[Senate Hearing 116-358]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 116-358

                 NOMINATIONS OF HESTER PEIRCE, CAROLINE 
                        CRENSHAW, AND KYLE HAUPTMAN

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                            NOMINATIONS OF:

 HESTER PEIRCE, OF OHIO, TO BE A MEMBER OF THE SECURITIES AND EXCHANGE 
                               COMMISSION

                               __________

 CAROLINE CRENSHAW, OF THE DISTRICT OF COLUMBIA, TO BE A MEMBER OF THE 
                   SECURITIES AND EXCHANGE COMMISSION

                               __________

 KYLE HAUPTMAN, OF MAINE, TO BE A MEMBER OF THE NATIONAL CREDIT UNION 
                          ADMINISTRATION BOARD

                               __________

                             JULY 21, 2020

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
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                Available at: https: //www.govinfo.gov /

                              __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
42-472 PDF                  WASHINGTON : 2021                     
          
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                  Jen Deci, Professional Staff Member

                 Sarah Brown, Professional Staff Member

                 Elisha Tuku, Democratic Chief Counsel

           Corey Frayer, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         TUESDAY, JULY 21, 2020

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    31

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    31

                                NOMINEES

Hester Peirce, of Ohio, to be a Member of the Securities and 
  Exchange Commission............................................     5
    Prepared statement...........................................    33
    Biographical sketch of nominee...............................    35
    Responses to written questions of:
        Senator Warren...........................................    86
        Senator Cortez Masto.....................................    94
Caroline Crenshaw, of the District of Columbia, to be a Member of 
  the Securities and Exchange Commission.........................     7
    Prepared statement...........................................    66
    Biographical sketch of nominee...............................    67
    Responses to written questions of:
        Senator Menendez.........................................   103
        Senator Warren...........................................   106
        Senator Cortez Masto.....................................   113
Kyle Hauptman, of Maine, to be a Member of the National Credit 
  Union Administration Board.....................................     8
    Prepared statement...........................................    74
    Biographical sketch of nominee...............................    76
    Responses to written questions of:
        Senator Brown............................................   117
        Senator Warren...........................................   122
        Senator Cortez Masto.....................................   123

              Additional Material Supplied for the Record

Letter suppporting nominee Hester Peirce.........................   127
Letter suppporting nominee Kyle Hauptman.........................   129

                                 (iii)

 
   NOMINATIONS OF HESTER PEIRCE, CAROLINE CRENSHAW, AND KYLE HAUPTMAN

                              ----------                              


                         TUESDAY, JULY 21, 2020

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., remotely, via WebEx, Hon. 
Mike Crapo, Chairman of the Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order. This 
hearing is another remote hearing by video, and again a few 
videoconferencing reminders you should all have memorized by 
heart, by now. Once you start speaking there will be slight 
delay before you are displayed on the screen. To minimize 
background noise, please click the Mute button until it is your 
turn to speak or ask questions. If there is a technology issue 
we will move to the next Senator until that is resolved.
    I remind everybody again, and the witnesses, that the 5-
minute clock still applies and there should be a 5-minute clock 
in one of the boxes on your screen. Please pay attention to it, 
and I will try to remember to do that 30-second tapping just 
before your time runs out so that you can recognize the need to 
look at that clock and wrap up.
    To simplify the speaking order, Senator Brown and I have 
agreed to go by seniority for this hearing.
    This morning we will hear testimony on the nominations of 
the Honorable Hester Peirce, of Ohio, to be a member of the 
Securities and Exchange Commission; Ms. Caroline Crenshaw, of 
the District of Columbia, to be a member of the Securities and 
Exchange Commission; and Mr. Kyle Hauptman, of Maine, to be a 
member of the National Credit Union Administration Board. 
Welcome and congratulations on your nominations to each of you.
    Commissioner Peirce and Ms. Crenshaw both have been 
nominated to serve as SEC Commissioners. The SEC is charged 
with an important mission to protect investors, maintain fair, 
orderly, and efficient markets, facilitate capital formation, 
and enforce securities laws. I commend Commissioner Peirce and 
her colleagues at the SEC for their quick and decisive response 
to the current COVID-19 pandemic. The SEC has successfully 
balanced the emergency response to COVID-19 while continuing to 
maintain fundamental operations, such as rulemaking 
initiatives, conducting risk-based inspections, bringing 
enforcement actions, and reviewing issuer and fund filings. I 
encourage the SEC to continue these efforts, including 
advancing important rulemaking efforts related to capital 
formation and corporate governance.
    Commissioner Peirce is highly qualified for her position, 
previously serving as a Senior Counsel at this Committee and 
currently serving as an SEC Commissioner since January of 2018.
    Next we have Ms. Caroline Crenshaw. Ms. Crenshaw has worked 
at the SEC since 2013, working in the Office of Compliance, 
Inspections, and Examinations, the Division of Investment 
Management, and as Counsel to Commissioners Kara Stein and 
Robert Jackson. In addition to her work at the SEC she is a 
captain in the U.S. Army Reserve Judge Advocate General's 
Corps. Ms. Crenshaw, we thank you for your service.
    Turning to Kyle Hauptman, who has been nominated to the 
Board of the National Credit Union Administration. The NCUA 
plays a critical role in overseeing and ensuring a major 
segment of our Nation's community financial institutions, 
federally insured credit unions. Mr. Hauptman is well prepared 
to join the NCUA board thanks to his prior Government and 
private sector experience. Mr. Hauptman has served as the 
Economic Policy Advisor to Senator Tom Cotton since 2017. He 
also did work on S. 2155, the Economic Growth Regulatory Relief 
and Consumer Protection Act, which contains several important 
provisions that provided regulatory flexibility and relief for 
credit unions.
    Before his Government service, Mr. Hauptman had a career in 
the financial services industry, where he developed expertise 
managing liquidity and credit and interest rate risk in fixed 
income portfolios. In the coming months, both the SEC and NCUA 
will be on the front lines helping consumers, retail investors, 
and businesses of all sizes recover from the economic impacts 
of the COVID-19 emergency.
    If confirmed, I look forward to working with each of these 
nominees on many important issues within their respective 
policy areas. Congratulations again on your nominations, and I 
again thank you and your families for your willingness to 
serve.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Chairman Crapo, for holding 
today's hearing. First I want to take a brief moment to 
remember my friend and colleague, Congressman John Lewis. Let 
us honor his legacy by following his example of leadership and 
courage and his unrelenting fight for justice.
    I welcome today's nominees. Congratulations to the three of 
you and to your families. The Committee will consider two 
nominees, as the Chairman said, to the Securities and Exchange 
Commission, Commissioner Hester Peirce for a second term and 
Ms. Caroline Crenshaw; and Mr. Kyle Hauptman as a nominee to be 
a board member of the National Credit Union Administration.
    Today also marks, federally, today, the 10-year anniversary 
of the passage of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act. We passed Wall Street reform to 
prevent another financial crisis. Right now we face an even 
greater, more complex public health and economic crisis and a 
looming housing crisis. Families are making impossible 
decisions about how to pay their rent and put food on the 
table, or are grieving the loss of a mother or a father or a 
child. And we know one of this pandemic's greatest tragedies is 
that people die alone. It is black and brown Americans 
disproportionally affected, working on the front lines to get 
us through this and helping to save lives while themselves too 
often grieving lost ones.
    Wall Street reform was meant to prevent catastrophe in our 
financial system. We need to aim higher than that today, yet 
Wall Street has spent years trying to dismantle the basic 
important protections put in place through Dodd-Frank. 
Republicans and the Trump administration have been all too 
happy to oblige Wall Street. It did not take long for Wall 
Street to recover from this crisis. They were making record 
profits. They were refusing, at the same time, to pay their 
workers a living wage. This only caused the wealth gap to grow 
even further.
    The current coronavirus crisis is showing us what happens 
when we do not protect working people. We cannot leave them 
behind again. And leadership matters. We see that every day--
140,000 Americans dead on the President's watch. We are just 5 
percent of the world's population yet we account for almost 30 
percent of the world's deaths. It is not because we do not have 
good doctors and smart scientists and hard workers. It is 
because of leadership, or precisely lack of leadership. And 
those who this body confirms to leadership posts today, and 
other days, also matter.
    All of the nominees, if confirmed, can support policies 
that protect these working families, families who are consumers 
and investors and credit union members. You can encourage 
companies and credit unions to offer fair products to Americans 
left out of our financial system and make sure our markets and 
economy work for everyone.
    The question facing us today is will you show that 
leadership and make those kinds of choices? If confirmed, Ms. 
Peirce would continue her work as a Commissioner for 5 more 
years. She brings the experience of working for the last two 
Democratic Commissioners--excuse me. Ms. Crenshaw brings the 
experience of working for the last two Democratic 
Commissioners, fighting for investors. Her continuing service 
in the military allows her to bring a very different 
perspective to this job. If confirmed, she would be the first 
Commissioner in modern times to be in the active Reserve, 
joining a handful of Commissioners over the history of the SEC 
who have served in the Armed Forces.
    Commissioner Peirce and Ms. Crenshaw, you will be called 
upon to tackle market swings and investment scams related to 
the pandemic. You must also keep your eyes on existing problems 
that, as is so much during the pandemic that are getting worse.
    As the biggest companies and banks, in particular, have 
grown and become more powerful, we have seen corporate 
executives pay themselves with stock buybacks while, at the 
same time, laying off workers, cutting their pay, and 
underinvesting in their communities, all while avoiding any 
accountability. The SEC has a role in addressing each of these 
issues. Executives must be responsible to stakeholders, 
including workers and communities. That means the SEC should 
not be changing its rules since it will take away smaller 
investors' ability to hold management accountable and raise 
important issues to other shareholders. Shareholder democracy 
is not just for the big guys.
    The COVID pandemic has also shown how important essential 
workers are to our economy and how little information companies 
disclose about their workers. The public needs more information 
about how a company engages with its workers, because that 
helps investors understand how that company will deal with a 
crisis. And soon enough, corporate executives will want to 
reward themselves and their biggest investors again with stock 
buybacks. The safe harbor for stock buybacks has barely been 
touched in four decades, but it seems investor and market 
protections are chipped away at year after year after year. 
When we have seen companies spend as much as literally 100 
percent of their profits on their own stock instead of capital 
investment or workers' wages, it is clear that stock buybacks 
rules need an overhaul.
    The COVID pandemic has also shown us how important it is to 
have local financial institutions that serve their communities. 
We have seen credit unions, like the ones in my home State of 
Ohio, work with their members to get through this crisis. The 
NCUA is key to making sure that our credit unions are resilient 
in good times and bad times.
    Yet the NCUA, under the Trump administration, has been 
chipping away at the very protections we put in place after the 
last financial crisis, rules that protect homeowners and that 
set strong capital and loan reserve standards, allow credit 
unions to lend in their communities during a downturn, much 
like the one we face now.
    Mr. Hauptman was a trader at Lehman Brothers when it 
failed, accelerating the financial crisis. You would think he 
would understand what a financial crisis can mean, yet he has 
spent his career railing against the Dodd-Frank Act. Credit 
unions were created when other financial institutions were not 
serving all their customers. We have often seen them help those 
that big banks have left behind, including workers, including 
people of color. Now is the time to implement even stronger 
protections and safeguard consumers and our financial system. 
If confirmed, Mr. Hauptman will need to make sure that the 
credit union system continues to serve these communities, which 
means doing more to protect credit union members, not rolling 
back regulation.
    Mr. Hauptman has no credit union experience. He says he 
wants this job because people who love their financial 
institutions are usually credit union members. But being glad 
that credit union members serve their customers is not a reason 
he is qualified to be one of the top three credit union 
regulators. It means he should be a credit union customer.
    Later today, this Committee will mark up the nomination of 
Judy Shelton to be a member of the Federal Reserve Board. Even 
before the pandemic, my colleagues and I, many on both sides of 
the aisle, were concerned about her qualifications and 
commitment to helping working families, and her independence 
from the President. She has advocated for failed Depression-era 
policies, like a return to the gold standard and the removal of 
deposit insurance. At her nomination hearing she failed to 
explain how she would handle an economic crisis. That 
hypothetical economic crisis is now a reality, and we have no 
idea how Dr. Shelton would respond. That is why it is so 
important to carefully evaluate nominees based on their record, 
their experience, their service to this country. That is whom 
you ultimately serve, the American people.
    A regulator's job is not to do favors for Wall Street firms 
and corporate interest groups or lobbyists or revive debunked 
economic theories. We entrust regulators to make sure that all 
Americans can prosper in a safe financial system and a fair 
economy. Today we need to hear from each of you how you will 
help and protect the American people that make our economy 
work.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Brown.
    We will now administer the oaths. As we have discussed with 
each of you before, but individually, but I will ask each of 
you to stand and raise your right hands. And then I will go to 
each of you individually.
    Commissioner Peirce, do you swear or affirm that the 
testimony that you are about to give is the truth, the whole 
truth, and nothing but the truth, so help you God?
    Ms. Peirce. I do.
    Chairman Crapo. And do you agree to appear and testify 
before any duly constituted committee of the Senate?
    Ms. Peirce. I do.
    Chairman Crapo. Thank you. And next, Ms. Crenshaw. Do you 
swear or affirm that the testimony that you are about to give 
is the truth, the whole truth, and nothing but the truth, so 
help you God?
    Ms. Crenshaw. I do.
    Chairman Crapo. Thank you. And do you agree to appear and 
testify before any duly constituted committee of the Senate?
    Ms. Crenshaw. I do.
    Chairman Crapo. Thank you. And now Mr. Hauptman. Do you 
swear or affirm that the testimony that you are about to give 
is the truth, the whole truth, and nothing but the truth, so 
help you God?
    Mr. Hauptman. I do.
    Chairman Crapo. And do you agree to appear and testify 
before any duly constituted committee of the Senate?
    Mr. Hauptman. I do.
    Chairman Crapo. Thank you. You may all take your seats.
    Your written statements will be made a part of the record 
in its entirety, and as you know, we have allocated you 5 
minutes each for an opening statement. We will have you make 
those statements in the order that I swore you in, so 
Commissioner Peirce, you may begin.

  STATEMENT OF HESTER PEIRCE, OF OHIO, TO BE A MEMBER OF THE 
               SECURITIES AND EXCHANGE COMMISSION

    Ms. Peirce. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, thank you for considering my 
nomination to be a member of the Securities and Exchange 
Commission. Having served as a Commissioner for 2\1/2\ years, I 
am honored that the President has nominated me to serve another 
term. If confirmed, I look forward to using the next 5 years, 
alongside the dedicated, experienced SEC staff, to unleash the 
power of our securities markets in order to brighten more 
children's futures, build more Americans' retirement nest eggs, 
transform more communities across the Nation, and rebuild an 
economy weakened by COVID. I am delighted about the possibility 
of serving with Caroline Crenshaw, whose experience at the 
Commission, in the military, and in private practice would 
enrich our deliberations as a Commission.
    I have spent the last 20 years working on financial 
regulation. Part of that time was spent working for Senator 
Shelby on this Committee, and more than half of that time has 
been at the SEC. The agency has been extremely productive under 
the effective leadership of Chairman Jay Clayton, and I have 
enjoyed helping to carry out his regulatory, compliance, and 
enforcement agenda.
    On the regulatory front, we have enhanced retail investor 
protection by, among other things, codifying a regulatory 
framework for exchange-traded funds, adopting a best interest 
standard for retail brokers, and streamlining variable product 
disclosures. We also have applied a benefit-cost lens to public 
company regulatory obligations, initiated changes to equity 
market structure so that it can serve investors and companies 
of all sizes, and scaled regulatory requirements for small 
entities. We have worked, with urging from me, the ever-vocal 
Midwesterner, to streamline the capital raising process for 
small companies and entrepreneurs all across the country, not 
just on the coasts. We also have provided temporary relief for 
firms adjusting to the work-from-home environment and to small 
businesses trying to raise funds to survive the COVID crisis.
    An integral complement to our regulatory work is the 
Commission's compliance function, which includes inspecting 
firms and engaging with them as they seek to apply the rules to 
their unique facts and circumstances. I have supported 
cooperation with other regulators and compliance personnel at 
regulated entities to maximize our collective coverage and 
effectiveness. I also have advocated taking advantage of new 
technologies in overseeing the markets, with due consideration 
for legitimate concerns about data protection and over-
surveillance.
    On the enforcement side, we have brought charges against 
entities, large and small, and individuals, for a wide range of 
securities violations. Most recently, we have gone after 
securities violators hiding behind purported COVID-19 cures. 
Human nature being what it is, there is no dearth of bad 
conduct, so I have worked to focus our enforcement resources 
where they can make the most difference for investors and our 
markets.
    Collaboration with domestic and international colleagues 
runs through everything the Commission does. I had the 
opportunity to work with Commissioner Brian Quintenz of the 
CFTC as we stood up our Dodd-Frank security-based swap 
regulatory regime. On that same issue, I cooperated with 
international counterparts to minimize market disruption and 
conserve regulatory resources. As the Commission's 
representative on one of the FSB's committees, I have supported 
sharing information and conducting joint analyses, but also 
have emphasized that decisions about how to regulate the U.S. 
markets need to be made here at home.
    One concern I had going into the job was the difficulty 
that regulatory agencies have dealing appropriately with 
innovation in and disruption of the industries they regulate. 
This problem is an institutional problem. Large bureaucratic 
organizations, whether public or private, do not handle change 
particularly well. I know, however, that the Commission can do 
better. If confirmed, in addition to continuing my work on 
strengthening the regulatory framework, I will redouble my 
efforts to create a more welcoming environment for innovation 
and new entrants. If the Commission takes up that challenge 
with the necessary seriousness and alacrity, our capital 
markets will remain dynamic, vibrant, and preeminent.
    Thank you for considering my nomination, and I would be 
happy to take any questions you might have.
    Chairman Crapo. Thank you, Commissioner Peirce. Ms. 
Crenshaw.

STATEMENT OF CAROLINE CRENSHAW, OF THE DISTRICT OF COLUMBIA, TO 
     BE A MEMBER OF THE SECURITIES AND EXCHANGE COMMISSION

    Ms. Crenshaw. First and foremost, thank you, Commissioner 
Peirce, for those kinds words, and if confirmed I would be 
honored to work with you as well.
    Chairman Crapo, Ranking Member Brown, and distinguished 
Senators of the Committee, thank you for the opportunity to 
appear here today. It is an honor to testify before you 
regarding my nomination to be a Commissioner of the Securities 
and Exchange Commission, where I have worked for the past 7 
years, and in whose mission I deeply believe.
    I want to thank all those who have encouraged and supported 
me through this process: family, friends, colleagues, Members 
of Congress and their talented staff, and many others whom I 
did not know prior to my nomination. It has been an educational 
and memorable journey.
    America's capital markets have powered the largest, most 
vibrant economy in the world. But our economy is facing 
unprecedented challenges and now, more than ever, I believe we 
must do all we can to keep our markets transparent, 
competitive, and safe. All Americans must have the confidence 
to invest their hard-earned savings in their futures.
    That is the critical mission of the SEC, and it is the 
reason why I chose to transition my career from private 
practice to public service. I began my time at the SEC as a 
career staff attorney, helping oversee the institutions that 
manage millions of Americans' savings. More recently, I served 
as Counsel to two dedicated public servants, Commissioners Kara 
Stein and Robert Jackson, focusing on strengthening investor 
protections in our increasingly complex markets. It has been my 
great privilege to support the SEC's mission for the better 
part of a decade and see up close how our securities laws are 
built case-by-case and rule-by-rule.
    But it is not just that experience that brings me before 
you today. I also carry with me the stories of soldiers, 
family, and friends who give the SEC's mission real meaning. As 
a captain in the United States Army Reserve, that mission means 
making sure my fellow soldiers have a fighting chance to secure 
the financial futures they deserve.
    As a sister of an entrepreneur, it means making sure our 
markets unite job-creating capital with individuals like my 
brother, who recently started a small business. And as a new 
mother, it means promoting the level playing field that will 
allow my family, and millions of other American families, to 
fund the rising costs of education by safely and confidently 
investing in our markets.
    If confirmed, I intend to bring all of these experiences, 
from sister to staffer to soldier, to bear on the SEC's 
mission. You can count on me to be a tireless advocate for the 
ordinary American families who are the backbone of our economy.
    One of the biggest challenges for those families, and for 
the Commission, is the retirement crisis facing the country. 
The Nation's shift from defined benefit pension plans, which my 
parents, and their parents before them, relied upon, to defined 
contribution plans, moved the responsibility of lifelong saving 
from employers to the individuals. That has left too many hard-
working Americans without sufficient resources for retirement.
    With investment decisions now largely in the hands of these 
individual Americans, the Commission should do all it can to 
ensure everyone gets a fair deal. It should provide clear, 
plain English information and access to high-quality investment 
advice that allow individuals to distinguish between financial 
advisors, on one hand, and fraudsters on the other, and to fund 
their retirements in safe and sustainable ways. Additionally, 
the Commission should keep a close watch over the large 
institutions increasingly entrusted with the growth and 
safekeeping of Americans' savings.
    As a Washington, D.C., native who grew up just blocks away, 
on Capitol Hill, I have had the great benefit of being 
surrounded by dedicated public servants of all political 
stripes. If I have the honor of being confirmed, I will bring 
with me that commitment to public service and appreciation for 
diverse views as the Commission considers how best to help 
Americans grapple with the economic challenges before us.
    Thank you for your time, and I would be delighted to answer 
any questions you might have.
    Chairman Crapo. Thank you, Ms. Crenshaw. Mr. Hauptman.

