(Article from Registered Funds Regulatory Update, October 2023)
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In a testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, SEC Chair Gary Gensler defended the SEC’s rapid pace of rulemaking, affirmed his criticism of fraud in the digital-asset industry, and discussed the regulatory challenges of AI.
In response to criticism regarding the recent pace of rulemaking, Gensler noted that the SEC laid out a unified regulatory agenda in 2021 and, in the interim, has issued 47 proposals and finalized 22 rulemakings since he was appointed Chair. He stated that the SEC has been enacting new rules at a pace slower than some of his predecessors that includes an average public comment period of 70 days, which exceeds the minimum required 60-day period. He also said the SEC had reopened the comment period on 18 proposed SEC rules to allow for additional public input. Gensler noted that a rule governing climate change disclosures had been delayed partly because the SEC had to consider numerous comments about the challenges companies face when calculating the climate impact of suppliers of goods and services. He mentioned that of the 22 SEC rules that were recently adopted, nearly all of them reflect public input.
With regards to the cryptocurrency markets, Gensler stated that he had never seen a field “so ripe with misconduct.” He noted that there have been many problems in these markets given the industry’s noncompliance with securities laws.
Gensler also faced a number of questions regarding an SEC rule proposal requiring broker-dealers and registered investment advisers to analyze conflicts of interest that could emerge when using predictive data analytics when interacting with investors. Under the proposed rule, firms would need to identify any conflicts that place the firm’s interests ahead of investor interests and then eliminate or neutralize the effects of those conflicts. In response to questioning, Gensler stated the SEC is “technology neutral,” and the SEC already uses machine learning, or AI, in certain functions. He noted that it is hard to explain AI models and the biases within them and that AI’s new challenges might be something Congress may need to take up.
Gary Gensler, SEC Chair, Oral Testimony of Gary Gensler Before the United States Senate Committee on Banking, Housing, and Urban Affairs (Sept. 12, 2023), available at: https://www.sec.gov/news/testimony/gensler-oral-testimony-091223.