know some of the self regulatory organizations do as well. Its one of the reasons votive asked congress for greater funding this year in 2024 to help build up our technology budget. For the emerging technologies. B thank you. Last time we talked we jump to crypto currency the enforcement undertaking with crypto. There is a challenge of the time youre understaffed. Do you feel comfortable now that you have the staff you need on the enforcement side when it comes to the fraud that we are unfortunately seeing . The agency is only 3 larger than we were seven years ago. Were not large enough as an agency. Ev the market is growing 50 70 during that time part in terms of crypto more narrowly i have been around finance for 44 years now. I have never seen a field that is so ripe with misconduct. It is daunting. Thank you. Let me jump to executive compensation. A companyen when fails thousands of people can lose their job on unfortunately it was to the ceo and executives walking with millingtons dock options and salaries. Can you expand on the secs recently completed rules on executive compensation . How is it improving rules that limit insider ability to trade . Event a number of things. Two were mandated by congress one is called clawbacks the congress mandated. There were erroneously produced financials. And an executive got paid based on that. To was paper performance. Congress mandated it in 12 years later it hadnt been done. One was called it was about hw executives sold their stock to the public. They had to wait until the neas quarters Financial Results were published pretty had to have at least a 90 day cooling off period to file the plan that would be kind of on automatic pilot and then at least 90 days had to go by before you could sell. That only went into effect about six months ago. Thank you, thank you. As you mention at the outset of the hearing room are strictly enforcing that i normally do the five minute rule because that looks like 28 members showing up. Sarah tillis is recognized. Of the searcher can you hear me . Yes we can. My assistance that you didnt hear me i thought you would have interrupted me. I will be brief. In response to the letter we got one and a half page response which in my judgment was not responsive to the question. I want to ask you a few here now. One, this secs analysis on each of theon four rules contemplate the interrupt locking nature of the rules . That are tillis just because you may not have been on audio beginning, which just so i can understand . We are talking about regulation execution, completion, and pricing and disclosure of Order Execution information. Thank you. Each of the proposals have a robust Economic Analysis that speak to each of those individual matters. One which was disclosure as you mentioned. One was the agency itself adopting a best execution role. One updated the Market Structure role. And so each of those individually address the economics of each of them. Individually. But are you saying there is no valid there is no reason to actually understand the interlocking nature of them . You are analyzing down a stovepipe. But are you really doing the kind of analysis to understand how they work in tandem . There are two other things we do. It is a very good question. One is we do ask questions about that and we receive a lot of comments. Secondly, if we work to finalize any one of those four roles. We do this on other roles as well. We then incorporate that in what is called the economic baseline. Every one of her economic analyses and one of its tenants has a baseline. We were to finalize one of these rules prior to others we incorporate that in the Economic Analysis. Are going to submit a couple of questions for the record. But i just wanted to say the response was a bit disappointing. It referred us back to the sec website. I want to touch on something that senator rounds asked about. Its safeguarding advisory client asset. Given the impact that it has on court banking activities, at what point in drafting did the sec consult or confer with the prudential regulators . I know our staff has ongoing discussions. Si this was a new authority we got into thousand 10. The team who worked on actually had been working on for 12 years. Theres been ongoing discussions often on with Bank Regulators of this doesnt years. Over those specific rule making. E 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 dont we pull the rule on hold until we got better response . Senate we put things out to proposal. We get Public Feedback. We have done that a number of times or reopened and often we we we change. We adjust based on the Public Feedback and done on every one of the proposals. Just curious, i would like to get that, i would like to ask that for the record. I dont think that you can possibly answer that in 45 seconds. Im honor my time limit. Just a quick answer within 30 seconds, have you tone much in the way of work and can relook forward to a Detailed Analysis on thesi liquidity question and impact on investors . We do on each of our rules look at the economics and depending on upon the rule some are germane to liquidity and some less remain. We to that and for the record . Yes, but, again, it might be can has public record. I want to be candid with you. Thats the analysis that we have done. Thankis you, mr. Chair. Senator warner of virginia is recognized. Thank you, mr. Chairman. Good to see you, much. I was going to greet you. I have two topics. Let me get them right away. First is the whole question around Human Capital disclosure. We all know, we have talked about this many times 7 years ago, 70, 80 of corporate value was planned equipment, we are now at over 90 in term of i think tangible assets, intellectual property and Human Capital. I think investors want to have that kind of information of what companies are doing, in their workforce their biggest