  STATEMENT OF KYLE HAUPTMAN, OF MAINE, TO BE A MEMBER OF THE 
           NATIONAL CREDIT UNION ADMINISTRATION BOARD

    Mr. Hauptman. Thank you Chairman, Ranking Member Brown, and 
Members of the Committee. It is an honor to be here. I would 
like to thank the President and his team, plus the NCUA staff 
that have been so helpful. I want to especially thank Senator 
Cotton for his support throughout this process.
    I would like to say hello to those watching online, 
especially my wife, Kelly, who is pregnant with our first 
child, my brother, Gabe, and his husband, Geoff, my siblings-
in-law, Katie and Marcus, and my parents-in-law, Sue and Mike.
    When offered this nomination, I accepted immediately. It is 
a chance to help over 120 million credit union members achieve 
their financial goals. And if you encounter someone who 
actually loves their financial institution, there is a good 
chance you are speaking to a credit union member.
    These last few months have demonstrated the cooperative 
nature of credit unions, as they have waived fees and adjusted 
loans without anyone in D.C. telling them to do so. Many of us 
also recall the last Government shutdown when credit unions 
gained members by offering interest-free loans to furloughed 
workers. But this reputation depends on proper oversight from 
NCUA.
    Before the Senate I worked on regulatory policy, including 
serving on a bipartisan SEC Advisory Committee. Prior to that I 
was in the financial sector, focused on the same money markets 
where credit unions obtain financing. Twelve years ago, I was a 
mid-level employee working in Asia for Lehman Brothers, and 
wound up losing my job, my savings, and my work visa, all due 
to management that did not fully understand the risks they were 
taking. That experience showed me first-hand the risks 
associated with liquidity, interest rates, and balance sheet 
management. This perspective should be both valuable and 
somewhat unique on the NCUA Board.
    One of the best parts of serving in the Senate has been 
working with Arkansas credit unions and their companions in the 
Cornerstone Credit League in Texas and Oklahoma. I am confident 
that if you speak to them, they will tell you I have been 
knowledgeable and attentive regarding their concerns. And while 
I value those relationships, you can be sure I will be an 
independent regulator who works only for credit union members 
and the taxpayers who ultimately back NCUA insurance.
    In addition to my interest in financial policy, I have a 
passion for public service, due to my upbringing. My father 
worked in the National Park Service for 32 years. 
Unfortunately, in the last 3 years both he and my mother passed 
away, but I think they would be proud to see me here. I should 
mention that both were lifetime Democrats, my mother a Bernie 
Sanders supporter.
    On a related note, my Senate colleagues will tell you I 
work in a bipartisan fashion. I have worked on legislation with 
the majority of Committee Democrats, including with Ranking 
Member Brown's staff on reforming our anti- money-laundering 
laws. I have been impressed with the character and acumen of 
the Democratic staff, and in fact several have been to my home.
    Credit unions help people achieve the same American dream 
that my dad experienced, born in Brooklyn to parents with 4th-
grade educations. His dad, my grandfather, worked in the New 
York City subway, putting up advertising. That man's grandson 
is now before the U.S. Senate, a testament to American 
opportunity, and at NCUA my overarching goal will be extending 
that kind of opportunity to as many people as possible.
    I will have three priorities at NCUA:
    Priority one is the same as America's--managing the fallout 
from the current pandemic and economic downturn. I am aware 
that over 50 million people have filed for unemployment since 
March. And while the 2008 crisis began in the financial sector 
and then spread to Main Street, the current crisis may be the 
reverse. Credit unions were chartered to serve those of modest 
means, and I plan to work with them, the Board, and Congress on 
solutions for those facing financial stress.
    My second priority is technology. This pandemic created a 
test case on how many things, such as this hearing, can be done 
remotely. I would like to expand technology's role in reaching 
the underserved.
    If we recall the litigation years ago about Blockbuster 
Video's late fees and market dominance, the ultimate solution 
was Netflix and similar American innovations. While this 
analogy does not perfectly align with credit unions, I am 
convinced innovation can provide more inclusive financial 
services.
    And last, aligning incentives. As we know from the last 
crisis, we get what we incentivize. One excellent policy that 
serves as a model here is the less-frequent exam cycle for 
credit unions that get the highest marks on their NCUA exams 
for safety and stability. This policy lets regulators focus on 
the more problematic credit unions, while the well-run credit 
unions strive to keep earning that benefit. This is policy 
where safety and soundness are well-aligned with serving 
members. If we do this correctly, we will combat poor-quality, 
high-priced products with better, lower-priced ones.
    Thank you again for this opportunity, and I look forward to 
your questions.
    Chairman Crapo. Thank you, Mr. Hauptman. I will begin my 
questions with Commissioner Peirce.
    Commissioner Peirce, you mentioned in your opening 
statement that you would like to continue to serve in your role 
as Commissioner because there is more work to be done. Could 
you elaborate a little more on what you mean by that? And I am 
particularly interested in the Commission's work on capital 
formation, corporate governance, and cryptocurrency.
    Ms. Peirce. Thank you, Mr. Chairman. There is a lot of work 
to be done, and I feel that the work that I came to the 
Commission to do is not yet done. So first of all, we have to 
deal with the current crisis, the COVID crisis, and so part of 
my work will be trying to help the economy come out of that 
crisis.
    And I think tied to that is capital formation, which you 
mentioned. So that is something that I have been working on, 
and specifically trying to focus on making sure that the 
entities that are not readily--they do not know lots of venture 
capitalists, they do not have wealthy friends and family--that 
those kinds of entities are able to get capital if they merit 
capital. And so that means looking at our exemptions to make 
sure that those exemptions make sense, and potentially adding 
some new exemptions such as, perhaps a micro-offering 
exemption.
    And then also just seeing whether things like crowdfunding, 
have they lived up to their potential or are there things that 
we could do to make them work better?
    And then another priority is to, as I mentioned in my 
opening statement, to try to work on the Commission's attitude 
toward innovation, which has been, I think, highlighted when we 
consider crypto. Crypto is clearly going to be here to stay, 
and I would like us to set up a regulatory framework that works 
well for crypto. And I think that we have some of the structure 
in place to do that, but we have a lot more work to do, and I 
would like to work on that.
    Chairman Crapo. Thank you, and I encourage you to continue 
your focus on those priorities.
    Ms. Crenshaw, could you briefly discuss, in a little 
greater detail, your priorities, what you would like to focus 
on, if confirmed?
    Ms. Crenshaw. Senator, first and foremost, I think market 
stability is crucial in the current market turmoil. We need to 
make sure that investors are protected and that companies are 
getting the financial relief they deserve. So we need to 
conduct appropriate oversight to make sure that our market 
structure is working appropriately, for example, that our 
circuit breakers are working as they were designed to.
    We need to make sure that we are providing relief as 
necessary to companies such as the crowdfunding release the 
Commission passed a few weeks ago, and make sure that investors 
are getting the information they need about companies and what 
companies are doing during this turmoil with their workers and 
with their jobs and with funds they are taking, to make sure 
that investors can appropriately allocate their money as we 
move forward.
    I also think retail investor protection is another 
priority. I want to make sure that our enforcement program is 
deterring fraud as effectively as possible and that we are 
holding individuals to account, and on the rulemaking side, 
that retail investors are getting the high-quality investment 
advice that they deserve.
    And finally, Senator, one of my priorities--again, these 
were just three, but one of my priorities would be to make sure 
that we are finalizing the Dodd-Frank rules, particularly the 
executive compensation rules.
    Chairman Crapo. Thank you. And Mr. Hauptman, the same 
question. Can you discuss--you went through your priorities, 
but could you just discuss, in a little more detail, what you 
would like to accomplish?
    Mr. Hauptman. Sure. Thank you, Chairman. Obviously the 
pandemic is priority one. That means both the health and safety 
of NCUA employees and how America's 5,200 credit unions can 
serve their members. This includes how to keep their lobbies 
open safely but also making sure they have all the tools to 
restructure debts, do the things credit unions have always 
done.
    I would like to first say that this is exactly why capital 
is probably the holy grail of regulation. The credit union 
system was well capitalized going into this, but it is times 
like this when capital is the most important.
    Second, technology, meaning we have had a nationwide 
experiment on how to do things remotely. Some of these lessons 
we may be able to continue with after the pandemic ends, 
especially useful for the underserved or those in rural areas. 
Remote access or online can be very useful to them.
    And I think I am well prepared for this after over 20 years 
working in finance or finance policy. Credit unions are unique 
animals, as nonprofit collaboratives. But many of the basic of 
finance are similar in the industry, meaning mismanagement, 
corporate structure, structure meaning the debt you issue, et 
cetera. So having the right capital.
    And I will mention this, last. There are three States in 
the Cornerstone Credit League that represent Arkansas credit 
unions--Texas, Oklahoma, and Arkansas--and only one of those 
Senators is on a Banking Committee. I have been the go-to 
person during my years here for all of them, and I think they 
would speak well of my abilities.
    Chairman Crapo. Thank you. Senator Brown.
    Senator Brown. Thank you for your opening statements, 
especially about the staff of this incredible Banking Housing 
Committee. Thank you.
    We know many credit unions are doing what they can every 
day to help their members and communities, but today, at a time 
when we have record unemployment, families struggle to pay rent 
and put food on the table, we are hearing that some credit 
unions are garnishing members' COVID-19 stimulus checks to pay 
off outstanding debts, debt, in many cases, from these high 
fees they charge.
    Over the years, we have heard reports of credit unions 
charging high fees and interest rates to their members while 
executives and management get sweetheart mortgages and other 
loans. These are issues that NCUA Board Member Harper is 
concerned about as well.
    If confirmed, and this yes or no if you would, if confirmed 
will you commit to crack down on high fees?
    Mr. Hauptman. Yes, Senator. Everything possible. We would 
have better products at lower prices and low fees.
    Senator Brown. Thank you for that.
    Ms. Crenshaw, you responded--I would like a little more 
detail on your response to the Chairman. Today, as I mentioned, 
it is the 10th anniversary of Dodd-Frank. The SEC has failed--
has yet to finish the number of required rules, including ones 
that you mentioned to the Chairman, about compensation.
    Talk about the importance of these requirements for 
transparency and accountability to the American public, as 
investors?
    Ms. Crenshaw. Thank you, Senator. I think these are key to 
accountability and transparency. As you mentioned, these are 
required by the law. But it is not just that these rules are 
mandated. It is absolutely critical that we are holding 
executives to account and making sure investors have the 
information they need to make the appropriate investment 
decisions. And I think claw backs, for example, is an area that 
we could do that extremely well. We want to make sure that we 
are holding executives to account, and we want to make sure 
these executives do not get to keep money that they did not 
earn.
    So I would commit to you, Senator, that I would work to do 
all I can, if confirmed, to make sure that we get these rules 
passed.
    Senator Brown. Thank you, Ms. Crenshaw. Last month I sent a 
letter to Chair Clayton asking him to make sure that regulation 
best interest is enforced to maximize investor protection, 
including providing separate enforcement data. Are there ways 
to get the most out of the rule to better protect Americans' 
saving than investing for the future, Ms. Crenshaw?
    Ms. Crenshaw. I think it is critical that the SEC work with 
the Office of Compliance, Inspections, and Examinations and 
FINRA to drive successful compliance of this rule. That means 
working with the firms to make sure Form CRS is actually 
providing information that is useful to investors and that it 
is information that they can understand. And it is also working 
with firms to make sure that their policies and procedures are 
appropriate to mitigate conflicts of interest. And to the 
degree they are not, we have to be willing to hold those firms 
accountable when they are not appropriately mitigating 
conflicts of interest.
    And so we need to make sure, over time, that rules are 
actually changing the status quo for investors, and I would 
look forward to, if confirmed, working with staff to make sure 
that that is accomplished.
    Senator Brown. Thank you, Ms. Crenshaw.
    Ms. Peirce, I am concerned about your reluctance to vote 
for monetary penalties and enforcement actions. Earlier this 
year, you did not approve the SEC's fine against Wells Fargo 
for misleading investors for years while management profited 
and promoted a culture that this Committee is very familiar 
with, that led to the opening of millions of fake accounts. It 
was a known fraud, furthered by management, with criminal and 
civil settlements. But you did not think a fine made sense. 
Help me understand your thinking.
    Ms. Peirce. So when I approach an enforcement action that 
involves a corporation I think about who ultimately is going to 
pay that fine, and if it is going to be shareholders of the 
company who have already been harmed by the fraud, then I am 
very reluctant to vote in favor of a penalty that will come out 
of their pockets. So that is one of the things that drives my 
decisions with respect to corporate penalties.
    But I would emphasize that in virtually the entire 
enforcement calendar the Commission is unified in voting for 
the enforcement recommendations. But that is one area where I 
am concerned that shareholders are getting hit twice.
    Senator Brown. There is a difference, Ms. Peirce, between 
shareholders and executives. You have raised, in the past, the 
importance of individual accountability, and yet at your last 
hearing I hear a lot about personal responsibility for people 
in this room. It seems that personal responsibility is always 
about low-income people and people of color, never about the 
CEOs and corporation that take advantage of them. You have had 
the chance to join other Commissioners and hold those bad 
actors responsible when they commit fraud or cover it up. You 
have chosen not to. That is my great concern.
    As for Wells Fargo, just last week there were news reports 
that the bank falsely told bankruptcy courts that borrowers 
requested forbearance on their mortgages due to COVID-19. Those 
requests were made without the borrowers' knowledge and could 
lead to confusion and risk of foreclosures for borrowers and 
bankruptcy proceedings. There we go again with Wells Fargo. I 
do not know what it will take for their management to stop 
abusing the customers, but voting against penalties for their 
management certainly is not it.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman, and 
congratulations to all three of you on your nomination today. 
But, of course, I want to congratulate, in particular, my 
indispensable advisor, Kyle Hauptman. I think most Senators can 
relate to how I feel about this development. On the one hand, 
Kyle will be a terrible loss to my office, the work that we 
have done on behalf of our Kansans and all Americans over the 
last 3 years. But on the other hand our loss will be the NCUA's 
gains and the gains of everyone who does business with or is 
affected by credit unions in their communities. And I am very 
confident that our credit unions will benefit having Kyle's 
judgment and knowledge on the board.
    I have to say, I know my staff is sad to be losing Kyle 
this year as well. Here is an email from my Deputy State 
Director who leads all of our casework, earlier this year, when 
she heard the news that Kyle had been nominated. The subject 
line is ``You can't go!'' And then in the body, ``I won't have 
it!!! Seriously, we are going to miss you. The whole State 
staff is bummed because no one can ever take your place at 
keeping us informed,'' which I think is a testament to how well 
Kyle has worked not just with my staff but with all of your 
staffs and with the Committee staff as well.
    Likewise, I would like to enter into the record, Mr. 
Chairman, a letter from the head of the Arkansas Credit Union 
Association. I will also quote from that letter here. ``On 
behalf of the Arkansas Credit Union Association I will say that 
we probably feel the same way you do, that he will be difficult 
to replace, yet the NCUA is lucky to have him.
    ``I have gone to Washington for a couple of decades now on 
behalf of Arkansas credit unions, most of which are very small, 
rural institutions. Our largest credit union has just over $1 
billion in assets, which would be considered small even by 
community bank standards. The rest are even smaller, where you 
can count on one hand the number of ATMs they have.
    ``While advocating for these community-based lenders, I 
have encountered a lot of congressional staffers. He may be the 
best I have dealt with. Given his background at large 
international finance firms, you might think Kyle would not 
understand the needs of our members who are mostly low- or 
moderate-income families. Yet it is quite the opposite. He has 
gone above and beyond to listen, respond quickly, and empathize 
with their concerns. His knowledge of financial markets is an 
asset, not a liability.''
    I am aware that the NCUA board members are not like Senate 
staffers, meaning I will no longer be a constituent but rather 
someone working for the institutions Kyle will be regulating, 
but I think you will agree that he will continue to be fair, 
professional, and serious about his work.
    Kyle is also indisputably bipartisan, working well with 
others. Like all the Senators on this Committee, I sometimes 
get in the occasional political scrap, but Kyle, nevertheless, 
approaches his job like a diplomat, working with all of our 
staff, working with the Committee staff, to keep dialogue open, 
to keep the people's business going forward. He has worked on 
innumerable bipartisan bills and letters, including on issues 
related to credit unions, plus bills on taxes and retirement 
policy, as well as other economic policies.
    He also serves as the Staff Director for the Economic 
Policy Subcommittee that I chair, leading the hearings that we 
have conducted during this Congress, and the hearing that we 
will be conducting tomorrow, which I encourage all Senators to 
join us.
    I often hear praise from constituents for Kyle, and the two 
most common refrains are he is easy to work, and few staffers 
have his in-depth knowledge and experience in all matters 
financial.
    I trust this hearing will go well today, not just for Kyle 
but Ms. Peirce and Ms. Crenshaw, and I hope that we can move 
all three nominees forward promptly, perhaps on simply a voice 
vote.
    So I will now close not with a question but simply to urge 
all of my fellow Senator to support Kyle's nomination. I can 
assure you he will be an excellent pick to serve on the NCUA. 
Thank you.
    Chairman Crapo. Thank you, Senator Cotton. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman and Ranking Member 
Brown. This is for the SEC noms. I do not need to tell you that 
it is important that the SEC considers small and mid-sized 
businesses along with businesses in rural communities and those 
outside of big cities. So the question is, how will you ensure 
that efforts to address the impacts of the pandemic and 
economic crisis are directed toward businesses across a range 
of sizes and geographies?
    You can go first, Hester, Ms. Peirce.
    Ms. Peirce. Thank you, Senator. That is a very important 
issue and close to my heart as well. And so one positive change 
that we have had in recent years is we now have a small 
business advocate at the SEC, and we have a Small Business 
Capital Formation Advisory Committee, which has representatives 
from all across the country on it. And so together with them I 
plan to work on issues that will further their interests.
    So for example, a month or so ago we adopted some temporary 
relief related to crowdfunding, which was intended to help 
businesses that have been in existence for some time and may be 
struggling to make it through this period. You can imagine that 
there are lots of people in the local community who know these 
businesses well and would like to support them with funding. 
And so that is something that we worked on in direct response 
to things that I heard from people on that committee, and I 
will continue to do that.
    Senator Tester. Ms. Crenshaw.
    Ms. Crenshaw. Thank you, Senator. I think it is key that we 
continue our appropriate oversight of markets during this time. 
We need to make sure that the markets are functioning properly 
for businesses of all sizes. We also need to make sure we are 
giving investors information about companies so that they can 
appropriately allocate their decisions to the best ideas out 
there.
    And I, too, would like to work with the small business 
advocate. I have had the pleasure of working with Martha Miller 
over the past few years, and working with her to think through 
ideas to make sure that the capital is going to the best ideas 
out there. And I think one of the ways that we can do that is 
think through whether our regulations are, while providing 
appropriate investor protections, also clear and 
straightforward so that everybody can understand them and 
everybody can follow the rules of the road without necessarily 
having a close proximity to a lawyer or a large compliance 
program.
    So I would look forward, if confirmed, to working with her 
to make sure--and her office--that all businesses are getting 
the capital that they need and getting the protections they 
need during this market turmoil.
    Senator Tester. Another question for both Ms. Crenshaw and 
Commissioner Peirce. Could you just give me, very briefly, what 
you have been focused on over the last 6 months or a year as a 
staff or commissioner?
    Ms. Peirce. So the Commission has been quite busy over the 
past 6 months, but among the things that we have been focusing 
on is expanding the ability of the private markets to work to 
serve companies of all sizes. We have also been working on 
trying to strengthen the regulatory framework as it relates to 
equity market structure, and we have also been working on--I 
personally have been spending some time thinking about 
innovation, as I mentioned in my opening statement, trying to 
think about how we can develop a framework for digital assets 
that will give people the certainty they need to conduct 
innovation in the United States.
    Ms. Crenshaw. Over the past few months, when I wrapped up 
my time with Commissioner Jackson, we were working on the 
buybacks issue as well as the market structure issue, such as 
the transaction fee pilot. And then when Commissioner Jackson 
returned to New York I returned to the Office of Compliance and 
Examinations, and for the past several months have been working 
with the team there on a variety of inspections that are 
hopefully going to help make markets safer for investors.
    Senator Tester. OK. Ms. Crenshaw and Commissioner Peirce, 
you both have been critical of legislation from this Committee 
that has been signed into law. How will you work to implement 
regulations, including those that you may have been about 
outspoken about, but carry a congressional mandate?
    Ms. Peirce. So when I worked on the Committee, 10 years 
ago, to the day, as Senator Brown mentioned, Dodd-Frank was 
passed, and I had a lot of concerns about Dodd-Frank. One piece 
of that law was security-based swap regulation, and that was 
something that fell within the purview of the SEC. When I got 
to the SEC, Chairman Clayton asked me to take the lead on 
getting that over the finish line. It was something that we 
were not done with and I thought it was important to implement 
the statute. And so I worked on that. It took a lot of my time 
and my staff's time, and I remain committed to listening to 
Congress. Having worked on the staff there I understand the 
importance of congressional mandates, regardless of whether 
they would be my optimal design or not.
    Senator Tester. OK. Ms. Crenshaw.
    Ms. Crenshaw. As Commissioner Peirce mentioned earlier in 
the testimony, most of the votes at the Commission are actually 
done on a bipartisan or even unanimous basis. So I would want 
to make sure that I am approaching every rule, if confirmed, 
and every enforcement case with that approach in mind. I would 
like to make sure that they are bipartisan and unanimous, if 
possible. And I would want to make sure that I am working with 
staff, even if it is something that I may not be agreeing with 
them on. But I want to reach that result, if possible.
    Senator Tester. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman. First of all, I 
want to thank all of our nominees for your willingness to 
serve.
    Ms. Peirce, I would like to start by asking you a question 
about market structure. When it comes to market structure, I 
understand one reform that you would like to consider in the 
future would be to reform the circuit breakers that require 
stock exchanges to halt trading when prices move past a certain 
point. Can you tell us a little bit more about what your 
thinking is in this particular area?
    Ms. Peirce. Sure. So the circuit breakers were put in place 
in anticipation of events, such as we saw this spring, and I 
think that they actually--the markets have worked remarkably 
well in a period of intense volatility and volume. And so I 
have been very pleased with that. And the circuit breakers have 
generally worked quite well, but I think that we might be able 
to make some tweaks so that they would work even better should 
another situation like the one that we experienced over the 
last several months occurs.
    Now it would take time for us to figure out what to do, but 
one thing that may be a possibility is to try to work on the 
circuit breakers so that they do not trigger so quickly after 
opening in the morning. Because the purpose of a circuit 
breaker is to give the market a chance to think and sort 
through uncertainty, and if they have had that time to do that 
overnight, perhaps we do not need to have those circuit 
breakers triggered so early in the morning.
    Senator Rounds. Thank you. Ms. Crenshaw, one concern I had 
early on the COVID-19 pandemic was whether or not our exchanges 
would be able to operate in New York, Chicago, and other cities 
in the event that widespread lockdown measures were put in 
place. Thankfully, our exchanges have operated remarkably well 
during the pandemic.
    Looking back over the past few months, are there any 
important lessons learned from continuity of operations 
standpoint?
    Ms. Crenshaw. I think one of the things we need to make 
sure, from an Office of Compliance, Inspections, and 
Examinations perspective, is that the processes and procedures 
are in place so that these exchanges are ready to go. We have a 
group that oversees the exchanges and one of the things they 
look at is making sure that they have continuity, processes and 
procedures, and I think we need to continue to look at those 
with all possible crises in mind, making sure that they are 
able to telework, making sure that they have backup systems. 
And I would look forward to working with them to make sure that 
all of those processes and procedures are designed 
appropriately.
    Senator Rounds. Thank you. Mr. Hauptman, I have concerns 
from some credit unions about the burden that capital rules 
like CECL and other regulatory standards pose. To that end, 
Chairman Hood said that CECL will do more harm than good, from 
a broad perspective. How do you view the capital structure for 
America's credit unions, and are there areas that the NCUA or 
Congress need to revisit?
    Mr. Hauptman. Yes, Senator. Thank you for that. I will say 
three things. One, my priority is capital, capital, capital, 
capital is the Holy Grail of regulation. Pulling in to this 
crisis the credit union system, as a whole, was well 
capitalized. They were significantly above what they are 
statutorily required to have, and that is good. And it is times 
like this when capital matters most. This is why we have it.
    When it comes CECL, I am aware that there is a delay. The 
number one thing a regulator can do, because obviously the rule 
itself is up to Congress to change, or FASB, the number one 
thing they can do is if CECL goes into effect and they have to 
take write-downs on their assets, make sure that the regulators 
understand that their capital levels did not really just go 
down. They have to go out and raise a lot. If it goes into 
effect on January 1, 2022, let's say, their balance sheet on 
January 1 is not any worse than it was on December 31st. But 
things like CECL can make it appear it is worse.
    So that is one concern I heard from the Arkansas credit 
unions and the others in the Cornerstone Credit League in Texas 
and Oklahoma, is even if we have to go forward with CECL, 
please understand and communicate to us that you get that our 
capital levels are not necessarily worse and our balance sheets 
are not worse off, just because they may look worse off when 
you take these expected credit losses.
    And obviously what they say is the notion that a loan may 
not be repaid has been going on since the dawn of banking. But 
as a regulator you want to make sure you are communicating that 
you understand the changes they may have to make.
    Senator Rounds. Thank you. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Rounds. Senator 
Menendez, are you with us?
    [No response.]
    Chairman Crapo. I think Senator Menendez may be joining us 
soon. Senator Warner, are you with us?
    [No response.]
    Chairman Crapo. I am going to go through the list here. 
Senator Warren.
    [No response.]
    Chairman Crapo. Senator Cortez Masto.
    Senator Cortez Masto. I am here.
    Chairman Crapo. You may go ahead.
    Senator Cortez Masto. For some reason I am having 
difficult--oh, there it is.
    Thank you so much. Let me just say congratulations on all 
of your nominations. Thank you for your willingness to serve, 
and I am excited for you and excited for all of your families.
    But let me start with both Commissioner Peirce and Ms. 
Crenshaw on cryptocurrencies. I know the SEC has taken a 
position that direct regulation of bitcoin is not within its 
purview. However, the SEC has chosen to regulate certain 
cryptocurrency-related digital assets. For example, last week, 
former lobbyist and convicted felon, Jack Abramoff, pleaded 
guilty to misleading investors with a new cryptocurrency.
    So my question both of you is, what are your concerns about 
potential fraud with cryptocurrencies, and where do you think 
the SEC's role is when it comes to addressing that fraud? And 
Commissioner Peirce, let me start with you.
    Ms. Peirce. Thank you, Senator. I do think that we have 
seen a lot of fraud with a crypto label on it. Now some of it 
is just run-of-the-mill fraud where someone has no intention to 
create a crypto project. They just have an intention to steal 
people's money. And often those are cast in a way that fits 
clearly within our mandate, because it is an offering--they are 
essentially raising money for what they say is a common 
enterprise, and they are making this representation. So it is 
clearly within our mandate.
    I think one thing that we could do to improve the landscape 
is to set out clear guardrails and clear guidance about when 
something is a securities offering, or, as I have suggested, 
create some kind of a safe harbor that allows these initial 
coin offerings to happen, but allows them to happen with 
certain disclosures attendant and certain--people would have to 
identify themselves. And I think that would be a good way of 
separating the wheat from the chaff.
    So I think enforcement is important but it is also 
important for us to put out clearer guidance.
    Senator Cortez Masto. And Ms. Crenshaw.
    Ms. Crenshaw. I think the cryptomarket is a young market, 
and with a young market there is necessarily a lot of risk. And 
so I think it is important to the degree that these are 
securities, which the Chairman, I think, has made an assessment 
on in certain cases, so to the degree they are securities, I 
think it is important that we are protecting investors and 
making sure we are holding folks accountable when they are 
fraudulent in this market. It is important to provide these 
protections so that the market is trusted and that it can grow 
and innovate over time. And I think the Chairman has done a 
good job in this area, in making sure that we are providing 
appropriate protections while letting the market innovate.
    And to the degree that they are either currencies or 
commodities, I think we need to work with other agencies to 
make sure we are still providing those appropriate protections.
    Senator Cortez Masto. Thank you. Mr. Hauptman, I know you 
have an interest in digital currencies and blockchain 
technology. Do you have any specific goals related to 
distributed ledgers or digital currencies, if you are confirmed 
to the NCUA board of directors?
    Mr. Hauptman. I appreciate the question, Senator. First I 
do want to mention it has been a pleasure to work with your 
staff on the Subcommittee, as well, on anti- money-laundering 
reform.
    When we had 88 million checks that were going to go out, 
paper checks, through the mail, with the stimulus payments, 
that would have been a great opportunity if we had, for 
example, a digital dollar. NCUA does not have a ton of 
oversight over that. But when we saw all those people 
desperately in need of that money--people with rent coming up, 
people with bills to pay--had we had digital currency it is 
possible that we could have a blockchain-based digital dollar 
and we could have gotten money to those people immediately and 
securely, with limits on fraud, much the same way if there is a 
disaster in another country we can deliver money to those folks 
much more quickly and in a much safer manner.
    Senator Cortez Masto. Thank you. I appreciate that. Let me 
jump back to Ms. Peirce. Last year I wrote a letter, with 
Senator Rounds, Van Hollen, and Smith, asking FINRA to limit 
the ability of broker-dealers and other financial professionals 
to inherit money from their clients. In response, FINRA 
proposed a rule banning such potential abuse, and that rule was 
recently sent to the SEC, which is seeking comments on the 
proposed rule.
    To the extent you can now, do you believe regulators should 
prohibit financial advisors from receiving requests from 
clients? So to the extent that you can now answer that 
question, or at least posit about it?
    Ms. Peirce. Well, I cannot really comment because the rule 
is under review, but I will say that this is an area where it 
is so important for us to pay close attention, because so many 
seniors, especially, are very vulnerable. And I think anyone is 
going to be suspicious when a financial professional is 
inheriting money from a client. And so I think it is an area we 
need to work on. We have got excellent people at the Commission 
working on those kinds of things, and FINRA is committed to it 
as well. So I commit to working with you on that issue.
    Senator Cortez Masto. Thank you very much. Mr. Chairman, 
thank you. Thank you all.
    Chairman Crapo. Thank you. Senator Kennedy.
    Senator Kennedy. Mr. Chairman?
    Chairman Crapo. Yes. I can hear you. Cannot see you.
    Senator Kennedy. Well, let me see if I can fix that. Can 
you see me now?
    Chairman Crapo. Yeah, we can now.
    Senator Kennedy. Great. If you would gavel loudly, Mr. 
Chairman, when I am done or close to being done with my time, 
because I cannot really see the clock that well.
    Chairman Crapo. I promise I will do it.
    Senator Kennedy. I thank you for that.
    Captain Crenshaw--it is captain, is that right?
    Ms. Crenshaw. That is correct, Senator.
    Senator Kennedy. Captain, have you ever bought stock?
    Ms. Crenshaw. I have, Senator.
    Senator Kennedy. How long ago was that?
    Ms. Crenshaw. A fairly long time ago, Senator.
    Senator Kennedy. OK. What did you do before you bought that 
stock? Did you research it?
    Ms. Crenshaw. Probably not thoroughly, Senator.
    Senator Kennedy. OK. Did you read the prospectus?
    Ms. Crenshaw. Probably not.
    Senator Kennedy. OK. Do you have any idea how much it costs 
to put together a prospectus?
    Ms. Crenshaw. I know with the printing costs it is not an 
inexpensive process.
    Senator Kennedy. What about the legal fees?
    Ms. Crenshaw. Given the law firm rates around here I 
imagine it is fairly expensive as well.
    Senator Kennedy. I am not arguing against the idea of a 
prospectus. I just do not think most retail investors read a 
prospectus. They, in doing their due diligence, may download 
it. But it is long. It is tedious reading. If we really wanted 
to inform retail investors, and some institutional investors, 
would we not require a prospectus to be drafted in such a way 
that it is more accessible to retail purchasers of equities?
    Ms. Crenshaw. Can you hear me?
    Senator Kennedy. Can you hear me?
    Ms. Crenshaw. Yes. I can hear you.
    Senator Kennedy. Did you hear my question?
    Ms. Crenshaw. I did. Yes.
    Ms. Peirce. Can you hear me?
    Senator Kennedy. I can hear you. Yes, ma'am.
    Ms. Crenshaw. I know the Division of Investment Management 
is undertaking a project to address just that question, called 
the Retail Investor Experience, and they are working with 
investors to make sure that the disclosures, while appropriate 
for all levels of investors and providing the information that 
is critical to anyone who may want it, they are working to make 
sure that these disclosures are less daunting and much more 
accessible.
    Senator Kennedy. When do you think they will have that 
ready?
    Ms. Crenshaw. I do not know the timing of that, Senator. 
You would have to ask the Chairman that. But I know that they 
are working on that project and I would look forward to working 
on that with them, if confirmed.
    Senator Kennedy. Well, I am not suggesting that we do not 
need full disclosure. Quite the contrary. I think that 
