Republican commissioners join House lawmakers in criticizing SEC under Chair Gensler

Republicans on the House Financial Services Committee criticized the Securities and Exchange Commission under Chair Gary Gensler Sept. 24, and Republicans commissioners often agreed, offering ways the agency could address their concerns.

At a hearing where all five SEC commissioners testified before the committee for the first time since 2019, Committee Chair Patrick McHenry, R-N.C., said that “under Chair Gensler, the SEC has become a rogue agency. It routinely exploits its authority to the detriment of our capital markets, innovation and the American people.”

Meanwhile, many Democrats — including Rep. Maxine Waters, D-Calif., who serves as the committee’s ranking member — commended the SEC on its record.

“Despite repeated attacks against the agency from my Republican colleagues, the SEC has lived up to its mission of protecting investors and ensuring our capital markets remain the envy of the world,” Waters said.

McHenry and other GOP lawmakers grilled the SEC on its approach to digital assets, which many have called a “regulation by enforcement approach.”

The agency has filed enforcement actions against a host of crypto firms and exchanges, including Coinbase, Kraken, Genesis Global Capital and Gemini Trust Company.

McHenry specifically took issue with the SEC “using different terms to describe digital assets,” such as crypto tokens, crypto security tokens, crypto asset securities and digital asset securities, he said.

After Gensler contended that the “the laws are clear” on how to determine if a digital asset is a security, McHenry responded, “The laws are clear, but what we're seeing from the SEC is a lack of clarity.”

Republican Commissioners Hester Peirce and Mark Uyeda agreed there is a lack of clarity, and Uyeda said the agency “has a wide range of existing tools” it could use to address the ambiguity.

For example, the SEC “could have articulated specifically in the context of crypto and digital assets, how will you apply (the Howey) Test as to whether or not it's an investment contract and therefore a security,” Uyeda said.

The Howey Test, named after the landmark Supreme Court case SEC vs. W.J. Howey Co., is what the SEC uses for determining which transactions qualify as "investment contracts,” therefore subjecting them to securities laws.

Peirce agreed that guidance could help clarify the issue, though she said the SEC could also initiate a rule-making process or work with the Commodity Futures Trading Commission “to figure out where jurisdictional lines lie” when it comes to digital assets.

“I think the first problem is that we’ve used enforcement as our leading foot,” Peirce added.

Other Republican committee members raised concerns with the pace and volume of rules proposed by the SEC, as they have done before.

Rep. Ann Wagner, R-Mo., chair of the Subcommittee on Capital Markets, said that “despite many significant and interconnected rule-makings,” the comment periods for proposed rules are averaging shorter than in previous years, and several proposed rules are open for comment at the same time.

“The outcome of this rushed approach is resulting in poorly crafted rules overturned by the courts over and over again, unnecessary costs being imposed on retail investors, and increased bureaucratic regimes for all market participants,” Wagner said.

Rep. Frank Lucas, R-Okla., brought up his concerns over the agency's rushed process as well, asking Commissioner Uyeda how the agency could better catch the “unintended consequences” of rule-makings before they are proposed.

“One common tool, which we have not used in recent times, is to hold roundtables and other fact-finding-type activities that would lay a better predicate before we issue an actual proposal,” Uyeda responded.

When asked if the breadth of the SEC’s rule-makings concern her, Commissioner Peirce responded, “the breadth of the subject matter covered, the number of rules and the complexity of the rules… (as well as) the number of different alternatives being offered in those rules, means that it's a very difficult lift for the public to respond.”