By James Gao ’24
Gary Gensler, the current chair of the U.S. Securities and Exchange Commission (SEC), recently joined Polis’s Distinguished Fellow Ambassador Miriam Sapiro to discuss his tenure heading one of America’s biggest regulatory agencies.
Gensler came to the SEC after extensive experience both in the private sector and in the federal government. He spent 18 years at Goldman Sachs working in mergers and acquisitions and fixed income and currency trading, but left in 1997 to serve as the Assistant Secretary of the Treasury for Financial Institutions for the Clinton administration. Afterward, he helped write the Sarbanes-Oxley Act, which tightened accounting standards for corporations in the wake of major scandals like Enron and WorldCom. In 2009, President Obama nominated him to chair the Commodities Future Trading Commission (CFTC), where he helped create new regulations for financial derivatives in the wake of the 2008 financial crisis.
Many students, myself included, were largely unfamiliar with the scope of Gensler’s work. In fact, Gensler opened his talk by recognizing a major challenge of his job: For the average American, the U.S.’s regulatory landscape – dominated by “alphabet soup” organizations like the SEC, OCC, FINRA, and the CFTC – is impossible to understand. (After all, just 56% of Americans can even name the three branches of government.) Nonetheless, he drove home the message that while his work may not be head-turning, market regulators play an important role in guaranteeing the average citizen opportunities for economic prosperity. They protect investors and households from fraud and manipulation, and ensure that market transactions are completed smoothly. Gensler repeatedly referenced the “basic bargain” as one of America’s core ideals: If you work hard and obey the rules, you should have the opportunity to flourish and become economically prosperous.
Afterward, Sapiro and Gensler’s discussion largely focused on the emerging challenges that would likely define his tenure: implementing new climate-risk disclosure laws and regulating cryptocurrency and the blockchain.
On the first item, Gensler defended the release of new regulations requiring corporations to “include… information about climate-related risks that are reasonably likely to have a material impact on their business [or operations].” The SEC’s new guidance brings it in line with European climate finance regulations and with recommendations from the Task Force on Climate-Related Financial Disclosures, which was established in the wake of the 2015 Paris Agreement. However, backlash was strong, as many opponents argued that the new rules would create a significant new regulatory burden for corporations. Specifically, controversy surrounds a rule requiring agencies to include their “Scope 3” emissions (the carbon footprint of their suppliers and clients). Nonetheless, Gensler insisted that the new rules matched the spirit of the SEC’s mission: “The public gets to decide what risks they want to take,” he argued. “And investors make decisions today on a variety of factors, including climate risk.” The increased transparency and consistency these rules would provide would protect consumers and enable smarter, more climate-conscious investments.
On the contrary, Gensler expressed skepticism toward the growth of blockchain technologies in the U.S., referring to crypto investments as the “Wild West.” Thus far, cryptocurrency and other decentralized financial systems have been mostly free of government regulation, but President Biden signed an executive order last month calling for greater regulatory scrutiny. Gensler discussed the challenges of defining exactly what a cryptocurrency is (since it has elements of being a currency, asset, and security at the same time). He concludes that cryptocurrencies are “investment contracts” that need further regulations.
The threat of climate change and the growth of cryptocurrency platforms present both great opportunities and great challenges for America’s financial system. Although Gensler’s talk was certainly high-level, I was grateful to hear that America’s top regulators had a forward-thinking plan to address the economic challenges of the future.
James Gao is a sophomore majoring in Public Policy and Statistics. He is passionate about environmental economics, infrastructure and political media. He is currently researching the 2008 financial crisis as part of the American Predatory Lending Bass Connections team and serves as a Director’s Fellow at Polis.