separates our markets from a lot of markets in the world. I 
just do not think that retail investors benefit as much as they 
could if we figured out a way to make it more accessible, not 
physically accessible but accessible in terms of the knowledge 
that our law requires to be conveyed.
    Member Peirce--am I saying that right?
    Ms. Peirce. You are.
    Senator Kennedy. Commissioner, do you think equities that 
are owned by foreign companies, whether or not they are 
subsidized by their foreign Governments, should be allowed to 
flaunt our audit laws?
    Ms. Peirce. If they are listed in the United States I think 
it is really important that they be subject to the same 
requirements. It is an area that we have been working on with 
the PCAOB for quite a long time now, and it has been one of 
the----
    Senator Kennedy. I do not have much time left. And look, I 
am a big Jay Clayton fan, but why haven't we done more about 
it?
    Ms. Peirce. Well, I think that it is--there are a couple of 
things to do. One is to make sure that the disclosure is there 
about the risks of investing abroad, in foreign companies.
    Senator Kennedy. Right. But why--look, I only have 20 
seconds. The Senate has passed a bill that says if you are a 
foreign company you have to comply with the same audit 
requirements as everybody else. And it has passed the Senate. 
Wall Street has unleashed hell, lobbying against it in the 
House, and that makes no sense to me. And why hasn't the 
Commission stepped up in a more vocal manner?
    Ms. Peirce. Well, just a couple of weeks ago we had an 
emerging markets roundtable at which this was the very 
discussion, and I think some productive suggestions came out of 
that. And so it is something that certainly is on our minds, 
and we have been quite clear about the inability for us to 
audit--to oversee the work of auditors in certain 
jurisdictions.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Commissioner 
Peirce and Ms. Crenshaw, I want to start with an issue I raised 
with Chair Clayton last time he was before the Committee. I 
have been increasingly concerned about the ability of foreign 
actors to manipulate U.S. companies through their investments, 
particularly in the media and technology sectors. And given the 
stress in today's economic environment they are even more 
vulnerable to predatory practices and behavior by foreign 
investors looking to gain a foothold in the U.S. media industry 
while skirting our transparency requirements.
    Section 13(d) of the Securities and Exchange Act of 1934 
requires investors who become the beneficial owners of more 
than 5 percent of an issuers equity securities to report 
certain identifying information to the SEC. But if undisclosed, 
or disclosed without sufficient information, such ownership 
stakes could undermine the free flow of information to the 
American public.
    How do each of you believe the SEC should monitor equity 
markets to ensure that foreign investors are not accumulating 
significant shares in public companies, especially in the media 
and technology sectors, without filing the requisite 
disclosures?
    Ms. Peirce. That is an issue that we deal with both through 
our enforcement and our Division of Corporation Finance and its 
review of issuers. That said, it can be a very difficult thing 
to track, and I agree with you that it is really important that 
we have transparency. That is why those rules are in place. So 
we have brought some enforcement actions, and I think it is an 
area where whistleblowers also could be valuable in pointing us 
to potential violations.
    Senator Menendez. Ms. Crenshaw.
    Ms. Crenshaw. Thank you, Senator. I agree with your concern 
and I agree, generally, with what Commissioner Peirce said. I 
do think this is a rule that we have not looked at in a very 
long time, and to the degree it is a rule that is not operating 
appropriately I would be open to working with your office, if 
confirmed, and the staff to think through ways that we can 
address those concerns a little bit better.
    Senator Menendez. Well, I appreciate both of your answers, 
and Commissioner, I appreciate your forthrightness in terms of 
saying it is a difficult area. I know, for example, of one 
large Hispanic media broadcasting system that had a series of 
foreign investors that, unbeknownst to the company, they did 
not disclose to the SEC. And, of course, then you have the FCC 
obligations to disclose, but you cannot disclose it if you do 
not know, from the SEC filings, that someone has made, you 
know, investments beyond, I think it is the 5 percent 
requirement.
    And so, therefore, you find the ability of a foreign entity 
to try to take over, and media companies in the United States 
with then the ability to try to influence the results of what 
they are broadcasting. And so I think we need to find a way to 
beef up the abilities to do this.
    Commissioner Peirce, in your experience do you think that 
the Commission has the ability to independently verify the 
information in a Section 13(d) filing, or to verify whether a 
foreign entity should have filed a 13(d) disclosure?
    Ms. Peirce. Realistically, we have a lot of issuers, and 
so--and there are lots of filings. So, realistically, we cannot 
verify everything that is in every filing. As Ms. Crenshaw 
said, I would be happy to work with your office and think 
through ways that we could have better information. I also hope 
that you would convey the information about the one that you 
are aware of to me or others at the SEC, and I would happy to 
work with you on that.
    Senator Menendez. Well, thank you. We will follow up. We 
will follow up with you.
    Let me ask you, Commissioner Peirce. Recent reports from 
the New York Stock Exchange and the CBOE show that off-exchange 
trading rose to a record 42 percent of all volume during the 
COVID pandemic. During this crisis, when the markets need 
greater transparency and price discovery, we have never, in 
history, had less trading taking place on exchanges. Dark 
markets are less regulated and provide little transparency.
    So Commissioner, are you concerned with this trend in off-
exchange trading, and what is the SEC doing to address it?
    Ms. Peirce. Our exchanges are very important for 
transparency of our equity markets. We have taken seriously the 
concerns that have been raised about off-exchange trading, and 
we passed--we adopted a rule, regulation, that deals with 
alternative trading systems and disclosures and transparency 
around them. And I am certainly open to thinking about other 
ways that we can increase transparency and make sure that our 
equity markets are able to operate as efficiently as possible.
    Senator Menendez. Mr. Chairman, may I have your indulgence 
for one question to Mr. Hauptman?
    Chairman Crapo. Yes, you may.
    Senator Menendez. Thank you very much. Mr. Hauptman, credit 
unions have a broad and diverse membership, and the NCUA counts 
diversity and inclusion among the agency's core values. But 
still not a day goes by when we do not see a story about a 
person of color being discriminated against by a financial 
institution, whether that is being unfairly denied a mortgage 
or having the police called on them by bank employees on the 
unfound suspicion that they are trying to cash a fake check.
    So share with me and the members of the Committee what 
personal or professional experiences do you bring to NCUA that 
will enable you to advance diversity, inclusion, and 
nondiscrimination within the credit union system.
    Mr. Hauptman. Thank you, Senator. Obviously an 
extraordinarily important topic.
    First of all, you have to enforce the laws on the books, 
and we will do that vigorously--Fair Housing Act, Equal Credit 
Opportunity Act, Fair Credit Reporting Act--and, where 
appropriate, take appropriate action.
    If I could just step back a second, big-picture my view on 
this, is no entity like NCUA or a credit union or this country 
can fully succeed unless we make use of all of the talent 
around us. We are not going to be as prosperous, as safe, and a 
more fair society unless we use all of the talent, not just 
some of it. That is fair for those who do not have the proper 
opportunity today, but it is also better for the rest of us.
    So that is the mentality I am taking into it, including 
looking at ways to start more credit unions. There were only 
two last year. One was a minority deposit institution, and that 
was good to see. But I want to do a top-to-bottom review of 
what are the pain points. Why did it take so long to start 
credit unions, and possibly get more minority depository 
institutions.
    Last, I would like to expand, if it works well, the Second 
Chance Initiative they have done at NCUA. People with minor 
criminal convictions years ago having the chance. That is an 
example right there, and I have seen it with friends and, you 
know, people from my high school. That has changed their entire 
trajectory, one minor conviction when they were 19. So we would 
like to see how that works out and expand that. That is an 
example of an untapped pool of talent this country would be 
better off using.
    Senator Menendez. Thank you. Thank you, Mr. Chairman, for 
your courtesy.
    Chairman Crapo. Thank you. We have four Senators who have 
checked in but I do not see. I am going to go through and see 
if any of them are online with us.
    Senator Warner.
    [No response.]
    Chairman Crapo. Senator Warren.
    [No response.]
    Chairman Crapo. Senator Van Hollen.
    [No response.]
    Chairman Crapo. Senator Jones.
    [No response.]
    Chairman Crapo. I think they may have all had to go to 
other hearings or other business.
    So that concludes the questioning. Senator Brown, did you 
want to make a statement?
    Senator Warren. Mr. Chairman.
    Chairman Crapo. Oh wait. Senator Warren. Yes, go ahead.
    Senator Warren. Thank you, Mr. Chairman.
    Chairman Crapo. I am seeing more show up too. Go ahead now.
    Senator Warren. OK. I will go ahead and go. Thank you.
    So later today Republicans on this Committee plan to 
confirm an unqualified nominee to the Federal Reserve. They 
will do so 10 years to the day after President Obama signed 
Dodd-Frank into law to protect our financial system. Confirming 
Judy Shelton to the Federal Reserve is a mistake, and it will 
endanger our economy, and I will be voting against her 
confirmation, and I urge my colleagues to do the same.
    President Trump's total failure to protect this country 
from a public health crisis has now caused a devastating 
economic crisis. But while workers and tenants and small 
businesses are still struggling, private equity companies are 
making big money and are raking in profits by taking over 
nursing homes, department stores, newspapers, grocery stores. 
They bleed these companies dry, they put workers out of a job, 
and they put our economy at risk while they do it.
    The SEC is supposed to protect our economy from these 
risks, and I want to understand how both of you think about the 
threats that private equity industry poses to workers and to 
the economy.
    So Ms. Crenshaw, I would like to start with you. When 
private equity firms gobble up other businesses they used 
highly leveraged loans to do it, and that means they are 
loading up the companies they control with debt. During an 
economic downturn, what are the risks to the financial system 
if these companies start to fail?
    Ms. Crenshaw. Senator, I share your concern in this area, 
and one of the things that concerns me, and I think poses the 
greatest risk, is what we do not necessarily know. We do not 
have the data to know between funds, insurance companies, or 
banks who holds what in these products. And I think it is 
absolutely crucial that we understand that data so we can 
assess the market and appropriately determine how to 
appropriately protect investors from the spillover effects.
    Senator Warren. All right. So thank you very much. You 
know, Dodd-Frank directed the SEC to write rules to address 
these risks, and in 2014, the SEC proposed requiring private 
equity firms to keep some skin in the game when they make risky 
bets. Unfortunately, the courts overturned these rules, but my 
Stop Wall Street Looting Act would put risk retention 
requirements back in place.
    OK, but that is about another bill. Let's talk about 
something the SEC could do right now to address this problem, 
without any new legislation. Currently, private equity disclose 
the amount of debt that their companies have taken on, the fees 
they charge, and the performance of their investments, but all 
that terrific information is kept secret. That means that 
investors and the broader public are left in the dark about 
risks in this industry.
    So Ms. Crenshaw, do you believe that requiring private 
equity funds to disclose more information about their 
investments would help protect both the economy and the 
workers, and help make the market more efficient?
    Ms. Crenshaw. I think the SEC has long said that only 
through full and fair disclosures can investors appropriately 
assess the markets and adequately invest their capital and 
allocate their capital. And so I think disclosure would be 
important to investors.
    Senator Warren. Good. Well, I am glad to hear it. You know, 
last month the SEC itself acknowledged that there are 
widespread problems even in the limited private equity 
disclosures that do exist.
    Commissioner Peirce, what about you? Do you agree that 
private equity companies should have to disclose basic 
information about the risks of their investments, the fees they 
charge, and how well those investments are performing?
    Ms. Peirce. The investors in private equity funds, to the 
extent that they share the concerns that you have, have a fair 
amount of leverage in terms of trying to get the disclosure 
they want. And so given the way the market is structured, I 
think it is less important for us to focus on private equity 
disclosures and more important to focus on the disclosures that 
are reaching typical retail investors.
    Senator Warren. And I have to say, Commissioner Peirce, I 
am not surprised to hear that you are not interested in 
requiring more disclosure from the private equity industry. 
Nothing in your record suggests that you are willing to take on 
powerful interests to protect either investors or workers. That 
is why I think it would be a mistake to confirm you for another 
term.
    The SEC's job is to protect investors, to maintain fair, 
orderly, and efficient markets, and to facilitate capital 
formation. That is a direct quote. And that means a Commission 
that will not let private equity funds loot American 
businesses. It means a Commission that is actually committed to 
transparency. It means an SEC that has the courage to stand up 
to private equity. That is what we need.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. I appreciate you 
having this hearing.
    Let me start by saying that I agree with Senator Warren, 
Senator Brown, and a number of my Democratic colleagues on the 
nominee, Judy Shelton, that we will vote on this afternoon. I 
found her--personally, and enjoyed meeting her, but I do feel 
her views at this moment in time are not right for the 
independence of the Fed.
    I want to move to Ms. Shelton--I am sorry, Ms. Crenshaw. I 
had some earlier discussions with Ms. Crenshaw. As you probably 
recall, I talked about a GAO report that I had requested about 
ESG measurements. Now the report found that 12 of the 14 
institutional investors that were interviewed use ESG metrics, 
but there is an extraordinarily wide variety of information 
that is provided.
    As a matter of fact, we have seen enormous numbers of both 
funds and companies say they are interested in ESG standards, 
metrics, value this kind of disclosure. But as the GAO report 
pointed out, even when it came to something as basic as 
measurement of carbon dioxide emissions, there was a whole 
series of different standards used. And now my colleagues may 
not believe that carbon emissions are contributing to climate 
change or not, but it would seem to me if investors want this 
information there ought to be some ability to standardize what 
these metrics look like.
    We also know that the Investor Advisory Subcommittee at the 
SEC said that there are a lot of business risks and decisions 
and strategies that stand upon ESG factors, and I know you are 
not going to want to prejudge something that may come before 
the Commission, but when we are looking at something that the 
investor community says this is important, don't you think we 
need some level of standardization on these kinds of standards, 
rather than the patchwork that we have right now?
    Ms. Crenshaw, would you address that issue?
    Ms. Crenshaw. Senator, yes, and I agree with you and I 
think investors are looking for ESG metrics. The largest asset 
managers in the world are incorporating ESG factors into their 
comprehensive risk programs, and I think we need to think this 
through. We have not looked at this area in a while, and I 
think we at the SEC need to think through how best to provide 
the information that investors are looking for, and that is 
information that is comparable and that is accessible to 
investors. And I think we need to do that through a roundtable 
or think through additional guidance, and I would look forward, 
if confirmed, to working with your office and the staff on the 
best way to do that.
    Senator Warner. And I would simply like to say, since I 
would argue you would need to move somewhat aggressively. You 
know, the Europeans are moving to formalize these standards. If 
we did nothing this would be one more example of why I think 
America is giving its long-term leadership.
    So I would hope you would consider even advocating for a 
formal task force. I do not think we would want a roundtable. 
Do you want to add any other comments? I have got one or two 
more questions.
    Let me also--Mr. Chairman, I do not see my timeline. How 
much time do I have left?
    Chairman Crapo. You have 1 minute and 20 seconds.
    Senator Warner. All right. One of the areas that I 
particularly also focused on is human capital, disclosure of 
human capital management. I think the pandemic has pointed out 
the need for that public company reporting on human capital. I 
know the SEC has moved from this area already. Ms. Crenshaw, 
would you very briefly tell me your thoughts on human capital 
disclosures?
    Ms. Crenshaw. Yes, Senator, being careful not to prejudge a 
rule that I might be asked to vote on, if confirmed. I do 
think, generally, that human capital disclosures are 
information that investors need and want. This is information 
that goes to the long-term financial growth of companies. And 
again, I think this is an area where we need to make sure that 
we are providing investors with information that is both 
accessible and comparable, and to the extent we can use 
quantitative factors here, I think that would be appropriate.
    Senator Warner. Thank you. I know my time is about to 
expire. I will put my questions in for the record. Before I 
yield, though, I do want to comment Mr. Kyle Hauptman for his 
work with our office and a number of others on, I think, very 
significant legislation, the anti- money-laundering 
legislation, that you, Mr. Chairman, and Ranking Member Brown 
have been such great leaders on. And I just want to say to 
Kyle, thank you for your good work in working with our office, 
and if you are confirmed I hope you will bring that same spirit 
of collaboration and bipartisanship to the NCUA.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman and Ranking 
Member Brown, and to the witnesses today. Let me start with Mr. 
Hauptman, and I have a question on setting caps on interest 
rates to prevent predatory lending. As you know, credit unions 
have traditionally served as safe institutions for their 
members to borrow at reasonable rates. Some time ago, the 
Congress enacted legislation to protect military families, 
active duty military and their families from predatory rates 
and interest rate gouging. We established a 36 percent annual 
cap on loans to active duty service members.
    Senator Brown and others and I have introduced legislation 
to extend those protections to other Americans, one for the 
long haul but also one during this pandemic, when we see lots 
of predatory lending abuses. Would you support the idea of 
establishing a 36 percent interest rate cap during this 
pandemic to prevent predatory lending abuses?
    Mr. Hauptman. Thank you, Senator. Obviously an important 
topic for anyone that has been in a cash crunch. And I am aware 
of the situation where just outside many military bases you see 
payday loan places and pawn shops, et cetera.
    At NCUA, the only ability we will have is working to make 
sure there are better options. The interest rates are set by 
statute and then they have their payday alternative product, 
which is 10 points higher at 28. I think the regulatory policy 
I bring to the table here is a better deal. In the case of 
extraordinarily high interest loans, the main thing is to 
provide better options, fight fire with fire, when somebody has 
an extraordinarily high interest loan and their credit union 
can give them one to refinance that and get out of that.
    So the ability I would have at NCUA is to make sure that, 
number one, there are better alternatives. They have to be 
significantly better or no one will use them. They have to 
better products at lower prices. And second of all----
    Senator Van Hollen. Mr. Hauptman, my time is limited.
    Mr. Hauptman. Sure.
    Senator Van Hollen. Do you support the law that was passed 
by Congress to protect military families?
    Mr. Hauptman. Matters before Congress are probably best 
left to Congress, but at NCUA you can be sure that all those 
military members, and there are many in credit unions, will 
have better options than the type of loan----
    Senator Van Hollen. I know, but you have an advocacy role 
as well, it seems to me, to, you know, protect your members.
    Mr. Hauptman. Sure.
    Senator Van Hollen. And, you know, one way to protect your 
members is to make sure credit unions are offering reasonable 
rates. The other is to make sure that there are not others out 
there that are charging outrageous, excessive rates. So it is a 
pretty simple question. Would you support our proposal to 
extend to others around the country the protections that we, as 
a country, currently extend to military families when it comes 
to excessive interest rates?
    Mr. Hauptman. Yeah. I should not comment on Congress, but 
you can count on me to make sure there are much better options 
and lower price options than what you are talking about. That 
includes financial literacy and lower fees across the board, so 
they do not get in this cash crunch to start with.
    Senator Van Hollen. Right. Well, one way to do it is to 
make it--one way to do it is to make sure that those outrageous 
practices are banned.
    Let me ask Commissioner Peirce a question with respect to 
the proposed advisory rule, and I am not going to ask you the 
substance of it because I know it is a pending matter. But when 
we had the Chairman before the Committee, Chairman Clayton, I 
asked him about comments he had made about how the proposed 
rule was supported by what he described as Main Street 
investors. And it turned out that his comments were based on 
letters that he had received from people claiming to be Main 
Street investors but, in fact, they all were manufactured by a 
front group called 60 Plus. This is a dark money group, a 
secret money group, and it turned out that it was entirely 
fabricated.
    So my question to you is, do you have in the record before 
you comments from genuine Main Street investors, the mom-and-
pops, because I can tell you, when it comes to this proxy rule, 
I have not heard from any sort of mom-and-pop investors about 
why the proposed rule is something that would be helpful to 
them. Have you?
    Ms. Peirce. Well, we have got a record that is chock full 
of comments representing a wide variety of viewpoints. I think 
one problem with this particular rule, with this particular 
area, is that you have a few extremely large shareholders who 
often operate to the disadvantage of mom-and-pop shareholders, 
the kind that you are----
    Senator Van Hollen. Yeah, so Commissioner Peirce, with 
respect, my question was pretty simple, right, because Chairman 
Clayton used what turned out to be fabricated letters from Main 
Street to argue that he was proposing to protect Main Street 
investors. I have a simple question. In your record before you, 
can you identify for us today any comments from genuine Main 
Street investors about this rule?
    Ms. Peirce. I am happy to get back to you on identifying 
particular letters, if that is something that you would like me 
to do. Obviously, the integrity of our comment process is very 
important, and so that is something that we rely on commenters 
to communicate their views with us. And we get comments from a 
wide variety of perspectives. I am happy to get back to you on 
this particular rulemaking if you would like.
    Senator Van Hollen. I would appreciate that, because I 
think the reason the Chairman had to settle on what turned out 
to be manufactured comments was there were not any authentic 
ones. But I appreciate that. Thank you.
    Chairman Crapo. Thank you. That concludes the Senators. I 
understand, Senator Brown, you would like to ask one more 
question?
    Senator Brown. On that I want to thank Senator Van Hollen. 
I think his question was really important, and we will all be 
awaiting your response, Ms. Peirce, your response in writing to 
what Senator Van Hollen asked. So thank you.
    I had a real quick question, Mr. Hauptman. You talked about 
technology. Give me an example of what you have in mind.
    Mr. Hauptman. Well, you know, it has been a nationwide, 
almost a worldwide experiment in how we do things during a 
pandemic. For example, this hearing is online, and prior to 
March we had never done that before. They have done exams 
virtually. It is possible that could save all parties a little 
bit of money, or do some of it virtually, so that is an option.
    But I would mention 3 years ago they passed a bill, I think 
it was Senator Scott's, the MOBILE Act, to be able to open an 
account online, be able to upload your identification 
information. That was very helpful during the pandemic, when a 
lot of people did not want to physically go to a bank or the 
lobby may have been closed.
    So things like that. Again, the only maybe silver lining 
from this pandemic is we have done a lot of experiments and 
some of these things, like perhaps a virtual examination or 
opening an account online or e-signatures and verifications, 
some of these things may be useful post pandemic.
    Senator Brown. OK. Well, thank you. It raises some 
concerns, and I appreciate your response. But so often 
technology is used for predatory behavior with technology 
companies and new innovative products just exploiting workers, 
especially low-wage workers, when we know that financial 
services does not really work very hard to reach the 
underserved. So I am very concerned about your thoughts there.
    Last comment, Mr. Chairman, and I thank all three witnesses 
today. I hope our nominees state carefully about how these 
agencies enforce the law, the two agencies to which you are 
nominated, and hold bad actors, including management, 
accountable. It is not enough to talk about strong enforcement 
and individual accountability only when you are in front of the 
Banking and Housing Committee. Not only is there an important 
deterrent--not only is it a very important deterrent--it 
signals that the abuse of customers, the abuse of workers, the 
abuse of other stakeholders will not be tolerated. I hope that 
you all remember that, especially after you are confirmed.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Brown, and that 
concludes the questioning for the hearing today. To our 
witnesses--well, actually, to our Senators, any questions for 
the record are due this Thursday, and I asking our witnesses to 
please respond to those questions by Monday so that we can move 
quickly.
    With that, again, thank you very much for attending this 
hearing and for your willingness to serve, and this hearing is 
adjourned.
    [Whereupon, at 11:35 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of nominees, 
responses to written questions, and additional material 
supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    This morning, we will hear testimony on the nominations of The 
Honorable Hester Peirce, of Ohio, to be a Member of the Securities and 
Exchange Commission; Ms. Caroline Crenshaw, of the District of 
Columbia, to be a Member of the Securities and Exchange Commission; and 
Mr. Kyle Hauptman, of Maine, to be a Member of the National Credit 
Union Administration Board.
    Welcome and congratulations on your nominations to these important 
positions.
    Commissioner Peirce and Ms. Crenshaw have both been nominated to 
serve as SEC Commissioners.
    The SEC is charged with an important mission to protect investors; 
maintain fair, orderly, and efficient markets; facilitate capital 
formation; and enforce securities laws.
    I commend Commissioner Peirce and her colleagues at the SEC for 
their quick and decisive response to the current COVID-19 pandemic.
    The SEC has successfully balanced the emergency response to COVID-
19 while continuing to maintain fundamental operations, such as 
rulemaking initiatives, conducting risk-based inspections, bringing 
enforcement actions, and reviewing issuer and fund filings.
    I encourage the SEC to continue these efforts, including advancing 
important rulemaking efforts related to capital formation and corporate 
governance.
    Commissioner Peirce is highly qualified for the position, 
previously serving as a Senior Counsel at this Committee and currently 
serving as an SEC Commissioner since January 2018.
    Next, we have Ms. Caroline Crenshaw.
    Ms. Crenshaw has worked at the SEC since 2013, working in the 
Office of Compliance Inspections and Examinations, the Division of 
Investment Management, and as Counsel to Commissioners Kara Stein and 
Robert Jackson.
    In addition to her work at the SEC, she is a captain in the U.S. 
Army Reserve Judge Advocate General's Corps.
    Ms. Crenshaw, we thank you for your service.
    Turning to Mr. Kyle Hauptman, who has been nominated to the Board 
of the National Credit Union Administration.
    The NCUA plays a critical role in overseeing and insuring a major 
segment of our Nation's community financial institutions: federally 
insured credit unions.
    Mr. Hauptman is well prepared to join the NCUA Board thanks to his 
prior Government and private sector experience.
    Mr. Hauptman has served as the Economic Policy Advisor to Senator 
Tom Cotton since 2017.
    Mr. Hauptman also worked on S. 2155, the Economic Growth, 
Regulatory Relief, and Consumer Protection Act, which contained several 
important provisions that provided regulatory flexibility and relief 
for credit unions.
    Before his Government service, Mr. Hauptman had a career in the 
financial services industry, where he developed expertise managing 
liquidity and credit- and interest-rate risk in fixed-income 
portfolios.
    In the coming months, both the SEC and NCUA will be on the front 
lines helping consumers, retail investors, and businesses of all sizes 
recover from the economic impacts of the COVID-19 emergency.
    If confirmed, I look forward to working with each of these nominees 
on many important issues within their respective policy areas.
    Congratulations again on your nominations, and I thank you and your 
families for your willingness to serve.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you, Chairman Crapo, for holding today's nomination hearing.
    First, I want to take a brief moment to remember my friend and 
colleague, Representative John Lewis. Let us honor his legacy by 
following his example of leadership, courage, and unrelenting fight for 
justice.
    Welcome to today's nominees. Congratulations to the three of you 
and your families. The Committee will consider two nominees to the 
Securities and Exchange Commission--Commissioner Hester Peirce for a 
second term, and Ms. Caroline Crenshaw, and Mr. Kyle Hauptman as a 
nominee to be a Board Member of the National Credit Union 
Administration.
    Today also marks the 10-year anniversary of the passage of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act. We passed 
Wall Street reform to prevent another financial crisis.
    Right now, we face an even greater, more complex public health and 
economic crisis. Families are making impossible decisions about how to 
pay their rent and put food on the kitchen table, or are grieving the 
loss of a mother or a father or a child. And we know one of this 
pandemic's tragedies is people dying alone.
    It's black and brown Americans disproportionately affected--working 
on the front lines to get us through this and helping to save lives, 
while grieving lost ones.
    Wall Street reform was meant to prevent catastrophe in our 
financial system. We need to aim higher than that today--yet Wall 
Street has spent years trying to dismantle the basic, important 
protections put in place through Dodd-Frank.
    And Republicans and the Trump administration have been all too 
happy to oblige. It didn't take long for Wall Street to recover from 
the crisis. They were making record profits while refusing to pay their 
workers a living wage. This ultimately caused the wealth gap to grow 
further.
    The current coronavirus crisis is showing us what happens when we 
don't protect working Americans. We can't leave them behind again.
    And leadership matters. We see that every day--over 140,000 
Americans dead on the President's watch. We're just 5 percent of the 
world's population, yet we have 30 percent of the deaths. That's not 
because we don't have good doctors and smart scientists and hard 
workers. It's because of leadership.
    And those who this body confirms to leadership posts also matter.
    All of the nominees, if confirmed, can support and forward policies 
that protect these working families--families who are consumers and 
investors and credit union members. You can encourage companies and 
credit unions to offer fair products to Americans left out of our 
financial system and make sure our markets and economy work for 
everyone.
    The question facing us today is: will you show that leadership and 
make those choices?
    If confirmed, Ms. Peirce would continue her work as a Commissioner 
for 5 more years and further her commitment to public service. Ms. 
Crenshaw brings the experience of working for the last two Democratic 
Commissioners, fighting for investors. Her continued service in the 
military allows her to bring a very different perspective to the table. 
If confirmed, she would be the first Commissioner in modern times to be 
in the active reserve--joining a handful of Commissioners over the 
history of the SEC who have served in the Armed Forces.
    Commissioner Peirce and Ms. Crenshaw, you will be called upon to 
tackle market swings and investment scams related to the pandemic, and 
you must also keep your eyes on existing problems that are getting 
worse.
    As the biggest companies, and banks in particular, have grown and 
become more powerful, we've seen corporate executives pay themselves 
with stock buybacks while laying off workers, cutting their pay, and 
underinvesting in their communities--all while avoiding any 
accountability.
    The SEC has a role in addressing each of these issues.
    Executives must be responsible to stakeholders, including workers 
and communities. That means the SEC shouldn't be changing its rules if 
it will take away smaller investors' ability to hold management 
accountable and raise important issues to other shareholders. 
Shareholder democracy isn't just for the big guys.
    The COVID pandemic has also shown how important essential workers 
are to our economy and how little information companies disclose about 
their workers. The public needs more information about how a company 
engages with its workers, because that helps investors understand how 
that company will deal with a crisis.
    And soon enough, corporate executives will want to reward 
themselves and their biggest investors again with stock buybacks. The 
safe harbor for stock buybacks has barely been touched in 40 years, but 
it seems investor and market protections are chipped away at year after 
year.
    When we've seen companies spend as much as 100 percent of their 
profits on their own stock, instead of capital investments or workers' 
wages, it's clear that stock buyback rules need an overhaul.
    The COVID pandemic has also shown us how important it is to have 
local financial institutions that serve their communities. We've seen 
credit unions--like the ones in my home State of Ohio--work with their 
members to get through this crisis.
    The NCUA is key to making sure that our credit unions are resilient 
in good times and bad.
    Yet the NCUA under the Trump administration has been chipping away 
at the very protections we put in place after the last financial 
crisis--rules that protect homeowners and that set strong capital and 
loan reserve standards that allow credit unions to lend in their 
communities during a downturn, much like the one we are facing right 
now.
    Mr. Hauptman was a trader at Lehman Brothers when it failed, 
accelerating the financial crisis. You'd think he'd understand what a 
financial crisis can mean, yet he has spent his career railing against 
the Dodd-Frank Act.
    Credit unions were created when other financial institutions 
weren't serving all their customers, and we've often seen them help 
those that big banks leave behind, including workers, including black 
and brown communities. Now is the time to implement even stronger 
protections that safeguard consumers and our financial system. If 
confirmed to the NCUA Board, Mr. Hauptman will need to make sure that 
the credit union system continues to serve these communities, which 
means doing more to protect credit union members, not rolling back 
regulations.
    Mr. Hauptman has no credit union experience. He says he wants this 
job because people who love their financial institution are usually 
credit union members. But being glad that credit unions serve their 
customers isn't a reason that he is qualified to be one of the three 
top credit union regulators, it means he should be a credit union 
customer.
    Later today, this Committee will mark up the nomination of Judy 
Shelton to be a member of the Federal Reserve Board. Even before the 
pandemic, my colleagues and I were concerned about Dr. Shelton's 
qualifications and commitment to helping working families, and her 
independence from the President.
    She has advocated for failed Depression-era policies like a return 
to the gold standard and the removal of deposit insurance. And, at her 
nomination hearing, she failed to explain how she would handle an 
economic crisis.
    That hypothetical economic crisis is now a reality, but we have no 
idea how Dr. Shelton would respond.
    This is why it is so important to carefully evaluate nominees--
based on their record, experience, and service to the American people--
that is who you all ultimately serve.
    A regulator's job is not to do favors for Wall Street firms and 
corporate interest groups or revive debunked economic theories. We 
entrust regulators to make sure that all Americans can prosper in a 
safe financial system and a fair economy. Today we need to hear from 
you how you will help and protect the people that make our economy 
work.
    Thank you, Mr. Chairman.
                                 ______
                                 
