U.S. House Financial Services Committee Considers Legislation On SEC Oversight

The U.S. House Financial Services Committee considered legislation to expand and reinforce the SEC's authority to pursue its "mission [] to (1) protect investors; (2) maintain fair, orderly, and efficient markets; and (3) facilitate capital formation." As cited in the Majority Staff Memorandum, the SEC's fiscal year 2023 budget request of $2.169 billion reflects an 8.8 percent increase from fiscal year 2022 "in order to address key priority areas" and hire additional SEC staff to oversee increasingly complex issues such as digital assets.

In a hearing titled "Oversight of the U.S. Securities and Exchange Commission: Wall Street's Cop Is Finally Back on the Beat," the Committee considered:

• H.R. ____, which would strengthen the SEC's Office of the Investor Advocate under the Exchange Act and authorize the Office to conduct investor testing and publicize its findings;
• H.R. ____, the "Investor Justice Act of 2021," which would establish a grant program under the SEC's Office of the Investor Advocate to fund "qualified investor advocacy clinics";
• H.R. ____, which would amend the Exchange Act to establish minimum listing standards for multi-class stock companies in regard to non-proportional voting power and board diversity;
• H.R. 2620, the "Investor Choice Act of 2021," which would prohibit mandatory pre-dispute arbitration agreements and mandatory arbitration clauses that require investors to waive their right to seek redress through a class action lawsuit;
• H.R. ____, the "Whistleblower Protection Reform Act," which would amend the definition of whistleblower and expand anti-retaliation protections afforded to whistleblowers;
• H.R. ____, which would amend the Advisers Act to prohibit brokers and investment advisers from facilitating the transaction of securities of special purpose acquisition companies ("SPACs") with a promote of more than 5 percent; and
• H.R. ____, the "Empowering States to Protect Seniors from Bad Actors Act," which would create a grant program for states to enhance the protection of senior investors.

In testimony before the Committee, SEC Chair Gary Gensler reiterated the SEC's regulatory priorities, as he did before the U.S. Senate Banking Committee last month, highlighting market structure, predictive data analytics, issuers and issuer disclosure, and funds and investment management.

Commentary

The title of the hearings, "Wall Street's Cop Is Finally Back on the Beat," says it all: financial markets and market participants are bad, and fines are coming.

The individual bills cited seem largely intended to encourage litigation or lay the grounds for enforcement actions.

Whatever problems there may be with SPACs, legislation fixing the "promote" at 5 percent is completely arbitrary and premature. The SEC has plenty of authority to regulate SPACs, and FINRA has plenty of authority to regulate their distribution. Before Congress rushes to adopt arbitrary legal standards, it should at least give the SEC an opportunity to conduct a study, publish results, and make rule recommendations, or make legislative recommendations if there is some lacuna in the SEC's authority.

Primary Sources

1. U.S. House Financial Services Committee Hearing: Oversight of the U.S. Securities and Exchange Commission - Wall Street's Cop Is Finally Back on the Beat
2. U.S. House Financial Services Committee Majority Staff Memorandum: Oversight of the U.S. Securities and Exchange Commission - Wall Street's Cop Is Finally Back on the Beat
3. H.R. ___
4. H.R. ____, the "Investor Justice Act of 2021"
5. H.R. ___
6. H.R. 2620, the "Investor Choice Act of 2021"
7. H.R. ____, the "'Whistleblower Protection Reform Act"
8. H.R. ____
9. H.R. ____, the "Empowering States to Protect Seniors from Bad Actors Act"
10. Congressional Testimony, Gary Gensler: Oversight of the U.S. Securities and Exchange Commission - Wall Street's Cop Is Finally Back on the Beat
11. CII Comment Letter: Chairwoman and Ranking Member of Committee on Financial Services

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