asset, last year, chairman sent you a couple of letters. Before my colleague say, oh, my goshes, this is eog, no, President Trump took the lead on. Given the fact that theres the consensus that investors want to know what they are doing in terms of investing human beings. Where are weyo and when can we e more action . Again, you mentioned chair clayton. We wanted to see what happened and the data and the rule and build upon that. And really be targeted, targeted around turnover and workforce r issues and there is some consensus around that and just trying to find that and stay as i would say targeted to really important issues t around the workforce and the cost of the workforce, the turnover of the workforce, the t retention, training as you mentioned. Well, we would like to see actually i know that you have a big agenda on this one, i urge you to move. Peddishously and i say to my republican colleagues, i dont think we can find a ceo anywhere in america that doesnt say their workforce is their number one asset and the fact that we have as much little reporting on that is an area that we need improvement. Ly move to ai. I conquer with senator cortezmasto and menendez. Im chair of the Intelligence Committee i see upside but i see huge, huge town side. You are an ai expert from your work at mit, july 17th, speech, as we think about how we get our arms around this, i actually think the 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 theres a lot of talk about how ai could manipulate as we two to a president ial election but the other entity thats relying on public trust is Public Markets and im concerned, i mean, weve seen a little bit of activity here, the fake fire on the pentagon andas that interfered with the market. Im candid dye surprised we have not seen interference in fortune 200 and 500. False complaints about products orte frankly false filings in terms of regulatory entities. Now the minute and 30 seconds that you have left, how are you thinking about making sure that our Public Markets and the trust in those markets are not undermine bid the rise of ai across the board . Youre absolutely right. Fraud is fraud. Thats a real risk to the markets i think that we have good laws but the new technologies will challenge those laws and we look forward if youre thinking about legislation to work with you on that but i to think the deception is. Deception and wouldnt let anybody tell you that theres no human behind the algorithm. Theres still some human behind the algorithm thats setting the broad hyperparameters, the toplevel whats the algorithm training on. I wouldnt know that there was a little me that i had resigned that was put out in the middle to have summer and i guess somebody was trying to influence stock market prices or crypto prices one way or the other and my com shop had to quick i will say no. The fact that youre a highly public figure but the fortune 200 or 500 companies, im not more, ieres agree deception is deception but that we not only go after the generator of the algorithm but we realize that we cannot repeat the mistakes we have made in the social media with the 230 get out of jail free card. Thank you. Thank you, mr. Chairman. Welcome, chair bensler. You referenced novel authorities that granted to the sec by doddfrank as you claim. I would like to start my comments before i get to the questions. In several rules put forth by the sec, the analytics rules, your lame authority is claimed by what i view a tortured interpretation of section 913 of doddfrank. The Supreme Court said that major regulations require hear congressional authorization. Section 913g, provision that you rely most heavily upon provides very limited authority to regulate in this space, not blanket authority for the sec to ignore all the other binding language of the law and we write standard of care for broker dealers and if congress wanted to grant limit authority, you think it would have put expansive power in subsection other matters an discussed standards for providing personalized Investment Advice to Retail Investors . Thats clearly not the case. Basely any law can be distorted. For example, in the Predictive Analytics rules, sec defines conflict of interest as any interest of the firm in addition to overly little read to go the law you conveniently ignore limitimations. What appears to be happening is that youre targeting a subset of the industry thats despised by the left, the sec is not acting as neutral party, indeed, the sec seems to be targeting many of the newer and in the case of private funds rule, sec has ample enforcement authorize to recover funds on behalf of investors. There must be another purpose for thisos rule. What you appear to be i think to here is trying to change the negotiating dynamics between two sophisticated parties in favor of one over the other. Clear abuse of power. You Waste Resources on matters like this. Lets get to a matter where the sec should be focused upon. Thats Chinese Government connected broker dealers. Recent congressional overlight letters and press reports highlighted broker dealers with connection with thee Chinese Government, mumu, tiger securities. Some of these Companies Like weido have registered representatives located in china. As you know high niece law is far different from u. S. Law, they dont play by the same set of rules. My question is how can the sec oversee representatives and employees of the firms that are located in china and why should the firms be allowed to register and do business with retail customers in the United States . You raised a good question. Regardless of. Brokers locatio, whether in china, europe, anywhere, they want to be in our markets, they have to maparticipate and play by our rules, absolutely. And theyey have to be subject to them and subject to examination and have openness to that. How do you examine and impose the rules on these