                  PREPARED STATEMENT OF HESTER PEIRCE
        To Be a Member of the Securities and Exchange Commission
                             July 21, 2020
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for considering my nomination to be a member of the 
Securities and Exchange Commission. Having served as a Commissioner for 
2\1/2\ years, I am honored that the President has nominated me to serve 
another term. If confirmed, I look forward to using the next 5 years--
alongside the dedicated, experienced SEC staff--to unleash the power of 
our securities markets in order to brighten more children's futures, 
build more Americans' retirement nest eggs, transform more communities 
across the Nation, and rebuild an economy weakened by COVID. I am 
delighted about the possibility of serving with Caroline Crenshaw, 
whose experience at the Commission, in the military, and in private 
practice would enrich our deliberations as a Commission.
    I have spent the last 20 years working on financial regulation. 
Part of that time was spent working for Senator Shelby on this 
Committee, and more than half of that time has been at the SEC. The 
agency has been extremely productive under the effective leadership of 
Chairman Jay Clayton. I have enjoyed helping to carry out his 
regulatory, compliance, and enforcement agenda.
    On the regulatory front, we have enhanced retail investor 
protection by, among other things, codifying a regulatory framework for 
exchange-traded funds, adopting a best interest standard for retail 
brokers, and streamlining variable product disclosures. We also have 
applied a benefit-cost lens to public company regulatory obligations, 
initiated changes to equity market structure so it can serve investors 
and companies of all sizes, and scaled regulatory requirements for 
small entities. We have worked--with urging from me, the ever vocal 
Midwesterner--to streamline the capital raising process for small 
companies and entrepreneurs all across the country, not just on the 
coasts. We also have provided temporary relief for firms adjusting to 
the work-from-home environment and to small businesses trying to raise 
funds to survive the COVID crisis.
    An integral complement to our regulatory work is the Commission's 
compliance function--which includes inspecting firms and engaging with 
them as they seek to apply the rules to their unique facts and 
circumstances. I have supported cooperation with other regulators and 
compliance personnel at registered entities to maximize our collective 
coverage and effectiveness. I also have advocated taking advantage of 
new technologies in overseeing the markets, with due consideration for 
legitimate concerns about data protection and over-surveillance.
    On the enforcement side, we have brought charges against entities, 
large and small, and individuals for a wide range of securities 
violations. Most recently, we have gone after securities violators 
hiding behind purported COVID-19 cures. Human nature being what it is, 
there is no dearth of bad conduct. Consequently, I have worked to focus 
our enforcement resources where they can make the most difference for 
investors and our markets.
    Collaboration with domestic and international colleagues runs 
through everything the Commission does. I had the opportunity to work 
with Commissioner Brian Quintenz of the Commodity Futures Trading 
Commission as we stood up our Dodd-Frank security-based swap regulatory 
regime. On the same issue, I cooperated with international counterparts 
to minimize market disruption and conserve regulatory resources. As the 
Commission's representative on one of the Financial Stability Board's 
Standing Committees, I have supported sharing information and 
conducting joint analyses, but also have emphasized that decisions 
about how to regulate the U.S. markets need to be made here at home.
    One concern I had going into the job was the difficulty regulatory 
agencies have dealing appropriately with innovation in and disruption 
of the industries they regulate. This problem is an institutional one--
large bureaucratic organizations, whether public or private, do not 
handle change particularly well. I know, however, that the Commission 
can do better. If confirmed, in addition to continuing my work on 
strengthening the regulatory framework, I will redouble my efforts to 
create a more welcoming environment for innovation and new entrants. If 
the Commission takes up that challenge with the necessary seriousness 
and alacrity, our capital markets will remain dynamic, vibrant, and 
preeminent.
    Thank you for considering my nomination, and I would be happy to 
answer your questions.
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                PREPARED STATEMENT OF CAROLINE CRENSHAW
        To Be a Member of the Securities and Exchange Commission
                             July 21, 2020
    Chairman Crapo, Ranking Member Brown, and distinguished Senators of 
the Committee: Thank you for the opportunity to appear here today. It 
is an honor to testify before you regarding my nomination to be a 
Commissioner of the Securities and Exchange Commission, where I have 
worked for the past 7 years, and in whose mission I deeply believe.
    To begin, I want to thank all those who have encouraged and 
supported me through this process: family, friends, colleagues, members 
of Congress and their talented staff, and many others whom I did not 
know prior to my nomination. It has been an educational and memorable 
journey.
    America's capital markets have powered the largest, most vibrant 
economy in the world. But our economy is facing unprecedented 
challenges and, now more than ever, I believe we must do all we can to 
keep our markets transparent, competitive, and safe. All Americans must 
have the confidence to invest their hard-earned savings in their 
futures.
    That is the critical mission of the SEC, and it is the reason why I 
chose to transition my career from private practice to public service. 
I began my time at the SEC as a career staff attorney in the Office of 
Compliance Inspections and Examinations, helping oversee the 
institutions that manage millions of Americans' savings. More recently, 
I served as Counsel to two dedicated public servants, Commissioners 
Kara Stein and Robert Jackson, focusing on strengthening investor 
protections in our increasingly complex markets. It has been my great 
privilege to support the SEC's mission for the better part of a decade 
and see up close how our securities laws are built--case-by-case and 
rule-by-rule.
    But it's not just that experience that brings me before you today. 
I also carry with me the stories of soldiers, family, and friends who 
give the SEC's mission real meaning. As a Captain in the United States 
Army Reserve, Judge Advocate General's Corps, that mission means making 
sure my fellow Soldiers have a fighting chance to secure the financial 
futures they deserve.
    As a sister of an entrepreneur, it means making sure our markets 
unite job-creating capital with individuals like my brother, who 
recently started a small business developing 3D printing technology for 
military uses. And, as a new mother, it means promoting the level 
playing field that will allow my family, and millions of other American 
families, to fund the rising costs of education by safely and 
confidently investing in our markets.
    If confirmed, I intend to bring all of these experiences--from 
sister to staffer to Soldier--to bear on the SEC's mission.
    That's why, if I have the honor of joining the Commission, you can 
count on me to be a tireless advocate for the ordinary American 
families who are the backbone of our economy. One of the biggest 
challenges for those families--and for the Commission--is the 
retirement crisis facing the country. The Nation's shift from defined 
benefit pension plans--which my parents, and their parents, relied upon 
for their futures--to defined contribution plans, moved the 
responsibility of lifelong saving from employers to individuals. That 
has left too many hard-working Americans without sufficient resources 
for retirement.
    With investment decisions now largely in the hands of individual 
Americans, the Commission should do all it can to ensure everyone gets 
a fair deal. The Commission should provide tools that allow individuals 
to distinguish between financial advisers and fraudsters and to fund 
their retirements in safe and sustainable ways. These tools include 
clear, plain-English information and access to high-quality investment 
advice. Moreover, if confirmed, I would draw on my experience to make 
sure the Commission keeps a close watch over the large institutions 
increasingly entrusted with the growth and safekeeping of Americans' 
savings.
    As a Washington, D.C., native who grew up just blocks away on 
Capitol Hill, I have had the great benefit of being surrounded by 
dedicated public servants of all political stripes for my entire life. 
If I have the honor of being confirmed, I will bring with me that 
commitment to public service and appreciation for diverse views as the 
Commission considers how best to help Americans grapple with the 
economic challenges before us.
    Thank you for your time. I would be delighted to answer any 
questions you might have.
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                  PREPARED STATEMENT OF KYLE HAUPTMAN
    To Be a Member of the National Credit Union Administration Board
                             July 21, 2020
    Thank you Chairman, Ranking Member Brown, and Members of the 
Committee. It's an honor to be here. I'd like to thank the President 
and his team, plus the NCUA staff that have been so helpful. I want to 
especially thank Senator Cotton for his support throughout this 
process.
    I'd like to say hello to those watching online, especially my wife 
Kelly, who is pregnant with our first child, my brother Gabe and his 
husband Geoff, my siblings-in-law Katie and Marcus, and my parents-in-
law Sue and Mike.
    When offered this nomination, I accepted immediately. It's a chance 
to help over 120 million credit union members achieve their financial 
goals. And if you encounter someone who actually loves their financial 
institution, there's a good chance you're speaking to a credit union 
member.
    These last few months have demonstrated the cooperative nature of 
credit unions, as they've waived fees and adjusted loans without before 
anyone in D.C. told them to do so. Many of us also recall the last 
Government shutdown when credit unions gained members by offering 
interest-free loans to furloughed workers. But this reputation depends 
on proper oversight from NCUA.
    Before the Senate I worked on regulatory policy, including serving 
on a bipartisan SEC Advisory Committee. Prior to that I was in the 
financial sector, focused on the same money markets where credit unions 
obtain financing. Twelve years ago, I was a mid-level employee working 
in Asia for Lehman Brothers, and wound up losing my job, my savings and 
my work visa all due to management that didn't fully understand the 
risks they were taking. That experience showed me first-hand the risks 
associated with liquidity, interest-rates and balance-sheet management. 
This perspective should be both valuable and somewhat unique on the 
NCUA Board.
    One of the best parts of serving in the Senate has been working 
with Arkansas credit unions and their companions in the Cornerstone 
Credit League in Texas and Oklahoma. I'm confident that if you speak to 
them, they'll tell you I've been knowledgeable and attentive regarding 
their concerns. And while I value those relationships, you can be sure 
I'll be an independent regulator who works only for credit union 
members and the taxpayers who back NCUA insurance.
    In addition to my passion for financial policy, I have an interest 
in public service due to my upbringing. My father worked in the 
National Park Service for 32 years. Unfortunately, in the last 3 years 
both he and my mother passed away, but I think they'd be proud to see 
me here. I should mention that both were lifetime Democrats, my mother 
a Bernie Sanders supporter.
    On a related note, my Senate colleagues will tell you I work in a 
bipartisan fashion. I've worked on legislation with the majority of 
Committee Democrats, including with Ranking Member Brown's staff on 
reforming anti- money-laundering laws. I've been impressed with the 
character and acumen of the Democratic staff, and in fact several have 
been to my home.
    Credit unions help people achieve the same American dream that my 
dad experienced, born in Brooklyn to parents with 4th-grade educations. 
His dad, my grandfather, worked in the NYC subway putting up 
advertising. That man's grandson is now before the U.S. Senate, a 
testament to American opportunity, and at NCUA my overarching goal will 
be extending that kind of opportunity to as many people as possible.
    I'll have three priorities at NCUA: Priority number one is the same 
as America's: managing the fallout from the current pandemic and 
economic downturn. Over 50 million people have filed for unemployment 
since March. While the 2008 crisis began in the financial sector and 
then hit Main Street, our current crisis may be the reverse. Credit 
unions were chartered to serve those of modest means, and I plan to 
work with them, the Board and Congress on solutions for those facing 
financial stress.
    My second priority is technology. The pandemic created a test case 
on how many things, such as this hearing, can be done remotely or 
online. I'd like to expand technology's role in reaching the 
underserved. If we recall the litigation years ago about Blockbuster 
Video's late fees and market dominance, the ultimate solution was 
American startups like Netflix. While this analogy doesn't perfectly 
align with credit unions, I'm convinced innovation can provide more 
inclusive financial services.
    And last: Aligning incentives. As we know from the last crisis, we 
get what we incentivize. One excellent policy that serves as a model 
here is the less-frequent exam cycle for credit unions that get the 
highest marks on their NCUA exams for safety and stability. This policy 
lets regulators focus on more problematic credit unions, while the 
well-run credit unions strive to keep earning that benefit. This is 
policy where safety and soundness are well-aligned with serving 
members. Do this correctly, and we'll combat poor-quality high-priced 
products with better, lower-priced ones.
    Thank you again for this opportunity, and I look forward to your 
questions.
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        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM HESTER PEIRCE

