SPACs, which list on public exchanges to raise money to buy companies, have already been drawing scrutiny from the SEC. The attention is a direct result of how hot they are, with the vehicles used to raise a record $79.2 billion from U.S. investors in 2020.
Jay Clayton, who stepped down as SEC chairman last month, has said he’s concerned that potential investors aren’t receiving appropriate disclosures about conflicts and insiders’ lucrative pay structures. That prompted the agency to launch a review, which would now fall to Gensler.
Volcker Rule and Private Equity
After the 2008 financial crisis, Gensler solidified his status with progressives by insisting on a tough version of the Volcker Rule. The regulation, which banned proprietary trading by Wall Street banks, was eased during the Trump administration. Goldman and other firms will now be watching to see whether Gensler leads an effort among regulators to bolster its restrictions.
Another area in which Gensler is likely to square off with big names in finance is over the SEC’s approach to regulating private-equity firms. During the Trump era, the SEC sought to remove regulatory barriers that prevent private equity from raising money from retail investors. Progressives are hopeful that Gensler will move in the other direction, by bringing more transparency to buyout firms, which Warren and other lawmakers blame for loading companies with unsustainable debt burdens and cutting jobs.
A Crackdown on Chinese Stocks
One area that will demand Gensler’s attention is rising tensions between the U.S. and China — fighting that is now being waged in financial markets.
Congress passed legislation late last year that could lead to Alibaba Group Holding Ltd., Baidu Inc. and other Chinese companies getting kicked off of U.S. stock exchanges if they continue their non-adherence to American auditing rules.
At issue are longstanding American requirements that all publicly traded companies in the U.S. allow their auditors to be inspected by the Public Company Accounting Oversight Board. Gensler will be responsible for writing rules that make Chinese companies comply. Their penalty is possible ejection from U.S. markets.
The crackdown would follow a separate one already initiated by the Trump administration, which issued an executive order in November that requires American investors to sell their stakes in Chinese companies deemed a threat to U.S. national security.
New Rules for Crypto
Bitcoin is on a tear again, having surged roughly four-fold last year. That means it and other cryptocurriencies are likely to get renewed attention from Gensler’s SEC.
He’s quite familiar with the industry, having taught a class about it at the Massachusetts Institute of Technology, and has called for more regulation.
Some in the industry argue that more oversight wouldn’t necessarily be a bad thing because, right now, many institutional investors shy away from the space, as they see it as akin to the Wild West. As a result, stiffer rules might bring more capital flows to digital tokens.