guys located . China . Having gone through a lot of challenging negotiations withav the chinese authorities over separate matter over auditing and inspecting auditors i share yourur concern because it is que a challenge but with successfully withholding Congress Gave us additional leverage and we have beenab able to through the pciob, auditing board to inspect, inspect those auditors. I would encourage this allocation of resources to really focus on these sort of actors. I would like to turn to another point, last month u. S. Court of appeals for the district of colombia unanimously ruled that the ses testimony of spot bitcoin etf was, quote, arbitrary and capricious and indistinguishable. Can you explain what the sey needs to see in a file to go approve a spot in bitcoin etf and what questions do you still need answered from issuers about the market and Market Infrastructure in order to allow this to happen . I would be very brief and we are moving on. Senator, thank you for the question. We are still reviewing that decision and reviewing multiple filings and its not just the one you mention bud multiple others, we are reviewing them and looking forward to staffs recommendations. Thank you, mr. Chairman. So the job of the sec is to protect investors, not the fossil fuel industry and when you were nominated two and a half years ago you said that giant corporations should not be able to hide their Climate Risks from investors. Without a strong Climate Risk Disclosure rule that is exactly what panes will continue to to. You have awi mandate to protect investors, you have strong public support to to this and i just want to say, it is time for you to get this job tone. Instead of spending the rest of my time s fencing with you over when youre going to get the rule out on lieen mate and a strong rule on climate, i want to shift bears and talk about private equity. When private equity funds require company, they and the companies they buy dont have to follow many of the rules that apply to publicly traded companies and brokers that are selling registered securities. So last month, the sec finalized new rules that banned some but not all private equity most abusive tactics even so of the rule changed private equity funds can still use registration exemptions intended for Small Businesses to raise trillions of dollars in the private market without filing public his closures. Utthat is a great tale for prive equity, not such a good deal for investors. Again, secs job is to protect investors but more and more people are at risk because they are sucked into market that is have weaker rules. Chair ginsley, do you have a ballpark how much investors poured into the private equity markets, private markets including private equity markets where theyre covered only by the weaker sec Disclosure Rules . The private funds total assets under management are 26 and a half trillion dollars. How much was poured in last year . Do you know the number . I want to know at what the happening now. Low single digit trillions. 4 and a half trillion sound right to you . Probably ballpark. Its right. To you know how much money investors put in in the same time period to into the Public Market where they got much better protection . What youre highlighting is theres as much activity and in some years more activity in the you know what the number was last year . I suspect youre going to tell me. I am. It was a trillion dollars. In other words, a the sec is carefully regulating a Public Market that handles only one in four investment dollars while 3 out of 4 are going into a private market that has much weaker rules and those weaknesses are meaningful even after the rules change. So, for example, private equity firms selling exempt securities dont have to report audited Financial Data to the public. Also they dont have to disclose data showing that a company has lost all of its contracts or is getting sued for billions of dollars. Seems to me like that is an invitation for fraud. Msthe sec was built so that investors could have confidence in the honesty of markets and now 3 fourths of investments that are coming in are not getting those basic protections. Chair, how do you explain to the American People to the sec whose job to make investment is honest is standing by while private equity and companies they own scoop upey investor money withot any public verification that the books are honest or that they arent hiding huge risks . Isnt it your job to fix that . Well, part of what we did and finalized rule just a few weeks t ago was require quarterly quarterly reporting on their fees, performance and side letters and annual audits of those documents. So lett me just say chair ginler. Im not disputing that you have done good things. How to you explain to investors who now represent three quarters of all the new investment money youre not even making guys to a Financial Statement . Well, actually the rule that we just finished has an annual audit in it so its of the private funds not of the Underlying Companies but the private funds themselves. Let me just say were out of time. I really think that given the risks in this market, i appreciate what youve done, theres more still to to and i hope we can to it as quickly as possible. Thank you. Senator y vance from ohio is recognized. Thank you, mr. Chairman. Thank you for having this hearing and thanks chair ginsler for being here. Lets start at the top with you. In 2016 you were the cfo of Hillary Clintons failed president ial candidate . I was proud to be Financial Officer to the clinton campaign. Is itt correct that your current enforcement tractor was the attorney general of new jersey . He served his nation well and he was attorney general of new jersey. So just to recap, the attorney general of new jersey is the guy who refused to enforce immigration laws and cooperate withor ice, he also launched i