Q.1. Last year, I introduced S. 2155, the Stop Wall Street 
Looting Act of 2019, to reform the private equity industry and 
end abusive leveraged buyouts. \1\
---------------------------------------------------------------------------
     \1\ Office of Senator Warren, ``Warren, Baldwin, Brown, Pocan, 
Jayapal, Colleagues Unveil Bold Legislation to Fundamentally Reform the 
Private Equity Industry'', July 18, 2019, https://
www.warren.senate.gov/newsroom/press-releases/warren-baldwin-brown-
pocan-jayapal-colleagues-unveil-bold-legislation-to-fundamentally-
reform-the-private-equity-industry.
---------------------------------------------------------------------------
    Private equity transactions are fueled by risky loans that 
are immediately securitized and sold. \2\ A provision in my 
bill would help protect the economy from risks stemming from 
excessive debt imposed on private equity firms' target 
companies. It would require arrangers of corporate loan 
securitizations to retain risk by clarifying that managers of 
collateralized debt obligations are subject to risk retention 
requirements established in the Dodd-Frank Wall Street Reform 
and Consumer Protection Act. \3\
---------------------------------------------------------------------------
     \2\ Washington Post, ``The Shadow Banks Are Back With Another Big 
Bad Credit Bubble'', Steven Pearlstein, May 31, 2019, https://
www.washingtonpost.com/business/economy/the-shadow-banks-are-back-with-
another-big-bad-credit-bubble/2019/05/31/a05184de-817a-11e9-95a9-
e2c830afe24f-story.html.
     \3\ Securities and Exchange Commission, ``Asset-Backed 
Securities'', October 23, 2014, https://www.sec.gov/spotlight/dodd-
frank/assetbackedsecurities.shtml.
---------------------------------------------------------------------------
    Do you believe that arrangers of corporate loan 
securitizations should retain risk to prevent dangerous loans 
that are immediately passed onto unknowing investors?

A.1. Dodd-Frank's risk retention provisions seek to align the 
interests of originators of loans with the investors in loan 
securitizations. Investors might benefit from--and could 
demand--similar alignment from non-originating managers of 
securitizations, but that alignment could be more costly to 
achieve than it would be for an originating manager, and these 
costs would be passed on to the investors. Alignment of 
interests through other means, such as performance-based 
compensation agreements, might be cheaper and have proved 
effective in the past. In 2018, the United States Court of 
Appeals for the District of Columbia held that Dodd-Frank's 
risk retention provisions do not reach non-originating managers 
of collateralized loan obligation securitizations. \4\ That 
said, if Congress directs the SEC and other regulators to apply 
the risk retention rules to all arrangers of corporate loan 
securitizations, I will work to put that mandate in place.
---------------------------------------------------------------------------
     \4\ Loan Syndications & Trading Ass'n, 882 F.3d 220 (D.C. Cir. 
2018).

Q.2. If not, how, if at all, you would you mitigate risky 
corporate lending and the ability of lenders to spread private 
equity debt across financial institutions? How would you ensure 
that regulators have the appropriate information to assess the 
---------------------------------------------------------------------------
exposure of financial markets to leveraged loans?

A.2. From the SEC's vantage point as a securities regulator, 
the SEC has several points of interaction with the 
Collateralized Loan Obligation (CLO) marketplace. First, we 
have brought actions against private equity advisers for 
violating the securities laws. Second, sales of asset-backed 
securities, including those backed by loans, are subject to the 
securities laws. Third, we oversee the agencies that rate CLOs. 
Finally, the SEC has been working to understand better the CLO 
markets, including which entities hold the different tranches 
of CLOs. In our work in this area, we have benefited from the 
work of our Investor Advisory Committee and collaboration with 
other regulators, here and abroad.

Q.3. Leveraged Lending--In November 2018, I sent a letter to 
SEC Chairman Clayton, Treasury Secretary Steven Mnuchin, 
Federal Reserve Chairman Jerome Powell, then-Comptroller of the 
Currency Joseph Otting, and Federal Deposit Insurance 
Corporation Chairman Jelena McWilliams expressing concern about 
the rapid growth of leveraged corporate lending, or lending to 
companies that are already highly indebted. \5\
---------------------------------------------------------------------------
     \5\ Letter from Senator Warren to Treasury Secretary Steven 
Mnuchin, Federal Reserve Chairman Jerome Powell, Comptroller of the 
Currency Joseph Otting, Securities and Exchange Commission Chairman Jay 
Clayton, and Federal Deposit Insurance Corporation Chairman Jelena 
McWilliams, November 14, 2018, https://www.warren.senate.gov/imo/media/
doc/2018.11.14%20Letter%20to%20Regulatorhttps://www.sec.gov/spotlight/
dodd-frank/assetbackedsecurities.shtmls%20on%20Leveraged%20Lending.pdf.
---------------------------------------------------------------------------
    In a section addressed to Chairman Clayton, I stated that 
the Volcker Rule is intended to restrict bank involvement with 
external funds and that trade associations have asked the SEC 
to significantly loosen Volcker Rule controls. The SEC 
completed its rollbacks of the Volcker Rule in September 2019, 
which you strongly supported. \6\ In response to the rollback 
of the Volcker Rule, SEC Commissioner Robert J. Jackson, Jr., 
stated, ``as I said at the proposal stage, `[r]olling back the 
Volcker Rule while failing to address pay practices that allow 
bankers to profit from proprietary trading puts American 
investors, taxpayers, and markets at risk.' '' \7\
---------------------------------------------------------------------------
     \6\ U.S. Securities and Exchange Commission, ``Statement on 
Volcker Rule Amendments'', Public Statement by Commissioner Robert J. 
Jackson, Jr., September 19, 2019, https://www.sec.gov/news/public-
statement/statement-jackson-091919; U.S. Securities and Exchange 
Commission, ``SEC Adopts New Rules and Amendments under Title VII of 
Dodd-Frank'', press release, September 19, 2019, https://www.sec.gov/
news/press-release/2019-182.
     \7\ U.S. Securities and Exchange Commission, ``Statement on 
Volcker Rule Amendments'', Public Statement by Commissioner Robert J. 
Jackson, Jr., September 19, 2019, https://www.sec.gov/news/public-
statement/statement-jackson-091919.
---------------------------------------------------------------------------
    Chairman Clayton's January response provided a procedural, 
but not a substantive, explanation of the status of SEC's 
proposed amendments to the Volcker Rule. \8\
---------------------------------------------------------------------------
     \8\ Letter from Securities and Exchange Commission Chairman Jay 
Clayton to Senator Warren, January 31, 2019.
---------------------------------------------------------------------------
    Do you view leveraged lending as a risk? If so, what 
actions should the SEC take to mitigate the risks associated 
with leveraged lending?

A.3. Leveraged lending merits watching. As noted above, it is 
an area that the SEC and other regulators are actively 
monitoring. Among other things, we monitor our regulated 
entities' exposure to leveraged loans, particularly loans with 
lower credit quality.

Q.4. Please explain the SEC's rationale for removing 
protections against excessive risks under the Volcker Rule.

A.4. The SEC joined with other financial regulators to revisit 
the Volcker Rule. The changes came in response to concerns that 
the rule was inhibiting beneficial activity by banking 
entities. Working with our fellow regulators, we determined 
that there were ways to achieve the Volcker Rule's objectives 
in a less costly manner. Among other concerns, I was worried 
that the rule was preventing banking entities from engaging in 
traditional lending and market making activities. The 
amendments simplify, clarify, and tailor the rule without 
undermining its objective.

Q.5. Commissioner Jackson also stated, ``The Commission has 
justified the rollback of the significant investor- and 
taxpayer-protections in the Volcker Rule in the name of needed 
improvements in `liquidity and capital formation.' Because the 
facts and our own Staff's analysis offer no meaningful evidence 
that the Volcker Rule has affected either, I respectfully 
dissent.'' \9\
---------------------------------------------------------------------------
     \9\ Id.
---------------------------------------------------------------------------
    Please describe any evidence that the amendments rolling 
back the Volcker Rule are beneficial to the safety and security 
of securities markets.

A.5. In connection with each of the Volcker rulemakings, we 
engaged in economic analysis. While there are limitations on 
this forward-looking analysis, it helped us to identify areas 
where a change in the implementing regulations could enable 
banking entities to engage in activities that are beneficial to 
market liquidity and consistent with the Volcker Rule. I had 
particular concerns that the Volcker Rule was adversely 
affecting market making, which is essential to well-functioning 
markets. \10\ Simplifying rules, which is what the Volcker 
amendments sought to accomplish, removes legal uncertainty and 
therefore gives market participants confidence to participate 
in markets. Strained liquidity in fixed income markets over the 
last 6 months suggests that it is very important for us to 
continue examining the Volcker Rule to ensure that it is 
properly calibrated to achieve its important objectives without 
impairing market function.
---------------------------------------------------------------------------
     \10\ See, e.g., Meraj Allahrakah, et al., ``The Effects of the 
Volcker Rule on Corporate Bond Trading: Evidence From the Underwriting 
Exemption'', OFR Working Paper (Aug. 6, 2019), available at https://
www.financialresearch.gov/working-papers/2019/08/06/the-effects-of-the-
volcker-rule-on-corporate-bond-trading/; Jack Bao et al., ``The Volcker 
Rule and Market Making in Times of Stress'', Federal Reserve Working 
Paper (Sept. 2016), available at https://www.federalreserve.gov/
econresdata/feds/2016/files/2016102pap.pdf.

Q.6. Inflated Bond Ratings--In September, I wrote Chairman 
Clayton a letter regarding troubling reports of inflated bond 
ratings and the perverse incentives within the bond rating 
industry and urged the SEC to take immediate action to protect 
the economy from risky lending propped up by conflicts of 
interest between bond issuers and rating agencies.
    My letter described the flows in the incentive structures 
of bond ratings firms' through the ``issuer-pays'' model used 
by major firms like S&P and Moody's. Under the issuer-pays 
model, bond issuers pay the agencies for their assessments of 
the products they hope to sell, ultimately giving the rating 
firms an incentive to give better ratings, regardless of the 
risk, since bond issuers might otherwise go to their 
competitors. \11\ In his November response, Chairman Clayton 
stated that he shared my concerns about conflicts of interest 
in rating agency compensation models and said that he is 
awaiting recommendations or advice from various advisory 
committees. \12\
---------------------------------------------------------------------------
     \11\ Council on Foreign Relations, ``The Credit Rating 
Controversy'', CFR Staff, February 19, 2015, https://www.cfr.org/
backgrounder/credit-rating-controversy.
     \12\ Letter from Securities and Exchange Commission Chairman Jay 
Clayton to Senator Warren, November 21, 2019.
---------------------------------------------------------------------------
    Have senior officials the SEC instructed the advisory 
committees that the SEC is consulting for recommendations or 
advice on the role and activities of bond rating agencies to 
produce any work products by a certain date or timeline?

A.6. Since your exchange of letters with Chairman Clayton, the 
Fixed Income Advisory Committee provided us recommendations 
with respect to credit rating agencies. Specifically, in June 
2020, the Committee recommended that the SEC: (1) increase 
disclosure by Nationally Recognized Statistical Rating 
Organizations (NRSROs), (2) enhance issuer (corporate and 
securitized) disclosures, and (3) create a mechanism for 
bondholders to vote on the issuer-selected NRSROs. \13\ In May 
2020, the SEC's Investor Advisory Committee held a panel 
discussion regarding credit rating agencies. \14\
---------------------------------------------------------------------------
     \13\ Fixed Income Market Structure Advisory Committee, 
``Recommendations Regarding Ways To Mitigate Conflicts of Interest in 
Credit Ratings'' (June 1, 2020), available at https://www.sec.gov/
spotlight/fixed-income-advisory-committee/fimsac-recommendations-
credit-ratings-subcommittee.pdf.
     \14\ Investor Advisory Committee (May 21, 2020), agenda available 
at https://www.sec.gov/spotlight/investor-advisory-committee-2012/
iac052120-agenda.htm, and webcast available at https://www.sec.gov/
video/webcast-archive-player.shtml?document-id=iac052120.

Q.7. If so, please explain the SEC's instructions and any 
requested deadlines. Additionally, please explain if these 
---------------------------------------------------------------------------
recommendations or advice will be made public.

A.7. The Fixed Income Advisory Committee's recommendations are 
publicly available. \15\ The Investor Advisory Committee might 
submit a recommendation in the future, but the Commission does 
not dictate their agenda or work schedule. If the IAC does make 
a recommendation, it will be publicly available on the SEC's 
website. \16\
---------------------------------------------------------------------------
     \15\ Ways to Mitigate Conflicts of Interest in Credit Ratings 
(June 1, 2020), available at https://www.sec.gov/spotlight/fixed-
income-advisory-committee/fimsac-recommendations-credit-ratings-
subcommittee.pdf.
     \16\ Spotlight on the Investor Advisory Committee, https://
www.sec.gov/spotlight/investor-advisory-committee.shtml 
(recommendations are at the bottom of the page).

Q.8. Please describe any updates from the advisory committees 
that the SEC is consulting for recommendations or advice 
regarding the role and activities of bond rating agencies. 
Please describe any communications you, or senior SEC staff, 
have had with these advisory committees regarding any 
---------------------------------------------------------------------------
anticipated timelines or deadlines for their conclusions.

