SEC Chair Gary Gensler is facing backlash from the financial services industry as he continues to propose and adopt new rules. Republicans, in particular, are criticizing Gensler for what they perceive as overreach and being overzealous in his rulemaking. The industry is increasingly abandoning attempts to negotiate with Gensler and instead adopting a more confrontational stance, with some firms even suing him. Litigation has become the industry’s last resort as they feel there is no time for industry input and that their concerns are being dismissed without proper study or explanation.
Recently, Grayscale Bitcoin Trust successfully sued the SEC over its denial of a bitcoin ETF, claiming that the SEC’s actions were arbitrary and capricious. This has emboldened other firms to take a more litigious stance as well. For example, trade associations have sued the SEC over its new Private Funds Adviser Rule, arguing that the SEC exceeded its authority and acted arbitrarily. Virtu Financial, one of the world’s largest market makers, is also in open warfare with the SEC. The SEC sued Virtu for failing to protect customer data and making false statements, but Virtu claims this is an escalation due to its CEO’s criticism of the SEC’s market structure rule proposals.
Gensler’s proposed and adopted rules are also coming under fire from Republicans. The Climate-Related Disclosures rule, which would require companies to disclose emissions data and climate risk management strategies, is being criticized as beyond the SEC’s mandate. Gensler defends the rule by stating that the SEC’s role is to ensure public companies disclose material risks they face. Republicans will also attack Gensler for his approach to cybersecurity and enforcement actions against crypto intermediaries.
Despite the backlash, Gensler shows no signs of backing down. With a 3-2 majority at the commission, he has the power to continue passing new rules. He claims to be reasonable and open to industry feedback, but critics argue that this is not enough. Some Democrats have also expressed concerns about the pace of rulemaking and have urged Gensler to slow down. However, it remains to be seen if these concerns will have any impact on Gensler’s approach.
As Gensler faces increasing litigation and criticism, it seems that the financial services industry is ready to challenge him in court. The industry’s frustration with the lack of industry input, excessive rules, and dismissive attitude towards their concerns have pushed them to take a more confrontational stance. Only time will tell how this battle between Gensler and the industry will unfold.