believe 8 separate investigations against tugger his time as engineer. You hired general counsel, litigated two impeachment hearings under President Trump . I believe she was general counsel of house of representatives. Senior enforcement is marry d peter strzok. I fear and i worry that that is implicated itself and affected the policy of the sec. Chairman ginsler when did the sec took action against . I dont know when that was. According to my staffs research, september 2021 first time you launched investigation against a spac. First, you were clintons finance director in 2016, Hillary Clintons finance director, second, you hired antitrump enforcement tractor green wall and brought in barbero, two impeachment trials and in november 2021, senator warren urged you to investigate the spac merger involving s truth social company and in december 2021 a few weeks later, youmb guys launched investigatin using a novel legal theory against the former president s social media pane. That is some coincidence, isnt it, mr. Gensler. It is good to meet you in person but i think youre not correct. What was i not correct about there . We follow the facts and the law wherever they are and with regard to the spac field, the special purpose acquisition field, there have been abuses as you mentioned one in 2018 that we found and there are times that we to open investigations. The problem that i have you is not investigating spac merger but the problem investigating spac using novel legal theory against your boss, joe bidens chief political rival also against social Media Company which, of course, at the time, twitter and facebook banned the former president and can make a pretty argument sec was using powers to silence chief political rival of the foreman, the currentle president. Let me offer another observation here, were rightfully concerned in this chamber at least on my side of the aisle of the weaponization of the department ofe justice but im increasingly worried that we should be more worried about the weaponization of securities and exchange commission. It looks more and more not like impartial regulatory body protecting investors and consumers but a regulatory body using its power to silence political rival it was current president of the United States. I have one final question on that chairmani ginsler, have yu ever spoken to anyone at the white house of investigation of Donald Trumps truth social . Sir, ip dont speak yes or no . Sir, im going to answer the question. I dont speak to the white house about anything in our Enforcement Group or investigations. Im mindful of the time here. Let me offer one final observation. I have little hope that i could persuade you that hiring committed partisans and using the regulatory powers of the sec iner a way that looks and i thik is politically partisan is a true threat to american democracy but maybe i can appeal to your sense of interest. If you guys use the sec in such a politically motivated way eventually you will be out of power. Turnabout is fair play. Im very proud of the agency and im proud of television of enforcement and fellow commissioners in considering these matters. One matter the senator mentioned actually was settled earlier this year and it was not with the former president , its with the a company. Its all a matter of public record, that settlement. Thanks, chair gensler. Thank you, mr. Chairman, thank you chairman gensler and thank you for your response to the last question you just received and ive known you for a long time and ive also known you as a person who always follows the rules and public interest. Im glad to have you chairing the sec and youve brought a focus on transparency to adapting to changing Market Conditions and the needs of the investing public and i want to thank you for your efforts to strengthen the rules against insider trading. Senator fisher and i had introduced bipartisan erlegislation urging the sec and you and others did by tightening the safeharbor rule preventing from being used as back door for insider trading. I also want to commend you on your role along with the pcaob in i believe implementing the legislation that wasth passed offered by senator kennedy and myself on Holding Foreign Companies Accountable in order to make sure that Companies Based in china especially were not using funny accounting rules to mislead investors about the health of their financial Balance Sheets and senator kennedy are working on Holding Accountable which is part of anda and looking forward implementation. Now when it comes to greater disclosure and transparency, i did want to turn the issue of private equity and there have been a number of questions surrounding the needeq for grear transparency in private equity given the size of private equity in our market about 20 trillion today. I want to ask you about an aspect of that has not come up which is the role of sovereign wealth funds investing in private equity. Because the congress has tightened the rules we see less direct Foreign Investment by china basedsoever wealth fundsal directly in companies but we have seen a big increase over the years of investment from sovereign reality funds or statebacked investors suchal as the state administration of foreign assets, safe and the chinan Investment Corporation c cic into private equity. Now on the one hand, private Equity Managers here argue that these are these are not voting members, that this is passive investment, no direct control over the decisions or operations of of these funds. On the other hand as the size of these investments grows a number of people have raised concerns. In fact, much, i would like to put into the record with unanimous consent Financial Times article dated may 30th, 2023 titled has china become too cozy with private equity, question mark. Thank you, mr. Chairman. And in that article, that because of the lack of transparency, its