A.8. In June 2020, the Fixed Income Advisory Committee 
recommended that the SEC: (1) increase disclosure by Nationally 
Recognized Statistical Rating Organizations (NRSROs), (2) 
enhance issuer (corporate and securitized) disclosures, and (3) 
create a mechanism for bondholders to vote on the issuer-
selected NRSROs. \17\ In May 2020, the SEC's Investor Advisory 
Committee held a panel discussion regarding credit rating 
agencies. \18\ I have not communicated with the advisory 
committees regarding anticipated timelines or deadlines and am 
not aware of any specific communications on those matters by 
others at the Commission.
---------------------------------------------------------------------------
     \17\ Fixed Income Market Structure Advisory Committee, 
``Recommendations Regarding Ways To Mitigate Conflicts of Interest in 
Credit Ratings'' (June 1, 2020), available at https://www.sec.gov/
spotlight/fixed-income-advisory-committee/fimsac-recommendations-
credit-ratings-subcommittee.pdf.
     \18\ Investor Advisory Committee (May 21, 2020), agenda available 
at https://www.sec.gov/spotlight/investor-advisory-committee-2012/
iac052120-agenda.htm, and webcast available at https://www.sec.gov/
video/webcast-archive-player.shtml?document-id=iac052120.

Q.9. Chairman Clayton's response also referenced some work that 
the SEC has done to respond to the conflicts of interest in the 
issuer-pays model. \19\ An August Wall Street Journal report, 
however, stated that ``Inflated bond ratings were one cause of 
the financial crisis. A decade later, there is evidence they 
persist. In the hottest parts of the booming bond market, S&P 
and its competitors are giving increasingly optimistic ratings 
as they fight for market share.'' \20\
---------------------------------------------------------------------------
     \19\ Id.
     \20\ Wall Street Journal, ``Inflated Bond Ratings Helped Spur the 
Financial Crisis. They're Back.'', Cezary Podkul and Gunjan Banerji, 
August 7, 2019, https://www.wsj.com/articles/inflated-bond-ratings-
helped-spur-the-financial-crisis-theyre-back-11565194951.
---------------------------------------------------------------------------
    In your view, why has the SEC's efforts to respond to the 
conflicts of interest have failed to prevent bond rating 
agencies from artificially inflating bond ratings?

A.9. The SEC has a robust and detailed regulatory framework 
governing NRSROs. The rules require NRSROs among other things, 
to implement internal controls, manage their conflicts of 
interest, have a compliance function, and make certain 
disclosures. The SEC's Office of Credit Ratings conducts annual 
examinations of the NRSROs. We also have brought enforcement 
actions against NRSROs. \21\ While our rules governing NRSROs 
are robust, we are statutorily prohibited from prescribing the 
substance of credit ratings or the methodologies by which they 
are produced. \22\ We continue to review our regulatory 
framework to ensure that it appropriately addresses conflicts 
of interest and allows new entrants to come into the industry.
---------------------------------------------------------------------------
     \21\ See, e.g., ``SEC Orders Credit Rating Agency To Pay $3.5 
Million for Conflicts of Interest Violations'' (May 15, 2020), https://
www.sec.gov/news/press-release/2020-112.
     \22\ See Section 15E(c)(2) of the Securities Exchange Act of 1934, 
15 U.S.C. 78o-7(c)(2).

Q.10. Chairman Clayton's November response also stated, ``I 
expect to continue to discuss issues related to the 
[collateralized loan obligations], other credit funds and 
conditions in the credit markets more generally in the near 
term with my national and international regulatory colleagues, 
including through the [Financial Stability Oversight Council] 
and the [Financial Stability Board]. I will also request our 
staff in [the SEC Office of Credit Ratings], as well as staff 
in the Division of Investment Management and Division of 
Trading and Markets, to keep the issues you raised in your 
letter in mind as they carry out their examination and other 
responsibilities.'' \23\
---------------------------------------------------------------------------
     \23\ Letter from Securities and Exchange Commission Chairman Jay 
Clayton to Senator Warren, November 21, 2019.
---------------------------------------------------------------------------
    Please describe any near-term discussions you have had with 
national and international regulatory colleagues on this topic.

A.10. As the SEC's representative on the Financial Stability 
Board's Standing Committee on Assessment of Vulnerabilities 
(SCAV), I have had the opportunity to discuss issues related to 
credit ratings and the use of credit ratings by market 
participants, particularly during the economic stress we are 
now experiencing. The SCAV is seeking to coordinate its work in 
this area with the work of other international organizations, 
such as the International Organization of Securities 
Commissions.

Q.11. Please describe any communications you have had with SEC 
staff regarding these issues.

A.11. I receive regular updates from the Office of Credit 
Ratings on their oversight of NRSROs and on major credit rating 
actions the NRSROs take. I consult with the staff from time to 
time about issues related to conflicts of interest at NRSROs.

Q.12. Climate Risk Disclosure--In July, Representative Sean 
Casten (D-IL-06) and I introduced H.R. 3623/S. 2017, the 
Climate Risk Disclosure Act of 2019. \24\ Our bill would 
address the fact that investors currently lack access to basic 
information about the potential impact of the climate crisis on 
American companies, which creates significant environmental and 
financial risks. The Climate Risk Disclosure Act of 2019 would 
require public companies to include uniform information about 
their exposure to climate-related risks, which will help 
investors appropriately assess those risks, among other 
benefits, in their disclosures to the SEC.
---------------------------------------------------------------------------
     \24\ Office of Senator Warren, ``Senator Warren, Representative 
Casten Lead Colleagues Introducing a Bill To Require Every Public 
Company To Disclose Climate-Related Risks'', press release, July 10, 
2019, https://www.warren.senate.gov/newsroom/press-releases/senator-
warren-representative-casten-lead-colleagues-introducing-a-bill-to-
require-every-public-company-to-disclose-climate-related-risks.
---------------------------------------------------------------------------
    The most recent volume of the National Climate Assessment, 
a scientific report issued by 13 Federal agencies in November 
2018, stated that climate change may cause losses of up to 10 
percent of the U.S. economy by 2100. \25\ Additionally, a 2015 
report from The Economist Intelligence Unit wrote that, of the 
world's current stock of manageable assets, the expected losses 
due to climate change are valued at $4.2 trillion by the end of 
the century. \26\
---------------------------------------------------------------------------
     \25\ New York Times, ``U.S. Climate Report Warns of Damaged 
Environment and Shrinking Economy'', Coral Davenport and Kendra Pierre-
Louis, November, 23, 2018, https://www.nytimes.com/2018/11/23/climate/
us-climate-report.html.
     \26\ The Economist Intelligence Unit, ``The Cost of Inaction'', 
2015, p. 41, https://eiuperspectives.economist.com/sites/default/files/
The%20cost%20of%20inaction-0.pdf.
---------------------------------------------------------------------------
    Do you believe that understanding which assets of public 
companies may be materially affected by climate change may help 
investors make more informed decisions about the risk of their 
investments?

A.12. Yes, this disclosure could be useful to investors if it 
is material. Our principles-based disclosure approach is 
designed to elicit from public companies material information 
about risks to the long-term value of the company arising from 
events, including climate-related events.

Q.13. Do you believe it would be useful for investors to 
understand public companies' contributions to greenhouse gas 
emissions and their exposure in the event of a Government- or 
market-mandated transition towards a lower-carbon economy?

A.13. The principles-based disclosure framework is intended to 
elicit company-specific disclosure about material risks to the 
long-term financial value of the company, including risks from 
Government regulation. Regulation that limits greenhouse gas 
emissions could trigger disclosure obligations related to 
greenhouse gas emissions for some companies under existing 
regulation. \27\
---------------------------------------------------------------------------
     \27\ See, e.g., ``Commission Guidance Regarding Disclosure Related 
to Climate Change'' (Feb. 2, 2010), available at https://www.sec.gov/
rules/interp/2010/33-9106.pdf.

Q.14. A Government Accountability Office (GAO) report from 
February 2018 states, ``[Securities and Exchange Commission 
(SEC)] reviewers may not have access to the detailed 
information that companies use to arrive at their determination 
of whether risks, including climate-related risks, must be 
disclosed in their SEC filings.'' \28\ While the SEC has issued 
guidance for considering effects of climate change, the SEC has 
not mandated disclosures for how climate risk materially 
affects returns.
---------------------------------------------------------------------------
     \28\ Government Accountability Office, ``Climate-related Risks'', 
February 2018, pp. 17-18, https://www.gao.gov/assets/700/690197.pdf.
---------------------------------------------------------------------------
    If Federal regulators do not have the information needed to 
fully understand public companies' climate-related risks under 
current law, do investors have the adequate information needed 
to make informed decisions about companies' risks?

A.14. The SEC's Division of Corporation Finance has a filing 
review process whereby the staff selectively reviews filings 
both to monitor and to enhance compliance with disclosure and 
accounting requirements under the securities laws. With respect 
to climate change and other issues about which disclosure might 
be required, Corporation Finance staff does not have subpoena 
power and does not require companies to provide the SEC with 
information to engage in an independent assessment of the 
adequacy of the companies' disclosure. Nevertheless, there is a 
robust iterative process between SEC staff reviewing filings 
and counsel for the companies whose disclosure is being 
reviewed. Importantly, companies face legal liability for 
disclosure that is materially false or misleading.

Q.15. Regulation Best Interest (Reg BI)--In June 2019, SEC 
approved Reg BI, which despite Congress' instruction in 
sections 913(f) and 913(g) of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act establishes neither a uniform 
standard for broker-dealers and investment advisers, nor a 
fiduciary standard for broker-dealers. \29\ Then-Commissioner 
Robert J. Jackson, Jr., described the rule as ``a muddled 
standard that exposes millions of Americans to the costs of 
conflicted advice.'' \30\ Reg BI includes no obligation to 
eliminate conflicts of interest. The SEC clearly stated, ``we 
are not requiring broker-dealers to develop policies and 
procedures to disclose and mitigate all conflicts of 
interest.'' \31\ Instead, Reg BI imposes a limited requirement 
to disclose conflicts.
---------------------------------------------------------------------------
     \29\ U.S. Securities and Exchange Commission, ``SEC Adopts Rules 
and Interpretations To Enhance Protections and Preserve Choice for 
Retail Investors in Their Relationships With Financial Professionals'', 
press release, June 5, 2019, https://www.sec.gov/news/press-release/
2019-89.
     \30\ U.S. Securities and Exchange Commission, ``Statement on Final 
Rules Governing Investment Advice'', Public Statement by Commissioner 
Robert J. Jackson, Jr., June 5, 2018, https://www.sec.gov/news/public-
statement/statement-jackson-060519-iabd.
     \31\ U.S. Securities and Exchange Commission, Federal Register 
Final Rule, ``Regulation Best Interest: The Broker-Dealer Standard of 
Conduct'', July 12, 2019, pp. 33388, https://www.govinfo.gov/content/
pkg/FR-2019-07-12/pdf/2019-12164.pdf.
---------------------------------------------------------------------------
    The SEC rule left ``best interest,'' the key term that 
describes the standard of conduct for broker-dealers, 
undefined. \32\
---------------------------------------------------------------------------
     \32\ U.S. Securities and Exchange Commission, Federal Register 
Notice, ``Regulation Best Interest: The Broker-Dealer Standard of 
Conduct'', July 12, 2019, https://www.federalregister.gov/documents/
2019/07/12/2019-12164/regulation-best-interest-the-broker-dealer-
standard-of-conduct.
---------------------------------------------------------------------------
    Do you believe the standard should have defined ``best 
interest,'' as several commenters on the rule discussed? \33\
---------------------------------------------------------------------------
     \33\ Id.

A.15. No. A more principles-based approach is better suited to 
reach the wide array of facts and circumstances that arise in 
---------------------------------------------------------------------------
interactions between retail investors and broker-dealers.

Q.16. Why did the SEC decline to define ``best interest?''

A.16. Speaking for myself, I was concerned that defining best 
interest could inadvertently limit the standard's 
effectiveness. Because the relationships between retail 
customers and their broker-dealers are not uniform, it is 
important to have a standard that can cover a wide range of 
interactions. Moreover, it is important that broker-dealers 
understand that this standard is not a check-the-box standard; 
it is a standard they need to internalize so that it governs 
all their dealings with and actions on behalf of customers.

Q.17. Reg BI states if ``a broker-dealer cannot fully and 
fairly disclose a conflict of interest,'' a broker-dealer 
``should eliminate the conflict or adequately mitigate the 
conflict,'' but it does not define what adequate mitigation 
looks like. \34\
---------------------------------------------------------------------------
     \34\ U.S. Securities and Exchange Commission, Federal Register 
Notice, ``Regulation Best Interest: The Broker-Dealer Standard of 
Conduct'', July 12, 2019, https://www.federalregister.gov/documents/
2019/07/12/2019-12164/regulation-best-interest-the-broker-dealer-
standard-of-conduct.
---------------------------------------------------------------------------
    Why did the SEC decline to define adequate mitigation in 
Reg BI?

A.17. I can only speak for myself. Mitigation is not a one-
size-fits-all tool. Rather, a broker-dealer needs to assess its 
conflicts and determine whether eliminating them is necessary 
or mitigation is possible. I wanted broker-dealers to have the 
flexibility to develop and tailor reasonably designed 
mitigation measures based on their circumstances, including 
size, the nature of their retail customer base, and the 
complexity of the recommended security or investment strategy. 
I also wanted broker-dealers to know that they cannot ``set it 
and forget it,'' but must review mitigation measures, in light 
of experience, to make sure they are still working.

Q.18. How do you define adequate mitigation?

A.18. In general, adequate mitigation means that the conflict 
of interest is reduced to ensure that the customer is 
protected, but what that means precisely differs along with the 
facts and circumstances. The adequacy of the mitigation depends 
on, for example, the size, retail customer base, nature and 
significance of the conflict, and complexity of the product. 
What is adequate in a small firm with a sophisticated retail 
investor base, for example, may not be adequate for a large 
firm with a wider range of retail customers. Some conflicts in 
some situations can be mitigated by disclosure, while in other 
situations additional measures--such as a surveillance program 
to monitor sales activity near compensation thresholds--might 
be necessary. Other measures that might adequately mitigate a 
conflict include (but are not limited to) minimizing 
compensation incentives that favor one product over another, 
avoiding compensation schemes in which an incremental increase 
in sales can disproportionately increase compensation, and 
tying compensation to appropriate management of conflicts of 
interest.

Q.19. In your view, what if any distinction exists between the 
``best interest'' standard of conduct set forth in the SEC rule 
and the ``suitability'' standard established by the Financial 
Industry Regulatory Authority that predated it? \35\
---------------------------------------------------------------------------
     \35\ Financial Industry Regulatory Authority, ``Suitability'', 
Accessed July 23, 2020, https://www.finra.org/rules-guidance/key-
topics/suitability.

A.19. Although the best interest standard contains elements of 
the suitability standard, it is a broader, more holistic 
standard. FINRA's suitability standard required broker-dealers, 
in making a recommendation, to ``have a reasonable basis to 
believe that a recommended transaction or investment strategy 
involving a security or securities is suitable for the 
customer, based on the information obtained through the 
reasonable diligence of the broker-dealer or associated person 
to ascertain the customer's investment profile.'' \36\ The best 
interest standard applies more broadly and imposes an 
overarching obligation for broker-dealers to act in the best 
interest of their retail customers and not place their own 
interest ahead of the retail customer's interest. Under the 
best interest standard, a broker-dealer must comply with four 
obligations--Disclosure, Care, Conflict of Interest, and 
Compliance--each of which has specific regulatory components.
---------------------------------------------------------------------------
     \36\ FINRA Rule 2111(a).

Q.20. In response to the SEC's proposal for Reg BI, a 
bipartisan group of 11 former SEC senior economists wrote in a 
comment, ``[w]e find it worrisome that the proposals' economic 
analysis does not fully consider some potentially important 
dimensions of the retail client-adviser relationship.'' \37\
---------------------------------------------------------------------------
     \37\ Carnegie Mellon University, ``Professor Chester Spatt 
Criticizes Proposed SEC Regulation'', press release, February 25, 2019, 
https://www.cmu.edu/tepper/news/stories/2019/february/chester-spatt-
sec-regulation.html.
---------------------------------------------------------------------------
    Do you believe the cost-benefit analysis that supports Reg 
BI was sufficient?

A.20. The economic analysis supporting the adoption of Reg BI 
was extensive. The Commission drew on comments received in 
response to the proposal to develop a more robust economic 
analysis in connection with the adoption of the rule. That 
analysis discusses more fully the potential problems associated 
with broker-dealers' provision of recommendations to retail 
customers, the economic literature on financial advice, and the 
effectiveness of the disclosure requirements of Regulation Best 
Interest. That said, any economic analysis of a prospective 
rule involves assumptions, uncertainties, and data gaps. Now 
that the rule has taken effect, we will have the opportunity to 
assess whether it is working as intended.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR CORTEZ MASTO FROM HESTER PEIRCE

Q.1. What are the personal and professional costs to 
whistleblowers that concern you? How can the SEC mitigate those 
concerns?

A.1. Whistleblowers have proven to be valuable contributors to 
our enforcement program. In order to come forward to us, a 
whistleblower may face personal and professional repercussions.
    Consequences for a whistleblower can include losing a job; 
reputational damage in the industry, which can make finding a 
new job difficult; suffering rejection by friends and 
colleagues; and threats or harassment. These consequences of 
whistleblowing concern me.
    Through our whistleblower program, we seek to both 
adequately reward meritorious whistleblowers and sufficiently 
incentivize future whistleblowers. Since the program started, 
the SEC had awarded approximately $505 million to 87 
whistleblowers. \1\ Whistleblower awards cannot compensate for 
all of these adverse consequences, but can make up for lost 
income--past and future. In addition, we provide a means for 
whistleblowers to come to us anonymously, which can reduce 
adverse consequences. The SEC can take legal action against 
employers who have retaliated against whistleblowers by 
discharging, demoting, suspending, harassing, or in any way 
discriminating against an employee who reported conduct that 
the employee reasonably believed violated the Federal 
securities laws. Our rules also prohibit actions taken to 
impede a whistleblower.
---------------------------------------------------------------------------
     \1\ SEC Issues $3.8 Million Whistleblower Award, SEC Press Release 
No. 2020-155 (July 14, 2020), available at https://www.sec.gov/news/
press-release/2020-155.

Q.2. How will including deferred prosecution agreements and 
nonprosecution agreements as ``actions'' ensure whistleblowers 
are not penalized as a result of the Government's decision to 
---------------------------------------------------------------------------
pursue a particular litigation strategy?

A.2. In a 2018 proposal to amend the whistleblower rules, the 
Commission proposed explicitly to include deferred prosecution 
agreements and nonprosecution agreements as actions to ensure 
that whistleblowers are not disadvantaged because of the 
particular form of action selected by the Commission, the 
Department of Justice, or a State attorney general. \2\ Under 
the proposed amendment, the Commission would be able to make 
award payments to whistleblowers based on money collected as a 
result of such DPAs and NPAs, as well as under settlement 
agreements entered into by the Commission outside of the 
context of a judicial or administrative proceeding to address 
violations of the securities laws. Explicitly including these 
actions could enhance our ability to compensate whistleblowers 
adequately for coming forward in situations when the Government 
does not proceed with a formal judicial or administrative 
proceeding.
---------------------------------------------------------------------------
     \2\ Amendments to the Commission's Whistleblower Program Rules, 
Exchange Act Release No. 83557 (June 29, 2018) [83 FR 34702, 34705 
(July 20, 2018)].

Q.3. Should the SEC ensure that legitimate and honest reports 
---------------------------------------------------------------------------
do not lead to retaliation for a whistleblower?

A.3. Yes, antiretaliation provisions are a central component of 
our whistleblower program. We protect whistleblowers from 
discharge, demotion, suspension, threats, harassment, and 
discrimination in the terms or conditions of employment. We 
have brought enforcement actions based on retaliatory conduct 
and based on actions taken to impede reporting. \3\
---------------------------------------------------------------------------
     \3\ See, e.g., Office of the Whistleblower, https://www.sec.gov/
whistleblower/retaliation#enforcement-actions.

Q.4. Will you ensure that whistleblower awards are paid out at 
the highest amount possible so that it matches or exceeds the 
---------------------------------------------------------------------------
overall costs to whistleblowing?

A.4. I have been very supportive of the whistleblower program 
and will continue to seek to ensure, consistent with the 
statutory authorization, that whistleblowers receive awards 
that adequately compensate them. Section 21F of the Exchange 
Act authorizes the SEC to make monetary awards to eligible 
individuals who voluntarily provide original information that 
leads to successful SEC enforcement actions resulting in 
monetary sanctions over $1 million and successful related 
actions. Awards must be made in an amount equal to 10 to 30 
percent of the monetary sanctions collected. In voting on 
awards within these ranges, I take into account the criteria 
set forth in the statute and our rules, including the unique 
hardships the whistleblower endured as a result of being a 
whistleblower.

Q.5. What is the SEC doing to increase shareholder voting and 
participation? How is the SEC ensuring votes are accurately 
tabulated?

A.5. The SEC is undertaking a broad review of the proxy voting 
process in order to ensure that shareholders are able to engage 
with corporations, vote, and have confidence that their votes 
are counted. These efforts began with a 2010 concept release on 
the proxy system \4\ and a roundtable in 2018. \5\ Because many 
retail investors hold their shares through funds or otherwise 
delegate their voting authority, the SEC issued guidance to 
remind investment advisers that, when they exercise voting 
authority on behalf of a client, they have a fiduciary duty to 
vote the shares consistent with the client's objectives. \6\ In 
addition, last week, the SEC adopted rule changes to ensure 
that investors and others who vote on their behalf receive more 
transparent, accurate, and complete proxy voting advice. \7\ 
Following the proxy roundtable, staff in the SEC's Division of 
Corporation Finance have been working with participants in the 
proxy voting process to generate ideas about improving the 
voting process and ensuring that it accurately captures 
shareholders' votes. New technologies, including blockchain, 
might be helpful in this regard. Rulemakings regarding proxy 
plumbing, modernization of the shareholder proposal process, 
and universal proxy are on our short-term agenda. \8\ Finally, 
our Office of Investor Advocate and Office of Investor 
Education and Advocacy engage with investors across the country 
on issues regarding voting. \9\
---------------------------------------------------------------------------
     \4\ Concept Release on the U.S. Proxy System, Release No. 34-62495 
(Jul. 14, 2010) [75 FR 42982 (July 22, 2010)].
     \5\ Roundtable on the Proxy Process (Nov. 15, 2018), available at 
https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf.
     \6\ ``Commission Guidance Regarding Proxy Voting Responsibilities 
of Investment Advisers'', Release No. IA5325 (Aug. 21, 2019), [84 FR 
47420 (Sept. 10, 2019)].
     \7\ Exemptions from Proxy Rules for Proxy Voting Advice, Release 
No. 34-89372 (July 22, 2020), available at https://www.sec.gov/rules/
final/2020/34-89372.pdf.
     \8\ See https://www.reginfo.gov/public/do/
eAgendaViewRule?pubId=202004&RIN=3235-AM16, https://www.reginfo.gov/
public/do/eAgendaViewRule?pubId=202004&RIN=3235-AL84, and https://
www.reginfo.gov/public/do/eAgendaViewRule?pubId=202004&RIN=3235-AM49.
     \9\ See, e.g., SEC, ``What Are the Mechanics of Voting Either in 
Person or by Proxy?'', https://www.investor.gov/what-are-mechanics-
voting-either-person-or-proxy.

