SEC Chair Gary Gensler came to the agency three years ago with plans to overhaul public markets’ plumbing, make the industry uninhabitable for bad actors and fence in the “Wild West” of cryptocurrency.
Much of his ambition came directly in response to events of recent years. The “meme stock” craze of 2020 — which saw online commenters carry out an unlikely plan to drive shares of GameStop, AMC and other disfavored companies sky high — gave rise to questions about whether ordinary investors were being manipulated.
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Similar concerns accompanied the advent of commission-free online trading, pioneered by Robinhood Markets in 2013 and eventually embraced by nearly all of its competitors. Skeptical regulators were quick to note brokerages had simply replaced commissions with a “payments for order flow” system giving them rebates for routing trades to certain wholesale market makers.
Along with his concerns about markets, Gensler arrived at the SEC full of suspicion about the multi-trillion dollar market for cryptocurrencies and other digital assets. His doubts were shown to be well-grounded with the spectacular collapse of the offshore crypto exchange FTX in November 2022.
Meanwhile, Gensler has also been one among many regulators trying to come to grips with the latest technological craze to capture the world’s attention. The release of the large language model ChatGPT in late 2022 was followed quickly by anxieties about how artificial intelligence, machine learning and similar innovations might change markets in irrevocable and unpredictable ways.
Gensler has responded to all this with perhaps the most extensive regulatory agenda put forward by an SEC chair in recent memory. By the SEC’s own count, he had more than 50 items on his original to-do list.
The majority of those — 43, says the SEC — have gone on to be implemented. Among them have been some big triumphs from Gensler’s perspective: A requirement that public companies report cybersecurity breaches within four days; a mandate that stock trades be settled in a day (and other sweeping market reforms); and changes to a “naming” rule requiring investment funds to pursue the investing priorities that their names suggest.
The SEC’s enforcement arm has also responded to Gensler’s zeal for weeding out bad actors. The agency collected a record $6.4 billion-plus in penalties in its 2022 fiscal year and followed that with a $5 billion haul in 2023. Much of the fining has been driven by a crackdown on firms’ failure to track employees’ use of WhatsApp and other encrypted messaging services for business-related communications.
Amy Lynch, the founder and president of the regulatory consultant FrontLine Compliance, also gives Gensler credit for enforcing the SEC’s new marketing rule allowing only accurate and substantiable statements in firms’ advertising material. The requirements were approved before Gensler took office, but he has overseen a steady increase in enforcement cases.
“That was the first time that the Investment Advisers Act [of 1940] was ever truly significantly changed,” Lynch said. “So he can take ownership of that one. That’s probably his biggest win, purely from an asset management space perspective.”
Of course, not all has gone as planned. Some rules, such as one calling on advisors to eliminate conflicts of interest in their use of AI and similar technologies, have been sent back to the drawing board following intense pushback from industry groups. Others were adopted only to be stalled in court. Such was the fate this June for a rule requiring private equity and hedge funds to provide their investors with detailed quarterly reports on fees and expenses.
Throughout all of this, industry groups have expressed discomfort with different parts of individual proposals and sought changes. Their bigger complaint, though, has simply been that the SEC is trying to do too much, too fast.
Carlo di Florio, the global advisory leader at the compliance firm ACA Group, said Gensler has certainly left a mark on market regulation with his ambitious rule-making agenda and accomplishments. A more unfortunate part of his legacy, though, may be industry groups’ now freshly stoked willingness to fight every new regulation in court.
“So we’re now in an environment where any chair of the SEC is going to have to be really thoughtful and really careful about what kind of rule they want to bring forward, and then to define that rule proposal in a way that will position it for success if it is finalized and it becomes challenged,” di Florio said. “That’s a big change.”
Gensler himself has given little indication in recent interviews of any second-guessing. “Knowing everything we know now, we would probably have laid out a similar agenda,” Gensler told Bloomberg in an interview in February.
With the U.S. presidential election less than a month away, time may be running short for Gensler to finish everything he set initially out to do. Scroll down for a list of his biggest bits of unfinished business related to wealth management.
