Prominent liberal lawmakers balked when President Obama nominated Gary Gensler to helm the Commodity Futures Trading Commission in the midst of the financial and regulatory catastrophe of 2008-2009. The move led Sen. Elizabeth Warren, a Massachusetts Democrat, to allege that the confirmation of the former Goldman Sachs partner would essentially allow Wall Street to regulate itself.
Journalists at left-of-center ProPublica were quick to point out that as the former assistant Treasury secretary for Bill Clinton, Genlser actually worked to prevent the Securities and Exchange Commission and the CFTC from regulating the very credit swaps and other mortgage-backed securities whose failures were catapulting the market into a generational meltdown.
There were justifiable reasons to give pro-regulatory lawmakers pause about his nomination. But Gensler was confirmed and went on to prove his critics wrong. In fact, in the words of former Democratic congressman Barney Frank, “Gensler was the toughest regulator under Obama.”
Flash-forward 13 years to now, and the former Wall Street banker has won over one of his toughest critics. “He is a tenacious regulator who stood up to the industry titans to rein in their risky behavior,” Sen. Warren tweeted when President Biden nominated Gensler to lead the SEC in January.
Most previous SEC chairs have been securities attorneys with clients on Wall Street. But Gensler, who became a Goldman Sachs partner at the tender age of 30, has extensive experience on both the trading and investment banking sides of the business. Observers think this gives him a deeper understanding of the dynamics of the industry.
When Regulations And Technology Clash
One serious critique of his predecessors is that regulators have failed to keep pace with rapid changes in technology that are altering the business. After leaving the CFTC, Gensler became a professor at MIT’s Sloan School of Management, where he taught a class in blockchain and cryptocurrencies. Though he is something of an expert in this area, he recently told Sen. Warren that he lacked the broad authority to strengthen investor protection over this nascent market after she voiced concerns about its potential to harm consumers. At the same time, he also indicated that he shared some of her concerns and asked her to help in expanding his bailiwick.
The sea change brought about by Gensler’s SEC confirmation is still reverberating throughout the securities industry, which is bracing for a heavier enforcement hand. “We anticipate that the SEC is really going to leverage Regulation Best Interest and existing interpretation through compliance and enforcement rather than redo it,” says Karen L. Barr, the president and CEO of the Investment Adviser Association, in an interview with Financial Advisor.
“We expect a heavy examination focus on fiduciary duty and Form CRS,” Barr says of the customer relationship summary that explains an advisor’s offerings and business activity. “We’re already seeing it. The SEC issued a bevy of enforcement cases [in July] around firms that didn’t file Form CRS. It was kind of a no-brainer. After they do the low-hanging fruit, they’ll go after the substance of disclosures.”
Gensler, who was known to implement Dodd-Frank requirements much quicker than his peers at other regulatory agencies, is taking the same tack at the SEC with Reg BI, the agency’s landmark retail investment advice rule.
In its first major Reg BI enforcement action, the SEC charged 27 firms for failing to file and deliver the customer relationship summaries to retail investors. The form is supposed to spell out the services a financial professional or broker-dealer provides, how they charge customers, their conflicts of interest and whether they offer fiduciary-level advice. The firms—some 21 investment advisors and six broker-dealers—agreed to settle SEC charges for fines ranging from $10,000 to $97,523.