Regulatory Outlook | 02.24.21
Likely Tougher Regulatory Era Gets Underway
For banks and brokerages, any entanglement with the U.S. Securities and Exchange Commission is hard enough. Now there is a brand new policy – put into place by an interim agency boss – that makes it harder for institutions deemed repeat offenders to negotiate settlements.
The new sheriff hasn’t even gotten into town and already the SEC seems to be stiffening.
President Biden’s pick for the agency’s chairman, Gary Gensler, will be in Washington, D.C. on March 2. That’s when the former Commodity Futures Trading Commission chief faces a confirmation hearing before the Senate Committee on Banking, Housing and Urban Affairs.
Here are a few things to know about Gensler:
'He Gets Things Done'
Smart, aggressive, Gensler when a task is before him knocks it out, whatever it may be.
"Throughout his entire career, Gensler has proven he has an ability to get things done," said Patrick McCarty, a Beltway attorney and a former CFTC general counsel.
McCarty, also formerly a staffer on the House Banking Committee, said Gensler is known for being able to execute a game plan, such as when he steered the post-mortgage-crisis reform of the credit derivatives markets.
"That is why Biden has selected him,” McCarty said.
Breadth of Experience
Gensler is viewed as friendly to cryptocurrency as he has made blockchain an area of focus in his teachings as a professor at the Massachusetts Institute of Technology’s Sloan School of Management. Some are anticipating this fascinating third act will come into play as Gensler begins yet a new phase of his career. Crypto-related exchange-traded-funds are now closer to a reality in the middle part of North America. (A Bitcoin fund just launched in Canada.)
Gensler, interestingly, was the youngest partner in the history of Goldman Sachs. He left that career in investment banking to go work as a senior official in the Treasury Department, prior to being named CFTC chairman.
As head of the CFTC from 2009 through 2013 under the Obama administration, Gensler led the agency through a tumultuous period. It was directly following the credit crisis which laid bare major structural flaws in the under-supervised market for credit default swaps. At the time, Gensler’s work reforming the derivatives markets drew praise from lawmakers of both parties.
Bound to be Stricter
No one would argue that on Jay Clayton’s watch the SEC was handing out free passes; although, actually, Democratic Senator Elizabeth Warren has argued that exact point, referring to the waivers that allowed firms to resume or even continue operations following prosecution and monetary fines for past actions.
Under Clayton, the waiver program allowed the agency's commissioners to vote to accept one-time settlements that let the prosecuted firm resume operations rapidly by limiting knock-on sanctions.
The program drew harsh criticism from lawmakers, notably Sen. Warren.
That it’s been nixed, even before Gensler arrives, suggests that after he’s on board there is very likely going to be a greater focus on enforcement actions and perhaps a little less leeway.
According to McCarty, Gensler will bring a strong enforcement team on board as he seeks to change course dramatically from the arguably more passive one charted by the agency while under Republican control.
"Gensler can get Wall Street’s attention,” McCarty said, underscoring yet another reason why Biden gave Gensler the nod.
One possible area of focus, as suggested by the recent Congressional hearings into the trading frenzy surrounding Game Stop, will be the activities of big market players deemed to have somehow run roughshod over smaller retail investors.
“On one level we are looking forward to having markets that provide a fair shake for our customers,” said one executive with an advisory firm owned by a small regional bank.
“But at the same time,” the executive explained, channeling sentiment felt across the entire industry, “we are hoping that small operations like ours will be spared burdensome additional compliance costs.”