McHenry, Toomey Demand Answers on Chair Gensler’s Mismanagement of the SEC Following Alarming IG Report
Washington,
November 3, 2022 -
The top Republican on the House Financial Services Committee, Patrick McHenry (R-NC), and the top Republican on the Senate Banking Committee, Pat Toomey (R-PA), sent a letter to Securities and Exchange Commission (SEC) Chair Gary Gensler. Following the Inspector General (IG) report released last month, the Republican Leaders are demanding answers regarding the troubling issues created by Chair Gensler’s mismanagement of the SEC.
Read the full letter to Chair Gensler here.
Read key excerpts from the letter to Chair Gensler below:
“Dear Chairman Gensler:
“We are writing to request information regarding multiple troubling issues with the Securities and Exchange Commission’s (SEC) rulemaking process that the SEC Inspector General (IG) identified in a recent report (October 2022 IG report). The report, which focuses on the most serious management and performance challenges facing the SEC, raises significant concerns that the agency is trying to enact too many rules, too quickly—in some cases using temporary staff with little or no rulemaking experience—to the detriment of investors, businesses, and American capital markets.
“From January to August 2022, the SEC proposed twenty-six new rules, which was more than twice as many new rules as it proposed during all of 2021 and more than it had proposed in each of the prior five years. SEC managers have raised concerns with the IG about the increased number and rushed pace of rulemakings. According to the October 2022 IG report, some managers ‘believed that the more aggressive agenda—particularly as it relates to high-profile rules that significantly impact external stakeholders—potentially (1) limits the time available for staff research and analysis, and (2) increases litigation risk.’ In addition, some managers told the IG that ‘they may not have received as much feedback during the rulemaking process, either as a result of shortened timelines during the drafting process or because of shortened public comment periods.’ This is no way to run an agency. Agency rulemakings should be the product of a deliberative process that involves thorough research, analysis, and feedback, especially from the public. In January, we warned the SEC that its unreasonably short comment periods would harm the quality of public comments. Unfortunately, the October 2022 IG report demonstrates that this is precisely what has happened.
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“In addition to these deficiencies in the SEC rulemaking process, the October 2022 IG report indicates that SEC managers have relied upon temporary staff from outside their organizational areas, including some with little or no experience in rulemaking, to work on rules. They were forced to use staff that lack the necessary subject matter and rulemaking expertise due to the SEC’s increase in staff attrition and difficulties in hiring individuals with rulemaking experience. Specifically, the October 2022 IG report notes the attrition rate of SEC staff has increased from 3.8 percent in fiscal year 2020 to 6.4 percent in fiscal year 2022—the highest attrition rate in 10 years. In addition, the report projects the attrition rates for senior officers and for attorneys will be 20.8 percent and 8.4 percent, respectively, for fiscal year 2022. Unfortunately, the SEC’s issues with workforce management are not new. In February 2022, the IG issued a report (February 2022 IG report) raising concerns about the SEC’s hiring process that recommended several areas for improvement.
“Overall, the October 2022 IG report paints a troubling picture of an SEC that is rushing to enact too many rules, too quickly and without sufficient research, analysis, and feedback—in some cases using temporary staff with little or no rulemaking experience. …”
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