President-elect Joe Biden’s team of financial regulators is taking shape, with progressive favorites being chosen for the top jobs at the Securities and Exchange Commission and the Consumer Financial Protection Bureau — moves that mean Wall Street should prepare itself for a new era of tougher oversight and stricter rules.
Biden’s SEC pick, former Commodity Futures Trading Commission Chairman Gary Gensler, 63, is known for sparring with the industry as the nation’s top derivatives watchdog during the Obama administration and for his deep knowledge of finance as an ex-partner at Goldman Sachs Group Inc.
That means he not only knows how to mobilize a bureaucratic federal agency but also understands the often impenetrable ways that Wall Street makes money — and how firms use that complexity to turn regulation in their favor.
His top targets likely will include Chinese companies that list on U.S. stock exchanges while bypassing American regulations, the surge in trading by neophyte investors during the coronavirus pandemic, cryptocurrencies and pushing Corporate America to reveal more about workforce diversity and how climate change impacts bottom lines.
Biden’s pick for the consumer agency, Rohit Chopra, 38, will seek to revive an agency that progressives contend was put to sleep during the Trump administration.
Chopra also is an acolyte of Senator Elizabeth Warren, the Massachusetts Democrat who conceived of the CFPB and is a renowned Wall Street adversary. If he succeeds in turning the agency around, life will almost certainly get less pleasant for student lenders, for-profit colleges, payday lenders and credit-card companies that progressives say prey on consumers.
The pending nominations send a clear signal that the rule-cutting and lax enforcement that Wall Street has grown accustomed to during four years of President Donald Trump are over. Here’s an overview of what the pending appointments mean for the agencies and for the financial industry.
Robinhood and SPACs
Robinhood Markets and special purpose acquisition companies — or SPACs — were among the finance industry’s hottest phenomenons in 2020. Both are sure to draw Gensler’s attention.
Robinhood, with its popular smartphone app, rode a wave of Covid 19-fueled day trading to add millions of customers. But critics say the company represents a disturbing trend of brokerages encouraging less-sophisticated investors to take risks that they don’t understand — and Gensler is likely to face pressure from progressives to erect new guardrails.
Robinhood has disputed claims that its platform promotes a “gamification” of trading as an inaccurate depiction of its business, saying its goal is to “democratize” wealth creation and investing by enabling a new class of consumers to trade shares and other assets.
Critics, including former SEC Chairman Arthur Levitt, say what’s needed is an aggressive examination by the regulator of whether apps use technological nudges to inappropriately stimulate excessive and even addictive trading. Robinhood has also faced repeated calls to improve its customer service, something the firm says it’s doing.
There’s another concern that the Robinhood-led boom in retail trading is inflating a stock bubble that could pop, triggering steep losses for investors — something that also worries progressives.