Q.6. How will you ensure that entities you oversee consider the 
impact of increasingly severe storms, floods, and fires on 
their firms? How will you ensure corporations are adequately 
planning and accounting for widespread and potentially costly 
damage to property serving as collateral for loans or to assets 
---------------------------------------------------------------------------
underpinning other investments?

A.6. The entities we regulate, such as broker-dealers, 
investment advisers, stock exchanges, and clearing agencies, 
have business continuity plans in place to deal with natural 
disasters. These business continuity plans are one thing our 
Office of Compliance Inspections and Examinations looks at in 
its exams. \10\ Registrants' business continuity plans have 
been tested recently in events like Hurricane Sandy and the 
ongoing COVID-19 crisis. While we lack authority to require 
issuers of securities to mitigate risks that they may face from 
severe weather or other events, we do require them to assess 
and disclose to investors material information, including the 
risks they face, including risks to their property and other 
assets. Indeed, the Commission provided guidance on this topic 
in 2010 to remind registrants that are vulnerable to severe 
weather events to consider the need to disclose material risks 
of or consequences from such events in their publicly filed 
disclosure documents. \11\
---------------------------------------------------------------------------
     \10\ ``SEC Examinations of Business Continuity Plans of Certain 
Advisers Following Operational Disruptions Caused by Weather-Related 
Events Last Year'' (Aug. 27, 2013), available at https://www.sec.gov/
about/offices/ocie/business-continuity-plans-risk-alert.pdf.
     \11\ See, e.g., ``Commission Guidance Regarding Disclosure Related 
to Climate Change'' (Feb. 2, 2010), available at https://www.sec.gov/
rules/interp/2010/33-9106.pdf.

Q.7. Do you think corporate disclosure of climate change risks 
is adequate to inform investors of the economic and corporate 
---------------------------------------------------------------------------
resilience to climate change?

A.7. Our principles-based disclosure regime is generally 
effective at producing disclosure that is material to 
investors. Climate change risks are not uniform across 
companies, and assessments of those risks are based on 
assumptions and models that are not static. Thus, corporate 
disclosure is likely to change and improve over time as 
underlying assumptions, scientific understanding, and modeling 
techniques improve. As with many other risks companies face, 
our principles-based disclosure regime is intended to 
facilitate dynamic, company-specific disclosure that reflects 
management's analysis of risks.

Q.8. What are the environmental transition risks for 
corporations? What costs can they be expected to incur as the 
world works to reduce its carbon footprint to mitigate global 
warming?

A.8. Transition risks differ vastly across industries, and over 
time these risks may change. For example, energy companies face 
risks and opportunities from Government policy that favors or 
disfavors certain types of energy. Other companies may see 
their energy, travel, and building costs rise in response to 
Government regulation of carbon emissions. Still other 
companies may find that regulation prevents them from 
conducting or funding research and development on the most 
promising innovations. Our principles-based disclosure regime 
is designed to elicit disclosure from companies that reflects 
management's understanding of the unique risks and 
opportunities they face based on their unique facts and 
circumstances, including the regulatory frameworks within which 
they operate.

Q.9. How can the SEC promote a long-term focus among publicly 
traded companies?

A.9. The SEC can best achieve the objective of ensuring that 
public companies focus on long-term value maximization by 
resisting efforts to dilute the fiduciary obligations of 
corporate managers and directors. Corporate governance, which 
plays an important role in determining whether companies have a 
long-term focus, is primarily a matter of State law. 
Nevertheless, the SEC's disclosure mandates, when designed to 
meet the needs of constituencies other than investors, can have 
the effect of diverting management and board attention from 
long-term value creation. The SEC can avoid this problem by 
focusing on getting investors information that is material to 
them. The SEC also is considering whether changes to its 
quarterly reporting regime would help to mitigate concerns 
about a short-term focus by public companies. \12\ This effort 
follows a roundtable the SEC's Division of Corporation Finance 
hosted last year on the topic of ``Short-Term/Long-Term 
Management of Public Companies.'' \13\
---------------------------------------------------------------------------
     \12\ See, ``Request for Comment on Earnings Releases and Quarterly 
Reports'', https://www.sec.gov/rules/other/2018/33-10588.pdf (Dec. 18, 
2018) (``Some have suggested that the practice of providing quarterly 
forward-looking earnings guidance creates an undue focus on short-term 
financial results and thereby negatively affects the ability of 
companies to focus on long-term results. Is this the case and, if so, 
are there changes we could make to our rules that would discourage this 
practice or address this concern?''). See also https://www.reginfo.gov/
public/do/eAgendaViewRule?pubId=202004&RIN=3235-AM40.
     \13\ Roundtable on Short-Term/Long-Term Management of Public 
Companies (July 18, 2019), available at https://www.sec.gov/video/
webcast-archive-player.shtml?document-id=roundtable-short-long-term-
071819.

Q.10. Please explain why you did not approve monetary penalties 
or industry bans for individuals who were subject to an 
---------------------------------------------------------------------------
enforcement action in the first 6 months of 2020?

A.10. The following table sets forth votes made public in the 
first six months of 2020 in which I did not vote in support of 
a monetary penalty or industry bar against an individual.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR MENENDEZ FROM CAROLINE CRENSHAW

Q.1. In its postmortem of the financial crisis, the Financial 
Crisis Inquiry Commission concluded that ``compensation 
structures were skewed all along the mortgage securitization 
chain, from people who originated mortgages to people on Wall 
Street who packaged them into securities.''
    What is your view on the impact of incentive-based 
compensation structures in the years leading up to the 
financial crisis?

A.1. There is little doubt that banker-pay practices encouraged 
excessive risk taking that contributed to the financial crisis. 
Bonuses allowed bankers to capture the upsides of excessive 
risk-taking but shielded them from the downside, incentivizing 
executives to take on more risk than was optimal for the 
companies or the economy. In particular, research has shown 
that bankers sold billions of dollars in stock awards during 
good times, leaving ordinary investors and taxpayers holding 
the bag when their firms collapsed. See Lucian A. Bebchuk, Alma 
Cohen, and Holger Spamann, ``The Wages of Failure: Executive 
Compensation at Bear Stearns and Lehman 2000-2008, Yale J. on 
Reg., at 257 (2010).

Q.2. If confirmed as Commissioner, would you push the SEC to 
finish the incentive-based compensation rule required by Dodd-
Frank?

A.2. Yes. As I indicated during the hearing, one of my 
priorities would be to complete the Dodd-Frank executive 
compensation rules, and rules reining in banker-bonus practices 
that put our financial system at risk should be a high 
priority. If confirmed, I would make every effort to move this 
rule forward.

Q.3. If so, what you think this rule should look like?

A.3. I want to be careful to avoid prejudging any matters that 
might come before me if confirmed. With that in mind, I think 
rules related to banker bonuses should address at least three 
issues.
    First, these rules should prohibit bonus structures that 
encourage excessive risk-taking, and in particular should 
address payment of significant cash bonuses on the basis of 
short-term performance measures for activities related to long-
term risk taking. One way to address this would be to require 
deferral periods during which bankers cannot cash out their 
bonuses until the long-run consequences of their decisions can 
be better understood by the banks and their regulators.
    Second, the rule should require firms to claw back bonuses 
that executives did not earn in light of long-run performance 
measures. Regulators and firms must be able to assess bankers' 
performance over the long run--and require the return of any 
compensation executives did not truly earn--if we are to avoid 
excessive short-term risk taking.
    Third, these rules should address pay practices not just 
for top executives, but for any bankers whose activities could 
put America's financial stability at risk. The crisis showed 
that even nonexecutives at our largest financial institutions 
can take risks with disastrous consequences for ordinary 
Americans. Any rules in this area should prohibit those 
bankers, too, from being paid for short-run performance while 
leaving taxpayers holding the bag for the long-run consequences 
of those choices. If confirmed, I will urge the Commission and 
other regulators to ensure that these rules are adopted--and 
change the banker pay practices that put our financial 
stability at risk.

Q.4. Since the start of the COVID pandemic, there has been a 
sharp increase in scams linked to the coronavirus pandemic. The 
number of claims relating to treatments, therapies and 
equipment that promise big investor returns, has already led 
the SEC to temporarily halt trading in the shares of more than 
30 companies in an effort to protect investors.
    In addition to stopping trading in shares of more than 30 
companies and establishing a coronavirus steering committee, 
what other steps do you believe the SEC needs to take to 
protect investors from scams?

A.4. While I have been impressed with the Commission's response 
to the issues COVID presents to the health and integrity of the 
markets, there is more to do.
    First, the Commission should aggressively educate retail 
investors, particularly on solicitations for fraudulent 
investment products offered through social media platforms.
    Second, the Commission should devote significant effort and 
resources to penalizing those who prey on individuals during a 
pandemic when people are particularly vulnerable. And, as 
necessary, the Commission should work with Congress to assess 
whether the penalties for these frauds are calibrated optimally 
to deter them.
    Third, the Commission must work hand in glove with law 
enforcement to ensure that any criminal conduct is fully 
prosecuted. As always, the staff within the Division of 
Enforcement have been doing excellent work under the current 
conditions, and, if confirmed, I would look forward to 
supporting their work.

Q.5. Are Main Street investors, investors whose savings are 
their investment capital, more vulnerable to COVID related 
scams? If so, what measures does the SEC specifically need to 
take to protect the Main Street investor?

A.5. Every investor--from the most sophisticated institutional 
investor to the young family building its nest egg--is entitled 
to the protections provided by the Commission. However, certain 
groups are more vulnerable than others. For example, members of 
the military and the elderly are often the targets of Ponzi 
schemes and other frauds that have become endemic during this 
crisis.
    It is imperative the Commission devote resources to 
protecting those who are most vulnerable. To prevent fraud, the 
Commission should prioritize investor education and advocacy--
give investors the tools to stop the fraud before it starts. To 
deter fraud, the Commission should quickly and decisively 
penalize perpetrators. Also, as noted above, the Commission 
should work with Congress to assess whether the penalties for 
these frauds are calibrated optimally. Finally, it is critical 
that the Commission partner with FINRA, other Federal agencies, 
and State regulators to ensure comprehensive oversight and 
enforcement.

Q.6. As national protests continue in the wake of the deaths of 
George Floyd and Breonna Taylor, Americans continue to demand 
justice and reforms to address systemic racism in all facets of 
our country, including in Corporate America. I was originally 
hopeful that the SEC would help address the corporate diversity 
problem through its 2009 diversity disclosure rule. 
Unfortunately, the 2009 rule failed to even define 
``diversity'' and it gives companies far too much discretion on 
what they report.
    Ms. Crenshaw, can investors have a full understanding of 
corporate diversity if only 3.2 percent of Fortune 500 
companies release complete data on race and gender of their 
employees?

A.6. No. Existing disclosures are insufficient to give 
investors an accurate picture of board and workforce diversity. 
If confirmed, I would urge the Commission to consider the 
following policy initiatives.
    First, the Commission should revise the 2009 diversity 
disclosure rule. See Securities and Exchange Commission, Proxy 
Disclosure Enhancements (Feb. 28, 2009). The reason it should 
do this is simple: the evidence suggests that companies are not 
providing investors with the information they need. See, e.g., 
Anne Simpson, California Public Employees Retirement System et 
al., ``Petition for Amendment of Proxy Rule Regarding Board 
Nominee Disclosure-Chart/Matrix Approach'', (Mar. 31, 2015).
    Though Commission staff have taken steps to encourage 
companies to provide details on diversity when making board 
composition decisions, this is not enough. See Securities and 
Exchange Commission, Regulation S-K Compliance & Disclosure 
Interpretations 116.11 and 133.13 (updated Feb. 6, 2019). 
Moving forward, the Commission should undertake a comprehensive 
review that can and should engage corporate constituents and 
investors from a variety of backgrounds to define ``diversity'' 
and include the definition in a more effective diversity 
disclosure rule.
    Second, the Commission should work with fellow regulators 
to reconsider the Final Interagency Policy Statement 
Establishing Joint Standards for Assessing the Diversity 
Policies and Practices of the Entities Regulated by the 
Agencies. See Securities and Exchange Commission, et al., Final 
Interagency Policy Statement Establishing Joint Standards for 
Assessing the Diversity Policies and Practices of the Entities 
Regulated by the Agencies (Jun. 10, 2015). This Policy 
Statement set forth standards that an entity could voluntarily 
use to assess diversity policies and practices. The Commission 
should work to ensure that, across the board, companies and 
registered entities are disclosing the information necessary 
for investors and customers to make informed decisions about 
diversity practices.
    Third, without prejudging a rule that may come before me if 
I am confirmed, I generally support the disclosure of workforce 
diversity data, including data on race and gender, in human 
capital disclosures. As comment letters have indicated, such 
disclosures need not be financially burdensome and can provide 
investors with information that enhances insights into the 
long-term financial performance of a company. See, e.g., Human 
Capital Management Coalition, Comment Letter on Proposed Rule 
Modernization of Regulation S-K Items 101, 103, and 105 (Aug. 
8, 2019).

Q.7. Does enhanced transparency lead to greater diversity among 
corporate board members and senior management?

A.7. It is critical to give investors the information they need 
in order to make a fully informed decision and appropriately 
allocate their capital. Investors have made clear that data on 
board and management diversity is important to their decisions. 
Armed with accessible, comparable, and straightforward 
disclosures, investors can choose to stay put, advocate change, 
or exit a company and allocate their capital elsewhere. While 
enhanced transparency is certainly necessary to increase 
diversity among corporate board members and senior management, 
it is not sufficient.
    The Commission should therefore be thinking about other 
avenues to encourage diversity. One example is to increase the 
budget and staff of the Commission's Office of Minority and 
Women Inclusion and Office of Investor Education and Advocacy 
so the excellent staff in those offices can effectively educate 
investors and students of all ages to increase financial 
literacy, promote a diverse talent pipeline, and solicit public 
comment on diversity and inclusion best practices. The 
Commission should also think through ways it can encourage 
companies to identify and change entrenched organizational 
structures and work practices that, even if inadvertently, 
operate to discourage diversity.
    It is crucial for both the Commission and companies to 
recognize and promote the benefits of having diverse and 
inclusive boards, management, and workforces. The Commission 
should lead by example and, if confirmed, I will invest my time 
and resources to ensure the agency is setting the appropriate 
tone.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM CAROLINE CRENSHAW

Q.1. Private Equity--Last year, I introduced S. 2155, the Stop 
Wall Street Looting Act of 2019, to reform the private equity 
industry and end abusive leveraged buyouts. \1\
---------------------------------------------------------------------------
     \1\ Office of Senator Warren, ``Warren, Baldwin, Brown, Pocan, 
Jayapal, Colleagues Unveil Bold Legislation to Fundamentally Reform the 
Private Equity Industry'', July 18, 2019, https://
www.warren.senate.gov/newsroom/press-releases/warren-baldwin-brown-
pocan-jayapal-colleagues-unveil-bold-legislation-to-fundamentally-
reform-the-private-equity-industry.
---------------------------------------------------------------------------
    Private equity transactions are fueled by risky loans that 
are immediately securitized and sold. \2\ A provision in my 
bill would help protect the economy from risks stemming from 
excessive debt imposed on private equity firms' target 
companies. It would require arrangers of corporate loan 
securitizations to retain risk by clarifying that managers of 
collateralized debt obligations are subject to risk retention 
requirements established in the Dodd-Frank Wall Street Reform 
and Consumer Protection Act. \3\
---------------------------------------------------------------------------
     \2\ Washington Post, ``The Shadow Banks Are Back With Another Big 
Bad Credit Bubble'', Steven Pearlstein, May 31, 2019, https://
www.washingtonpost.com/business/economy/the-shadow-banks-are-back-with-
another-big-bad-credit-bubble/2019/05/31/a05184de-817a-11e9-95a9-
e2c830afe24f_story.html.
     \3\ Securities and Exchange Commission, ``Asset-Backed 
Securities'', October 23, 2014, https://www.sec.gov/spotlight/dodd-
frank/assetbackedsecurities.shtml.
---------------------------------------------------------------------------
    Do you believe that arrangers of corporate loan 
securitizations should retain risk to prevent dangerous loans 
that are immediately passed onto unknowing investors?

A.1. Yes. It is critical that the Commission consider measures 
that would better align the incentives of the loan arrangers 
with those of investors. Ensuring that arrangers of corporate 
loan securitizations retain risk would be an important step 
toward aligning those incentives.
    Traditional standards that have long provided investors 
protections in this market have deteriorated. Specifically, 
lending standards, underwriting diligence, and contractual 
covenants--key protective measures related to debt 
instruments--have been diminished. Meanwhile, in the current 
low-interest rate environment, investors seek yield with less 
focus on lending standards.
    As a result, the arrangers of corporate loan 
securitizations may be incentivized to shift riskier debt 
instruments to other investors, who are often less 
sophisticated and have fewer avenues for recourse. This could 
increase market instability and leave retail investors holding 
the bag.

Q.2. Leveraged Lending--In November 2018, I sent a letter to 
SEC Chairman Clayton, Treasury Secretary Steven Mnuchin, 
Federal Reserve Chairman Jerome Powell, then-Comptroller of the 
Currency Joseph Otting, and Federal Deposit Insurance 
Corporation Chairman Jelena McWilliams expressing concern about 
the rapid growth of leveraged corporate lending, or lending to 
companies that are already highly indebted. \4\
---------------------------------------------------------------------------
     \4\ Letter from Senator Warren to Treasury Secretary Steven 
Mnuchin, Federal Reserve Chairman Jerome Powell, Comptroller of the 
Currency Joseph Otting, Securities and Exchange Commission Chairman Jay 
Clayton, and Federal Deposit Insurance Corporation Chairman Jelena 
McWilliams, November 14, 2018, https://www.warren.senate.gov/imo/media/
doc/2018.11.14%20Letter%20to%20Regulatorhttps://www.sec.gov/spotlight/
dodd-frank/assetbackedsecurities.shtmls%20on%20Leveraged%20Lending.pdf.
---------------------------------------------------------------------------
    In a section addressed to Chairman Clayton, I stated that 
the Volcker Rule is intended to restrict bank involvement with 
external funds and that trade associations have asked the SEC 
to significantly loosen Volcker Rule controls. The SEC 
completed its rollbacks of the Volcker Rule in September 2019. 
\5\ In response to the rollback of the Volcker Rule, SEC 
Commissioner Robert J. Jackson, Jr., stated, ``as I said at the 
proposal stage, `[r]olling back the Volcker Rule while failing 
to address pay practices that allow bankers to profit from 
proprietary trading puts American investors, taxpayers, and 
markets at risk.' '' \6\
---------------------------------------------------------------------------
     \5\ U.S. Securities and Exchange Commission, ``Statement on 
Volcker Rule Amendments'', Public Statement by Commissioner Robert J. 
Jackson, Jr., September 19, 2019, https://www.sec.gov/news/public-
statement/statement-jackson-091919.
     \6\ U.S. Securities and Exchange Commission, ``Statement on 
Volcker Rule Amendments'', Public Statement by Commissioner Robert J. 
Jackson, Jr., September 19, 2019, https://www.sec.gov/news/public-
statement/statement-jackson-091919.
---------------------------------------------------------------------------
    Chairman Clayton's January response provided a procedural, 
but not a substantive, explanation of the status of SEC's 
proposed amendments to the Volcker Rule. \7\ How do you view 
the SEC's rationale for removing protections against excessive 
risks under the Volcker Rule?
---------------------------------------------------------------------------
     \7\ Letter from Securities and Exchange Commission Chairman Jay 
Clayton to Senator Warren, January 31, 2019.

A.2. The Commission needs to do all that it can to safeguard 
the financial system. Like Commissioner Jackson, I am 
unconvinced that eliminating key investor protections was 
appropriately justified by the analysis in the September 2019 
revisions to the Volcker rule. The release based its changes on 
the supposed decline of ``liquidity and capital formation.'' 
Yet, the Commission's Division of Economic and Risk Analysis 
did not find that the Volcker rule reduced the liquidity of the 
primary or secondary markets. See Sec. & Exch. Comm'n, Div. of 
Econ. & Risk Analysis, ``Report to Congress on Access to 
Capital and Market Liquidity'' (2017). Accordingly, I too worry 
that we are putting American investors, taxpayers, and markets 
---------------------------------------------------------------------------
at risk.

Q.3. Inflated Bond Ratings--In September, I wrote Chairman 
Clayton a letter regarding troubling reports of inflated bond 
ratings and the perverse incentives within the bond rating 
industry and urged the SEC to take immediate action to protect 
the economy from risky lending propped up by conflicts of 
interest between bond issuers and rating agencies.
    My letter described the flows in the incentive structures 
of bond ratings firms' through the ``issuer-pays'' model used 
by major firms like S&P and Moody's. Under the issuer-pays 
model, bond issuers pay the agencies for their assessments of 
the products they hope to sell, ultimately giving the rating 
firms an incentive to give better ratings, regardless of the 
risk, since bond issuers might otherwise go to their 
competitors. \8\ In his November response, Chairman Clayton 
stated that he shared my concerns about conflicts of interest 
in rating agency compensation models and said that he is 
awaiting recommendations or advice from various advisory 
committees. \9\
---------------------------------------------------------------------------
     \8\ Council on Foreign Relations, ``The Credit Rating 
Controversy'', CFR Staff, February 19, 2015, https://www.cfr.org/
backgrounder/credit-rating-controversy.
     \9\ Letter from Securities and Exchange Commission Chairman Jay 
Clayton to Senator Warren, November 21, 2019.
---------------------------------------------------------------------------
    To your knowledge, has the SEC instructed the advisory 
committees that the SEC is consulting for recommendations or 
advice on the role and activities of bond rating agencies to 
produce any work products by a certain date or timeline?

A.3. I do not know whether the Commission has instructed the 
advisory committees to provide recommendations or advice on the 
role and activities of bond rating agencies within any certain 
date or timeline. However, if confirmed, I would strongly 
support encouraging those committees to turn their attention to 
this important issue.

Q.4. If so, please explain the SEC's instructions and any 
requested deadlines. Additionally, please explain if these 
recommendations or advice will be made public.