a black box. This is lily, china expert for center for strategic and International Studies in washington, its not something that the u. S. And others have been able to address mainly because its so opaque. That was the quote from that individual. The article goes onto point out that we really have no visibility into these investments and talks about the fact that especially after the russian invasion of ukraine and sanctions against russia this became a more important issue for investors in private equity. Could you could you just talk briefly about how you think about this right now both the need for greater disclosure and private equity broadly and i know theres an ongoing case but could you talk also about this caissue of of foreign soveren sowealth funds and their Huge Investment private equity and whether that raises concern and need for Greater Transparency . Under our laws, invest men advisers in the u. S. Can advise Asset Managers including sovereign wealth funds all around the globe and if they are properly registered the adviser has to be, you know, complying with their laws. Youre right, we do have a recent adopted rule about private fund adviser transparency. Youre speaking to something about the investors behind that though which we have some role to play at the sec is also very Important Role for other agencies like the Treasury Department and as you mentioned sifias, collection of other agencies, not including the sec. So im sure to be interest today follow to understand what youre thinking whether its something legislatively or otherwise but we as an agency are neutral about what which investors from which countries the Investment Adviser is advising. Our jurisdiction doesnt really go there as long as they are complying with any Money Laundering and the like. I do look forward following that. Senator of wyoming is recognized. Thank you, mr. Chairman, welcome mr. Ginsler, my questions are substantially nerdier than my colleagues but nevertheless i think they are really important. I will start with staff accounting bullet in121 which hyou know i have been harping on for 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. So mync first question is, youe said repeatedly that this is to provide Greater Consumer protection and like we saw the celsius bankruptcy last year when 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 a bankruptcy and that that would hurt consumers . Senator, thank you for actually going down as you say the more technical rabbit holes and ill be glad to go there. Its actually, youre absolutely right about the celsius finding but what was interesting in the bankruptcy find asking a judge said these are not segregated protected assets by and large that the investors are lining up in bankruptcy and that was regardless of a staff accounting bulletin that the sec put out because celsius was a private company, the staff accounting bulletin was staff advised on how to do accounting in Public Companies and the reason the staff came to that conclusion and 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 cant segregate readily easily segregate those Crypto Assets the way celsius was taking it on and that judge said youre just in line and by the way thats also happened at voyaber, terra luna, at each of the various bankruptcies. Well, lets then talk about the relationship of bulletin 121 121to banks. It requires the assets to be backed one for one by u. S. Dollars. And if that standard were apply to legacy custody banks like bny mellon, they would have to have trillions in regulatory capital that prevents institutions from offering custody. So if youre ultimate goal is to provide consumer protection, shouldnt the sec withdraw staff accounting 121 to allow banks to provide custody. Staff accounting bullet inis Public Companies and how to properly show that to 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 custody but they have crypto as an asset. We dont speak to how its backed. Thats up to the Bank Regulators. Th okay, thank you. I want to turn to the secs pace of rule making. Lets use, for example, the proposal on the use of predictive Data Analytics. To regulate not just ai but overly broad decryption of covered technology encompassing ipall uses of technology in a fm down to adding together numbers in a spreadsheet even numbers in a Financial Firm pass through spreadsheets. So my concern here is this rule is going to follow pattern of others such as the Money Market Fund reforms proposal where unworkability means the end rule looks veryil different from the proposal. The documentations requires of the rule are so demanding that the industry will not be able to comply so would you commit to reproposing the use of predictive Data Analytics rule if or rather when commissioner arrives at a different approach. Be brief in your answer. Again, we take Public Comments serious. We make adjustments its based upon whether its been properly noticed and itss a logical outgrowth. So we commit to taking Public Comments seriously. Thank you, senator lummus. Senator smith from minnesota is recognized from her office. And Ranking Member, thanks so much chair for joining our committee today. Chair gensler when you were here last fall i asked about materiality about Climate Risk Disclosures and i think you very effectively explained why this information is relevant to investors so that they have good information and can make informed decisions about their investments and so its been a year and meanwhile the rest of the world is moving forward to eu and the uk and the International Sustainability standards boardhe have all recently taken steps to implement robust Climate Disclosure standards. And, of course, this will be reverberating across the globe and estimated 3,000 u. S. Companies will be subject to eu standards. So my question, chair, i understand that you cant comment on