Securities and Exchange Commission Chair Gary Gensler is facing increasing backlash from the Republican party as he continues to propose and adopt new rules for the financial services industry. Republican critics argue that Gensler has been overzealous and overreaching in his rulemaking, with concerns about limited industry input and insufficient time for review. The industry has now taken a more confrontational stance, with some financial trade associations resorting to lawsuits against the SEC over specific rules. This shift towards litigation marks a departure from previous attempts to negotiate with Gensler.
One recent lawsuit came from Grayscale Bitcoin Trust, which successfully sued the SEC over its rejection of the trust’s conversion to a bitcoin ETF. The industry’s litigious stance has escalated with additional lawsuits, including one from six financial trade associations challenging the SEC’s new Private Funds Adviser Rule. Gensler is also engaged in a public dispute with Virtu Financial, one of the largest market makers globally, over alleged failures to protect sensitive customer data and misleading statements. These cases, which would typically result in settlements, are poised to become contentious legal battles due to the industry’s growing frustration with Gensler’s regulatory approach.
While testifying before the House Financial Services Committee, Gensler can expect Republican lawmakers to address significant issues he has been tackling, such as climate-related disclosures and regulation of the cryptocurrency market. Republicans argue that some of these proposals extend beyond the SEC’s mandate, while Gensler defends the importance of full and truthful disclosure by public companies in addressing climate risks. With a majority at the commission, Gensler remains determined to push through new rules despite industry criticism. Although he claims to listen to industry complaints, his continued rulemaking is unlikely to placate his opponents. While some Democrats may join Republicans in asking for a slower pace, Gensler’s momentum and commitment to adopting new rules suggest that the financial services industry’s best recourse may be litigation.
Overall, as Gensler faces mounting criticism from Republicans and an industry increasingly unwilling to negotiate, the SEC Chair’s rulemaking proposals and adoption of new rules have sparked a surge in lawsuits from financial trade associations and market participants. The industry alleges an insufficient opportunity for input, an overwhelming number of rules, and a lack of transparency in the decision-making process. With Gensler refusing to back down, the industry’s confrontational approach has led to a shift towards litigious strategies, marking a turning point in the industry’s relationship with the SEC. As Gensler testifies before the House Financial Services Committee, the focus will be on contentious issues such as climate-related disclosures and regulations regarding cryptocurrencies. Amidst the growing divide between Gensler and the financial services industry, litigation seems to be the industry’s response to an increasingly rigid regulatory environment.