Lawmakers pressed SEC Chair Gary Gensler on a variety of the agency's rule proposals and their effects Sept. 27, amid a looming deadline for Congress to avoid a government shutdown.
"The Securities and Exchange Commission's current approach to rule-making jeopardizes the integrity of our financial markets and puts investors at risk," Chair Patrick McHenry, R-N.C., said in his opening statement before the House Financial Services Committee.
Ahead of the hearing, McHenry and all committee Republicans sent a letter to Gensler, dated Sept. 26, criticizing the SEC for its "reluctance to consider stakeholder feedback and its failure to conduct thorough economic analysis," the lawmakers wrote.
They also said the SEC has failed to assess its proposals' effects on each other and their cumulative effect, suggesting the agency "stop finalizing or implementing any rule until it has comprehensively evaluated the real and cumulative impact of its rulemaking, including the impact on competition."
The American Securities Association made a similar statement ahead of the hearing.
"Over the last two years, we have seen an ideological takeover of our markets that is making things worse for America's small businesses, retirement savers and working families," ASA president and CEO Christopher Iacovella said in a statement Sept. 27. "Adopting multiple rules that impact every corner of our markets in such a short window could also end up causing the very market failure the SEC is supposed to prevent."
During the hearing, many GOP lawmakers focused their questioning on the SEC's climate-disclosure rule proposal, to which Gensler repeatedly said, "We're not a climate regulator."
The majority of companies are already disclosing climate-related information, Gensler added, and the goal of the proposal is "to bring some consistency and comparability" to investors.
On both sides of the aisle, other committee members asked questions about the SEC's proposal focused on investment advisers' and broker-dealers' use of artificial intelligence.
The July proposal would require firms to "evaluate and determine whether its use of certain technologies in investor interactions involves a conflict of interest that results in the firm's interests being placed ahead of investors' interests," an SEC news release said. If such a determination is made, the firms must eliminate or neutralize the conflict's effect.
"The intent of the rule … is to be technology-neutral," Gensler said, though several trade groups have said the opposite.
In a joint comment letter dated Sept. 11, 13 trade associations wrote that the proposal "is outright hostile to the use of technology."
Sens. Mike Rounds, R-S.D., and Bill Hagerty, R-Tenn., who both serve on the Senate Banking Committee, joined 19 committee Republicans in sending a Sept. 22 letter to Gensler, asking several questions on the AI-focused proposal and stating the proposal is "misguided, unnecessarily broad, and threatens to harm both investors and capital markets."
Separately, ranking member Maxine Waters, D-Calif., along with several Democrats on the committee, expressed concern about what a government shutdown would look like for the SEC.
"We would be down to a small, skeletal staff" in the event of a shutdown, Gensler said, as about 92 to 93% of SEC employees would be furloughed. Given this, "normal oversight of the markets" would not be possible in the event of a shutdown, he added.
If Congress fails to reach a deal on a spending bill, the government will face a shutdown starting Oct. 1.