ongoing deliberations but could you comment on how you see u. S. Leadership on this issue, why you think this is what level of urgency you feel to complete this rulemaking process . I thank you. Its really about bringing and really looking at within that decades old tradition that the sec addresses itself to material disclosures incomparability. So this point of urgency as establishing and making clear what that comparable standard is, what people can what, what standard and expectations we should have around disclosures, when do you think this might be done . Again, we try not to to things against the clock. Its really what t the staff is ready and the commission is ready. We have about 16,000 Public Comments. The private funds rule that was being discussed a little earlier took us 19 months or so from proposal to adoption but, again, i dont want to predict on this one. Theres ais very heavy comment d really important issues have been raised around the discussion i had with senator tester earlier about scope 3, over a number of other matters as well and we are looking at staff recommendations on how to deal with those comments. Okay, thank you. I want to dive in on i was smiling to myself as senator lummus was talking on getting nerdy on you and im going to dive on my last question on something that is equally nerdy but really important as you know the registration for index linked annuities act which i led with senator tillis was enacted last year and required tailored s Registration Form for these kinds of index linked annuities so consumers that want to purr hays these products have good, clear, concise information. I want to thank you and your staff for working on this legislation and implementation and tell us how its going and when can we expect first draft. Its going well. Total of 18 months to not only get a proposal but the to the get a final but one of the pieces that weut are working ons Congress Also in that legislation that you coauthored we hadyo to to investor testing and so theres two pieces, its investor testing and its also the proposal bringing that up to my fellow commissioners, trying to vote it out, get Public Commentio and and also with n eye toward adoption in the full 18 months that you had laid out. Well, good, thank you, chair ginsler, appreciate your attention to that. Mr. Chair, i feed back my time. Thank you, senator smith. Thank you for being here today. We have heard a lot, various things on both sides of the aisle particularly over here about aggressive rulemaking and that agenda. Over the last two years the sec has proposed nearly double the number of rules that your propredecessors proposed within the same amount of time. The only time we have seen this piece of activity is when the sec was implementing doddfrank, those provisions after the financial crisis. So the difference here is that 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 the 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 these 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 period due to fully understand the broad implications on the market. It makes me think what constituency is the sec actually listening to. I dont believe its the average mom and pop or 401k investor in the state of alabama. Its my belief that we want to encourage people to go pub slick that more people have an opportunity to invest and share in the fruitfullness of the market. Im concerned that some of the things that are going on are going to deter people from doing just that. Thereat are countless examples that we have seen but i want to ask you about the anticipated proposal that i heard senator warren ask you about, warner ask you about, the Human Capital disclosure. So when can we expect to see that proposal issued . Thank you, good to meet you. Nice to meet you as well. I worked a lot with the former senator, senator shelby. Absolutely. We wanted to see what the first couplee of years looked like. Chair clayton put something in 2020. We looked at those and the data. Tell me on that actually. So august 2020 is when that was implemented. It seems that when you look at that we had a threeyear time period but the vast majority of that has been during the covid time period and the implications on workforce and these things may not be an adequate representation of what they may be in the future. Do you agree with that . Well, 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. So what is missing from your perspective from the 2020 implementation that needs to be adjusted or expanded here . What staff isr looking at is the filings and how 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 and the turnover. You dont know when we will see that . Thats correct. Once you bring it forth, how long do you expect the leave the Public Comment period open for such an important rule . Well, we will make that determination at the time. What is the threshold . Can you help me with that . All of them since january 22 have been at least for 60 days from when we voted out of tthe commission. Really . And on average its been 70. I would say 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. I am running out of time so i will make it quick, last question. Can we expect to see a proper robust cost benefit analysis when you do release this . Obviously weve been talking about it or hearing you talk about it for two years. Im hopeful that you will truly take into account the downstream effects of whateverns you propo. I think that some of the things that we have seen in my opinion have been halfbaked and im hopeful with something with such large implications and we will see a very thorough analysis and how it goes all the way down to a lot of the smaller entities that im concerned about. We do robust Economic Analysis on each rule. Thank you. Thank you, gensler. A year ago in october 22 the sec provided annual report in performance challenges