McHenry, Huizenga Urge New SEC Chair to Modernize Markets, Promote Greater Transparency, and Avoid Mission Creep

Cmte Financial Services (R)
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McHenry, Huizenga Urge New SEC Chair to Modernize Markets, Promote Greater Transparency, and Avoid Mission Creep

Today, the Republican leader of the House Financial Services Committee, Patrick McHenry (NC-10), and the Republican leader of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, Bill Huizenga (MI-02), sent a letter to the new Chair of the Securities and Exchange Commission (SEC), Gary Gensler, outlining Republican priorities and commonsense reforms that are critical to fulfilling the SEC’s mission. The Republican priorities include modernizing our capital markets, promoting greater transparency, and avoiding mission creep.

The Republican leaders write: “As you and your fellow Commissioners work to set your agenda, we request a timely response detailing your priorities for 2021–2022. In developing your priorities, there are anumber of important issues that are critical to fulfilling the SEC’s mission.”

Congratulations on your becoming the 33rd Chair of the U.S. Securities and Exchange Commission. As you and your fellow Commissioners work to set your agenda, we request a timely response detailing your priorities for 2021–2022. In developing your priorities, there are a number of important issues that are critical to fulfilling the SEC’s mission.

On February 16, 2021, Ranking Member McHenry and Senate Banking Committee Ranking Member Pat Toomey wrote to then-Acting Chair Lee requesting that the Commission focus its efforts on a number of good-governance initiatives. The included a request that the Commission publicly release the staff report, required to be completed by September 2020, on the potential impacts associated with movement to a shorter settlement cycle beyond T+2. We reiterate that request again. If such report is not yet completed, your confirmation that you will prioritize its completion and release to the public by the end of this year.

Additionally, we request your comment on each of the proposed good-governance initiatives from the February 16, letter as well as discussion on whether you intend for those projects to be part of your agenda as Chairman. For any project discussed in that letter that you do not intend to prioritize, we request an explanation of why, in your view, such items are not worthy of near- term focus and completion.

In addition to the letter, the Consolidated Appropriations Act of 2021 included two bills previously passed by the U.S. House of Representatives during the 116th Congress: H.R. 2919, the Improving Investment Research for Small and Emerging Issuers Act, and H.R. 3050, the Expanding Investment in Small Businesses Act. Both reports will provide necessary information to examine the impact of removing regulatory barriers for our small companies, helping them better access much-needed capital. We request your confirmation that these two reports will be promptly completed by the end of June, as required by Sections 106 and 107 of the Consolidated Appropriations Act of 2021.

The Commission’s transparent rulemaking agenda is paramount to the Commission’s effectiveness. Investors, issuers, market participants, financial regulators, and Congress should have a clear understanding of the Commission’s roadmap. An important tool to accomplish this is the Regulatory Flexibility Agenda.

We urge you to follow the lead of former Chairman Clayton and continue to use the “Reg Flex” agenda to publicize the most pressing Commission rulemaking initiatives. This includes projects that you expect to complete in the near-term (one year) and the long-term (more than one year). After years of Reg Flex agendas that did not reflect what was likely or even possible in terms of upcoming SEC rulemakings, former Chairman Clayton laudably narrowed the laundry-list of potential rulemakings to focus on what were likely rulemakings within the appropriate timeframes. This approach, focused on heightened transparency, increases cross-agency coordination as well as accountability to the American people. We request aconfirmation of your commitment to adhere to this common-sense approach when developing your “Reg Flex” agendas.

During the past six weeks, former-Acting Chair Lee announced a number of initiatives centered around the Commission’s “enhanced focus” on climate-related and other ESG priorities, including a review of public companies’ adherence to the Commission’s 2010 climate-related guidance. Commissioner Lee also requested public feedback on whether the public company disclosure regime should be modified to incorporate new climate-related disclosures.

To the extent that as Chairman you intend to continue this “enhanced focus” on climate and other ESG-related issues, we insist that the Commission ensure any changes to the Commission’s disclosure regime are consistent with the historical practice of requiring only disclosures of information that are actually material to investors. The Commission’s touchstone standard of materiality is one of the reasons the U.S. capitalmarkets are the envy of the world. It would be an abuse of the Commission’s authority to stray beyond the materiality standard to achieve non- investment-related social goals, particularly when such issues are better addressed by Congress or other regulators.

Finally, in the period before the Commission implements any ESG-related regulatory changes through a process consistent with the Administrative Procedures Act, we note that federal law requires that the current standards and disclosure requirements continue to apply to all public companies and that such standards are applied consistently with past practice. We ask for your confirmation that: (1) any ESG-related changes to the SEC’s disclosure regime will be rooted in the SEC’s historical touchstone materiality standard, and (2) the SEC will not effectively engage in ESG-related rulemaking through new enforcement or examination standards in the interim period before any relevant regulatory changes are completed through the notice-and-comment rulemaking process.