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SEC Chairman Gensler Faces Growing Opposition and Legal Battles Over Regulatory Proposals

Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC), is slated to appear before the House Financial Services Committee, following a similar appearance before the Senate Banking Committee two weeks prior. His prior testimony provided a platform for Republicans to critique Gensler’s allegedly aggressive and expansive approach to rulemaking proposals.

Gensler has proposed more than 40 rules, which has heightened tension among Republicans and led to increasing confrontation with financial services sectors including hedge funds, mutual funds, and trading firms. The industry has been progressively resistant to negotiation, opting instead for legal action, claiming a lack of opportunity for industry input and objecting to the number of proposed rules.

Industry complaints underscore a growing bitterness, stating that the extensive draft regulation leaves insufficient time for meaningful response or study. Last month, legal contention emerged when Grayscale Bitcoin Trust successfully sued the SEC, leading to a rise in litigation from the industry against newly adopted rules, such as the Private Funds Adviser Rule, which mandates annual financial statement audits for registered private fund advisers.

Virtu Financial, a global market maker, is in conflict with the SEC over allegations of insufficient protection of sensitive customer data and false statements. The ongoing contentious relations are anticipated to preclude a quiet settlement, as seen in typical cases of this nature.

Republicans are particularly focused on some key proposed and recently adopted rules, including Climate-Related Disclosures, requiring companies to disclose emissions data and climate risk management strategies. Republicans argue that these requirements exceed the SEC’s authority, while Gensler maintains the SEC’s role is to ensure full and truthful disclosure of material risks by public companies.

Additional rules, like those related to cybersecurity and crypto, are also in the spotlight for their alleged overreach, with Gensler facing accusations of excessive enforcement against crypto intermediaries, contending the tokens offered are securities.

Gensler remains resolute in implementing new rules, given the 3-2 majority at the commission, and insists on the reasonableness of his approach and attentiveness to industry grievances. However, the rising tension and continuous implementation of these rules seem to signal an impending array of legal battles between the SEC and the financial services industry.

Despite hopes from some quarters that bipartisan requests may encourage Gensler to temper the pace of rulemaking, it seems unlikely that he will deviate from his established trajectory, leaving the financial industry resolving to confront him in court.


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