at your agency. Memberss of various division raised concerns about Resource Management due to increase in rulemaking activities, as we discussed i appreciate desire to protect consumers and investors and goal ensuring, these are broad goals good for business and good for our country but how we accomplish those goals matters. The ig reports illustrate sec with market atrigs difficulty in hiring qualified talent and overreliance on detailees with no experience. Now, ambitious agendas under the constraints can result in poorly written rules that can hurt arizonas access to economic opportunity. What have you done since octobee management challenges . Part of it is with Congress Help is hiring more people. Im very proud too say that the partnership ofpa private partnership and Public Service looked at us and we went up in the ratings that were the third highest rated agency but youre right, atrrition has moved up. That means the average employee stays 16 years. I would like my staff to be briefed by your staff in terms of the specific progress that you have made. Ly have my team follow up with you. I thank you for that. Your own Division Managers raised concern with ig. If so, how do you make that assessment . We do it with each of the main divisions Investment Management trading, corporate finance, have a rule team and we do that with rule teams that are career staff and we deal with division economic risk analysis about their bandwidth as they say in each of those groups. The ig report cites shortened timeline drafting process and shortened public periods as factors that your staff may indicate in less feedback during the process. We have spoken about this before. I want to ensure that stakeholders and the public have time to weigh in on those actions. As we have discussed more sophisticated firms have armies attorneys on retainer but small t businesses and retail investos need more than 30 days or 60 days particularly since these rule makings are very complex and there are multiple rule making processing happening at the same time. So does your agency Value Hearing from Small Business and Retail Investors and how are you ensuring that they have adequate time and the use of their own resources to provide feedback on yourr agencys actions . We do value the input of Small Businesses of everyday investors. We reach out. In many ways from social media and elsewhere to encourage people to come to our rules and i would note this for the public, whether large,e, sophisticated investors or everyday investors, we continue to takeda meetings and continue get comments during these which generally year to two year processes and they are very beneficial to us. The sec staff also raised concerns in thats the increase of rulemaking activities had resulted in tradeoff because they had to borrow staff to to their work. Has bandwidth allocated for enforcement . We are only 3 larger than we were 7 years ago. But our enforcement television 0 people, quarter staff, its not a tradeoff because our policy shops are in different parts of the agency. So my last question is, your staff raised concerns with the ig when moving more aggressively with rule making sec is opening up to increase litigation risk, weve seen recent legal setbacks with respect to crypto currency. How are you assessing the litigation risk with respect to the breath of your rule making strategy . We take congress mandates to us and the authorities we have seriously but also how the courts interpret them. We are dedicated and committed to doing things just within our authorities and how the courts interpret it but we get a lot of feedback also from the public on that. Bl my time has expired. Ly follow up with further questions later. Senator daines, youre recognized. Thank you, chairir sinema. I remember when i ran for congress the first time back in 2012. We talked about the rising power, the Fourth Branch of government, the executive branch is now i believe the founding father what was going on and say theres too much power in rule making by fiat going on there than law making, whether itd be your 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 as 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 agencys rulemaking agenda has been voluntarily undertaken. Chairman gensler, you are not an elected official thats beholding to your constituents, you are unelected bureaucrat that has taken upon himself to reshape american Financial Markets toic your like to go the detriment of innovation, of investors and Small Businesses. One such rule thats facing broad opposition from across the ideologicall spectrum, left and right is the agency swing prices proposals. Concerns to have 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 the geographic location as well as investment type. Even farleft groups like the Consumer Federation of america have expressed opposition of the proposal noting the tangible and significant costs associated with the proposed implementation of Swing Pricing are likely to outweigh any perceived benefits, end quote. Given the broad bipartisan agreement that Swing Pricing will impose significant costs on investors withh limited benefits to the broader markets, do you still intend to advance this rule in the face of what i would argue as overwhelming opposition . If i fight, i just want to mention something in a generic. We have about 50 policies on the agenda, 50 projects on the agenda. My immediate t predecessor chair clayton successfully finalized 64 adopting rules. Its maybe that you and i might have differences on the policies but its not out of line with what happens. In terms of your specific question with regard to this rule, youre right, we have gotten significant feedback. Theres kind of three pieces about the liquidity of the underlying funds. There was the Swing Pricing and then a third thing about the sort of back off as plumbing but