SEC staff are concerned that Chair Gensler’s “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,” according to the Inspector General’s annual report. The IG is required to identify and report annually on “the most serious management and performance challenges facing the SEC,” and this year’s report was a doozy.
A WSJ editorial opinion on the report noted that the review “would probably get a CEO of a public company sacked” and highlighted the concerns of SEC staffers themselves that the fast and furious pace of rulemaking is unsustainable and dangerous. The SEC is experiencing record levels of attrition and difficulty hiring, which further exacerbates the danger that the agency’s core mission of investor protection could be jeopardized.
Meanwhile, Bloomberg reported that the SEC is “months away” from finalizing climate rules, likely due in part to the recent technical glitches experienced by the agency as well as legal threats to the legitimacy of the rule. This frees up the docket for a new proposed rule on Human Capital Metrics, which is still expected this fall. Part of the rush at the SEC is the desire to get rules proposed and finalized in case the GOP takes Congress in the midterms or the White House in 2024. However, hastily released rules with short comment periods also increase the risk of legal challenges which could delay or even prevent implementation.
Another possibility, raised in a recent Squawk Box interview with Chair Gensler, is that both the increased pace of regulation and the intense public scrutiny of the chair’s performance indicate he is being considered for the role of Treasury Secretary should President Biden reshuffle his cabinet. If this occurs, however, it would require another SEC Chair appointment to be confirmed by the Senate, which would be difficult in a Republican-controlled Senate.