really relevant the hard close. And we got some very significant comments particularly in the Swing Pricing and hard close and we are taking a close look at that to see whats appropriate and whether to make adjustments and as we go along, i cant precommit whether we will finalize or not. I want to talk about the sec and by the way, that comment i made about the rising power of the Fourth Branch. Thats a bipartisan comment whether its republicans in charge or democrats in charge. I truly believe the founding father today would say theres way too much power. Theres probably a lot they wouldnt recognized. Colaw making authority done through executive my at that occurs in a Bureaucratic Branch of government. Turn to the secs proposed rule requiring disclosure financing emissions. One Significant Impact of the rule is it would likely lead to widely inaccurate disclosures that would little practical use to investors. It appears to me this is just another step in the agenda to discourage investment to drive an ideology. I have serious concern that is you have the Legal Authority to enactve such a rule and i would urge you to withdraw this rule. And my question is what would give the sec authority to circumvent congress and enact rules by the executive fiat . We all that we to on this climate and based upon congress authority. This is built multidecades authority about disclosure and, in fact, president roosevelt called it an initial bill the truth and securities act. Nothing can be further from the truth. We have no f climate agenda whatsoever. We are not a climate regulator, sir, but over 80 of the top thousand companies in 2021 have been making Climate Risk Disclosures and 50 i think 5 were making Greenhouse Gas disclosures. So its trying to build some comparability and we have a lot of feedback and we have to think about with socalled scope 3 thatut senator tester and i tald about but its comparability to what is already happening. We are not a climate regulator, sir. Im out of time. Senator reed. Thank you, madame chairman. Chairman, thank you, can you given the scope, the size, the power of the private equity sector over the last 25 years, how they moved into banks, insurance, real estate, a host of other things and do you believe that these entities are competitive to banks and the large banks and also potentially systematic risks . The private funds business, not just private equity but hedge funds and Venture Capital is about 26 or 27 trillion of assets under management. 25 years ago there was a report i helped as staffer helped write it and at that point in time the entire field was less than a trillion dollars so its grown significantly in terms of its comparison to banking, the total commercial Banking Sector in the u. S. Is 23 trillion and, again, you heard the numbers i just said about this sector and it can be systemically important. It was systemically important 25 years ago when longterm Capital Management was on the brink of failure. The field is systemly important today. Now our advice to public funds required to maintain antiMoney Laundering program and file suspicious reports as banks are required to do and if not are you concerned about this particularly with some discussion that reports of Chinese Communist party linked companies and russian oligarchs using private equity funds to invest . The Bank Secrecy Act gives key authorities to both the u. S. Treasury but also we have some authorities and weve been working alongside of that and the answer is they have certain responsibilities, the Investment Advisers have certain responsibilities with regards to these funds. But we are in discussions about whether there might be important further steps to take consistent with the Bank Secrecy Act. Now, since these funds, the private funds, hedge funds, private equity, et cetera, are as youve indicated, the larger ones systemically important, should they report publicly as Public Companies do . I mean, they control as much as one might say even have more leverage over the economy than some of the publicly reporting companies . It would be a choice of congress. Our his closure regime is for Public Companies where theres over a certain number of investors or if youre listed on the new york stock exchange. These private funds are private in part because theyre not listed on the stock exchanges and they dont have over a certain number of investors so the disclosure we have adopted a rule, further disclosure to investors around their fees, performance and their side letters but again congress can decide to broaden that out. There is investors to get further information. I think senator you are asking if theres a broader Public Disclosure which we would stem it ready if thats what congress decided. Proxies come as chinese elements are private vehicles and russian oligarchs. Is that concern you and what youre doing if it does . Oxides a general matter i think we all probably sure the concern about bad actors but with their state actors or nonstate actors but use for nefarious means. We do work from time to time around matters of concern. Really working with our colleagues at the department of treasury around any Money Laundering the Bank Secrecy Act and the Investment Adviser space. Thank you very much mr. Chairman thank you madam. Just a moment. Thank you for your chair hear testimony those who wish to make questions are due one week from today on tuesday september the 19th. What is up 45 days to respond to the questions thank you again with that the hearing is adjourned. Thank you chair sinema. [background noises] [background noises] [background noises] since 1979 and partnership with the cable industry cspan has provided complete coverage of the halls of congress from the health and Senate Floors to congressional hearings, party briefings and committee meetings. 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