A.4. I do not know whether any instructions were given to the 
advisory committees regarding a specific timeline. However, I 
do know that formal recommendations, once they have been 
approved by the committee, are made public on the Commission's 
website. The Fixed Income Market Structure Advisory Committee 
released a recommendation on June 1, 2020, on ways to mitigate 
conflicts of interest in credit ratings. See, Sec. & Exch. 
Comm'n, ``Fixed Income Market Structure Advisory Comm., 
Recommendation Regarding Ways To Mitigate Conflicts of Interest 
in Credit Ratings'' (2020).

Q.5. If not, if you are confirmed, how will you work to ensure 
that the SEC instructs these advisory committees to complete 
their work products by a certain deadline and how will you 
ensure that these recommendations or advice are made public?

A.5. It is important for the Commission's advisory committees 
to work in a timely and transparent way. If confirmed, I would 
work with staff and fellow Commissioners to make sure they do 
just that.

Q.6. Chairman Clayton's response also referenced some work that 
the SEC has done to respond to the conflicts of interest in the 
issuer-pays model. \10\ An August Wall Street Journal report, 
however, stated that ``Inflated bond ratings were one cause of 
the financial crisis. A decade later, there is evidence they 
persist. In the hottest parts of the booming bond market, S&P 
and its competitors are giving increasingly optimistic ratings 
as they fight for market share.'' \11\
---------------------------------------------------------------------------
     \10\ Id.
     \11\ Wall Street Journal, ``Inflated Bond Ratings Helped Spur the 
Financial Crisis. They're Back.'', Cezary Podkul and Gunjan Banerji, 
August 7, 2019, https://www.wsj.com/articles/inflated-bond-ratings-
helped-spur-the-financial-crisis-theyre-back-11565194951.
---------------------------------------------------------------------------
    In your view, why has the SEC's efforts to respond to the 
conflicts of interest have failed to prevent bond rating 
agencies from artificially inflating bond ratings?

A.6. The issuer-pays model continues to create perverse 
incentives to inflate ratings. Current Commission protections, 
such as the segregation of marketing and sales personnel from 
the credit rating determination process, are not effectively 
addressing this inherent conflict of interest. If confirmed, I 
would support a fundamental rethinking of the issuer-pay model.

Q.7. Climate Risk Disclosure--In July, Representative Sean 
Casten (D-IL-06) and I introduced H.R. 3623/S. 2017, the 
Climate Risk Disclosure Act of 2019. \12\ Our bill would 
address the fact that investors currently lack access to basic 
information about the potential impact of the climate crisis on 
American companies, which creates significant environmental and 
financial risks. The Climate Risk Disclosure Act of 2019 would 
require public companies to include uniform information about 
their exposure to climate-related risks, which will help 
investors appropriately assess those risks, among other 
benefits, in their disclosures to the SEC.
---------------------------------------------------------------------------
     \12\ Office of Senator Warren, ``Senator Warren, Representative 
Casten Lead Colleagues Introducing a Bill To Require Every Public 
Company To Disclose Climate-Related Risks'', press release, July 10, 
2019, https://www.warren.senate.gov/newsroom/press-releases/senator-
warren-representative-casten-lead-colleagues-introducing-a-bill-to-
require-every-public-company-to-disclose-climate-related-risks.
---------------------------------------------------------------------------
    The most recent volume of the National Climate Assessment, 
a scientific report issued by 13 Federal agencies in November 
2018, stated that climate change may cause losses of up to 10 
percent of the U.S. economy by 2100. \13\ Additionally, a 2015 
report from The Economist Intelligence Unit wrote that, of the 
world's current stock of manageable assets, the expected losses 
due to climate change are valued at $4.2 trillion by the end of 
the century. \14\
---------------------------------------------------------------------------
     \13\ New York Times, ``U.S. Climate Report Warns of Damaged 
Environment and Shrinking Economy'', Coral Davenport and Kendra Pierre-
Louis, November, 23, 2018, https://www.nytimes.com/2018/11/23/climate/
us-climate-report.html.
     \14\ The Economist Intelligence Unit, ``The Cost of Inaction'', 
2015, p. 41, https://eiuperspectives.economist.com/sites/default/files/
The%20cost%20of%20inaction_0.pdf.
---------------------------------------------------------------------------
    Do you believe that understanding which assets of public 
companies may be materially affected by climate change may help 
investors make more informed decisions about the risk of their 
investments?

A.7. Yes. Climate change will impact every part of the American 
economy, and it is critical that we understand how public 
companies will be affected by these changes. A wealth of 
evidence suggests that climate-related factors are financially 
material. See, e.g., Vanguard, Investment Stewardship Annual 
Report (2017) (``[O]ur position on climate risk is anchored in 
long-term economic value--not ideology.''); California State 
Teachers' Retirement System, Comment Letter on Concept Release 
Business and Financial Disclosure Required by Regulation S-K 
(July 21, 2016) (citing data that ``strongly supports the need 
for internal investment staff and our external managers to 
consider ESG risks of a portfolio company in its evaluation and 
allocation of capital'').
    The Commission can and should do more in this area, 
particularly on measuring companies' sustainability profiles. 
If confirmed, I would urge the Commission to ensure that 
investors have the highest-quality information about how 
America's public companies may be affected by climate change 
risks.

Q.8. Do you believe it would be useful for investors to 
understand public companies' contributions to greenhouse gas 
emissions and their exposure in the event of a Government- or 
market-mandated transition towards a lower-carbon economy?

A.8. Yes. In recent years we have witnessed investors of all 
stripes demanding climate-risk disclosures--including 
companies' contributions and exposures to climate change risks. 
For example, over the past several years shareholders 
representing trillions of dollars have submitted requests to 
the Commission for enhanced disclosure of climate-related 
risks. See Jill E. Fisch et al., ``Comments on Request for 
Rulemaking on Environmental, Social, and Governance (ESG) 
Disclosure'', (Oct. 1, 2018) (``In recent years, there have 
been a number of significant petitions and other investor 
proposals seeking expanded disclosure of ESG information.'').
    This proxy season, climate risk was, again, the most common 
shareholder proposal and received historic levels of support. 
It is an essential part of the Commission's mission to make 
sure that its rules evolve so that investors have the 
information they need in order to evaluate the companies that 
they own. If confirmed, I would urge the Commission to ensure 
that the Commission's disclosure rules in this area keep pace 
with investors' needs.

Q.9. If so, if you are confirmed, how will you work to ensure 
that the SEC ensures that investors have the information they 
need to consider climate-related risks?

A.9. The Commission last visited disclosure in this area a 
decade ago. See Securities and Exchange Commission, ``Guidance 
Regarding Disclosure Related to Climate Change'' (Feb. 8, 
2010). The risks from climate change to our markets have only 
intensified since then--and will continue to do so. Yet, the 
Commission's rules have not kept up with these changes.
    If confirmed, I would urge the Commission first and 
foremost to update our guidance in this area. Second, I would 
work to ensure that investors have high-quality information on 
how money managers vote their shares on proposals relating to 
climate risks. Finally, I would want to make sure that our 
rules help investors get what they bargain for when they select 
a fund with a sustainability strategy and that those funds are 
appropriately classified and their strategies clearly 
disclosed. If confirmed, I look forward to working with my 
fellow Commissioners and the staff to ensure that Commission's 
rules across the board--and especially when it comes to the 
environmental crisis we are facing--keep pace with investors' 
needs.

Q.10. A Government Accountability Office (GAO) report from 
February 2018 states, ``[Securities and Exchange Commission 
(SEC)] reviewers may not have access to the detailed 
information that companies use to arrive at their determination 
of whether risks, including climate-related risks, must be 
disclosed in their SEC filings.'' \15\ While the SEC has issued 
guidance for considering effects of climate change, the SEC has 
not mandated disclosures for how climate risk materially 
affects returns.
---------------------------------------------------------------------------
     \15\ Government Accountability Office, ``Climate-related Risks'', 
February 2018, pp. 17-18, https://www.gao.gov/assets/700/690197.pdf.
---------------------------------------------------------------------------
    If Federal regulators do not have the information needed to 
fully understand public companies' climate-related risks under 
current law, do investors have the adequate information needed 
to make informed decisions about companies' risks?

A.10. No. As you noted, the Commission has long required the 
disclosure of material environmental risks and in 2010, set 
forth guidance regarding climate change. See Securities and 
Exchange Commission, ``Guidance Regarding Disclosure Related to 
Climate Change'' (Feb. 8, 2010). The result has been 
disclosures that are inconsistent, unduly complex, and lacking 
in comparability and quantification--undermining investors' 
ability to evaluate climate-related risks. Accordingly, I share 
your concern that existing rules and guidance on this issue 
have proved inadequate. This is the type of information 
asymmetry that our securities regulatory regime was designed to 
remedy. If confirmed, I would urge the Commission to ensure 
that its disclosure rules are giving investors sufficient 
information to evaluate companies' climate-related risks.

Q.11. Regulation Best Interest (Reg BI)--In June 2019, SEC 
approved Reg BI, which despite Congress's instruction in 
sections 913(f) and 913(g) of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act establishes neither a uniform 
standard for broker-dealers and investment advisers, nor a 
fiduciary standard for broker-dealers. \16\ Then-Commissioner 
Robert J. Jackson, Jr., described the rule as ``a muddled 
standard that exposes millions of Americans to the costs of 
conflicted advice.'' \17\ Reg BI includes no obligation to 
eliminate conflicts of interest. The SEC clearly stated, ``we 
are not requiring broker-dealers to develop policies and 
procedures to disclose and mitigate all conflicts of 
interest.'' \18\ Instead, Reg BI imposes a limited requirement 
to disclose conflicts.
---------------------------------------------------------------------------
     \16\ U.S. Securities and Exchange Commission, ``SEC Adopts Rules 
and Interpretations To Enhance Protections and Preserve Choice for 
Retail Investors in Their Relationships With Financial Professionals'', 
press release, June 5, 2019, https://www.sec.gov/news/press-release/
2019-89.
     \17\ U.S. Securities and Exchange Commission, ``Statement on Final 
Rules Governing Investment Advice'', Public Statement by Commissioner 
Robert J. Jackson, Jr., June 5, 2018, https://www.sec.gov/news/public-
statement/statement-jackson-060519-iabd.
     \18\ U.S. Securities and Exchange Commission, Federal Register 
Final Rule, ``Regulation Best Interest: The Broker-Dealer Standard of 
Conduct'', July 12, 2019, pp. 33388, https://www.govinfo.gov/content/
pkg/FR-2019-07-12/pdf/2019-12164.pdf.
---------------------------------------------------------------------------
    In response to Senator Brown's question regarding Reg BI 
enforcement, you stated, ``I think it is critical that the SEC 
work [to] drive successful compliance of this rule. That means. 
working with firms to make sure that their policies and 
procedures are appropriate to mitigate conflicts of interest, 
and to the degree they're not, we have to be willing to hold 
those firms accountable when they are not appropriately 
mitigating conflicts of interest.'' \19\ You also stated, ``we 
need to make sure over time that rules are actually changing 
the status quo for investors.'' \20\
---------------------------------------------------------------------------
     \19\ Senate Committee on Banking, Housing, and Urban Affairs, 
``Nomination Hearing'', July 21, 2020, https://www.banking.senate.gov/
hearings/07/10/2020/nomination-hearing.
     \20\ Id.
---------------------------------------------------------------------------
    Reg BI states if ``a broker-dealer cannot fully and fairly 
disclose a conflict of interest,'' a broker-dealer ``should 
eliminate the conflict or adequately mitigate the conflict,'' 
but it does not define what adequate mitigation looks like. 
\21\
---------------------------------------------------------------------------
     \21\ U.S. Securities and Exchange Commission, Federal Register 
Notice, ``Regulation Best Interest: The Broker-Dealer Standard of 
Conduct'', July 12, 2019, https://www.federalregister.gov/documents/
2019/07/12/2019-12164/regulation-best-interest-the-broker-dealer-
standard-of-conduct.
---------------------------------------------------------------------------
    If confirmed, how will you define adequate mitigation?

A.11. Those advising American families how to prepare for their 
financial futures should not get paid to give bad advice. Thus, 
at a minimum, adequate mitigation must ensure that financial 
professionals' incentives are aligned with those of the 
investors they purport to serve. As currently drafted, 
Regulation Best Interest does not provide sufficient clarity in 
this regard. If confirmed, I would work with my fellow 
Commissioners and staff to ensure that the mitigation 
requirement has real teeth.

Q.12. The SEC rule left ``best interest,'' the key term that 
describes the standard of conduct for broker-dealers, 
undefined. \22\
---------------------------------------------------------------------------
     \22\ U.S. Securities and Exchange Commission, Federal Register 
Notice, ``Regulation Best Interest: The Broker-Dealer Standard of 
Conduct'', July 12, 2019, https://www.federalregister.gov/documents/
2019/07/12/2019-12164/regulation-best-interest-the-broker-dealer-
standard-of-conduct.
---------------------------------------------------------------------------
    Do you believe the standard should have defined ``best 
interest,'' as several commenters on the rule discussed? \23\
---------------------------------------------------------------------------
     \23\ Id.

A.12. Yes. It is critical, for both industry and investors, 
that the Commission provide clear and firm rules. It is unclear 
how Regulation Best Interest provides protections beyond the 
status quo because it failed to define ``best interest'' and 
does not provide sufficient guidance on what activities are 
---------------------------------------------------------------------------
prohibited under the standard.

Q.13. In your view, what if any distinction exists between the 
``best interest'' standard of conduct set forth in the SEC rule 
and the ``suitability'' standard established by the Financial 
Industry Regulatory Authority that predated it? \24\
---------------------------------------------------------------------------
     \24\ Financial Industry Regulatory Authority, ``Suitability'', 
Accessed July 23, 2020, https://www.finra.org/rules-guidance/key-
topics/suitability.

A.13. I am concerned that there are not meaningful differences 
between the two frameworks. I am particularly troubled that 
there are elements of Regulation Best Interest that mirror 
FINRA suitability rules, guidance, and precedent. Given this 
lack of clarity, it is important for the Commission, through 
both compliance and enforcement, to ensure that investors 
---------------------------------------------------------------------------
receive the protections they have been promised.

Q.14. In response to the SEC's proposal for Reg BI, a 
bipartisan group of 11 former SEC senior economists wrote in a 
comment, ``[w]e find it worrisome that the proposals' economic 
analysis does not fully consider some potentially important 
dimensions of the retail client-adviser relationship.'' \25\
---------------------------------------------------------------------------
     \25\ Carnegie Mellon University, ``Professor Chester Spatt 
Criticizes Proposed SEC Regulation'', press release, February 25, 2019, 
https://www.cmu.edu/tepper/news/stories/2019/february/chester-spatt-
sec-regulation.html.
---------------------------------------------------------------------------
    Do you believe the cost-benefit analysis that supports Reg 
BI was sufficient?

A.14. No. The cost-benefit analysis supporting Regulation Best 
Interest was insufficient. Unfortunately, a deficient economic 
analysis produced a deficient rule. However, given that 
Regulation Best Interest is current law, it is critical that we 
implement it in a robust manner and continuously review whether 
it is fulfilling its stated goals. Ongoing oversight will be 
crucial to ensuring that the rule meaningfully enhances 
protections for investors. Such oversight includes regular 
assessments of Regulation Best Interest's impact, as well as 
working with the Commission's Office of the Investor Advocate 
to test the effectiveness of Form CRS. To the extent Regulation 
Best Interest and Form CRS do not enable informed decision 
making, the Commission will need to reconsider its regulatory 
approach.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
          SENATOR CORTEZ MASTO FROM CAROLINE CRENSHAW

Q.1. What are the personal and professional costs to 
whistleblowers that concern you? How can the SEC mitigate those 
concerns?

A.1. Whistleblowers who come forward to reveal wrongdoing face 
many professional and personal costs, including retaliation, 
loss of employability, and loss of income. The final outcome of 
an investigation initiated by a whistleblower complaint often 
takes years, which can lead to a long period of doubt and 
emotional distress. Each one of these costs discourages 
whistleblowers from speaking up, and risks harming investors 
while illegal conduct continues.
    The Commission should do at least three things to minimize 
these costs. First, it needs to investigate whistleblower cases 
as expeditiously as possible. Second, the Dodd-Frank Act grants 
the Commission authority to hold accountable companies that 
engage in retaliation against internal whistleblowers--and we 
should use it, acting quickly and decisively to hold 
responsible anyone who impedes a whistleblower through 
retaliation or other means. Finally, the process for 
determining whistleblower awards must be as transparent and 
predictable as possible--so that those putting their careers at 
risk know that they will be rewarded for taking the difficult 
step of coming forward.

Q.2. How will including deferred prosecution agreements and 
nonprosecution agreements as ``actions'' ensure whistleblowers 
are not penalized as a result of the Government's decision to 
pursue a particular litigation strategy?

A.2. Without commenting on a matter that may come before me if 
I am confirmed, as a general policy matter, the Commission 
should do what it can to encourage whistleblowers to come 
forward. To the degree deferred prosecution agreements and 
nonprosecution agreements lead to a whistleblower receiving a 
lesser award, or no award, the Commission should do all it can 
to assure whistleblowers that they will be appropriately 
compensated under the law.

Q.3. Should the SEC ensure that legitimate and honest reports 
do not lead to retaliation for a whistleblower?

A.3. Yes. As mentioned above, pursuant to authority granted by 
the Dodd-Frank Act, the Commission can take action against 
employers for retaliating against whistleblowers. Additionally, 
Commission Rule 21F-17(a) prohibits taking action to prevent an 
individual from contacting the Commission to report a possible 
securities violation. The Commission has brought a number of 
actions based on both retaliatory conduct as well as behavior 
meant to impede reporting. See SEC v. Collector's Coffee, Inc. 
(d/b/a Collectors Cafe), and Mykalai Kontilai, 19-cv-04355 
(November 4, 2019). The Commission should continue to 
vigorously pursue such cases in order to assure whistleblowers 
that there are meaningful protections in place for those who 
speak up against violations of the law.

Q.4. Will you ensure that whistleblower awards are paid out at 
the highest amount possible so that it matches or exceeds the 
overall costs to whistleblowing?

A.4. Without commenting on a matter that may come before me if 
I am confirmed, I can say that it is critical to the integrity 
of the program that whistleblowers who put their livelihoods at 
risk to help the Commission enforce the law are fully 
compensated for doing that crucial work.

Q.5. What should the SEC do to increase shareholder voting and 
participation? How is the SEC ensuring votes are accurately 
tabulated?

A.5. Shareholder voting is a critical mechanism for holding 
corporate insiders accountable for the decisions they make with 
American investors' money. To facilitate shareholder democracy, 
the Commission should promptly review at least three areas of 
its current rules.
    First, the Commission has recently taken several regulatory 
steps that may impede shareholders' ability to vote. Without 
judging any particular matter that may come before me, if 
confirmed, I would urge my colleagues to consider the effects 
of these steps on shareholders' voting rights.
    Second, the Commission should immediately turn its 
attention to the broken system for counting shareholder votes, 
sometimes referred to as proxy plumbing. There has been broad 
agreement throughout the market for years that the Commission 
should enhance the transparency, efficiency, cost-
effectiveness, and, most importantly, accuracy of that process, 
including by ensuring that all votes are counted through end-
to-end vote confirmation.
    Third, and again without judging any matter that may come 
before me if I am confirmed, the Commission should consider 
moving forward with a universal proxy rule that would make it 
easier for investors to vote for their preferred director 
nominees.
    If confirmed, I will urge the Commission to move these 
initiatives forward.

Q.6. How will you ensure that entities you oversee consider the 
impact of increasingly severe storms, floods, and fires on 
their firms? How will you ensure corporations are adequately 
planning and accounting for widespread and potentially costly 
damage to property serving as collateral for loans or to assets 
underpinning other investments?

A.6. Increasingly frequent and severe weather events resulting 
from climate change will impose major costs on our markets. If 
confirmed, I would urge the Commission to take the following 
actions to help address these concerns.
    First, the Commission should require comprehensive issuer 
disclosure of climate-related risks to ensure, among other 
things, that investors have transparency into companies' 
business continuity planning in light of these risks.
    Second, the Commission should work with the Public Company 
Accounting Oversight Board (PCAOB) to make sure audit firms are 
appropriately integrating assessment of climate risks in public 
company audits and working to ensure those companies develop 
meaningful, comparable measures for disclosing those risks.
    Finally, I would urge my colleagues in the Office of 
Compliance Inspections and Examinations to regularly examine 
the business continuity plans of registrants to ensure they are 
taking into account the risks from climate change and severe 
weather events.

Q.7. Do you think corporate disclosure of climate change risks 
is adequate to inform investors of the economic and corporate 
resilience to climate change?

A.7. No. It has been over a decade since the Commission 
released its ``Guidance Regarding Disclosure Related to Climate 
Change''. See, Securities and Exchange Commission, ``Guidance 
Regarding Disclosure Related to Climate Change'' (Feb. 8, 
2010). During the last decade, investor interest in this 
subject has reached record levels, with major market 
participants and ordinary investors alike calling for companies 
to disclose the effects of their activities on the environment. 
See Bruce Goldfarb, ``Companies Need To Engage on ESG Issues 
Now or Risk a Bruising 2021'', Forbes, July 17, 2020. Yet, the 
Commission has done little to ensure that such disclosure is 
clear, comparable, and accessible for investors. And some 
recent Commission proposals risk taking environmental issues 
off the corporate ballot--at a time when investors are 
clamoring for more transparency on this subject, not less.
    If confirmed, I would urge the Commission to do more on 
this subject, starting with immediately convening a taskforce 
to study and report to the Commission on climate risk impacts 
on the securities markets. I would also urge the Commission to 
work with the PCAOB to ensure audit firms are appropriately 
integrating assessment of climate risk.
    Corporate disclosure of climate risk is one critical step 
forward and the Commission needs to ensure that investors have 
the information they need to make informed investment 
decisions.

Q.8. What are the environmental transition risks for 
corporations? What costs can they be expected to incur as the 
world works to reduce its carbon footprint to mitigate global 
warming?

A.8. Companies and financial institutions face a number of 
major physical and transition-related risks associated with 
climate change. Weather-induced impairment of real property and 
assets can spill over to create instabilities in financial 
markets and the economy more broadly. Rapid changes in 
Government or market-mandated policies, consumer sentiment, or 
technological changes, for example, could cause unplanned 
losses to high-carbon industry sectors. The longer markets and 
Governments wait to address these risks, the worse they will 
get. That is why, if confirmed, I will urge the Commission to 
do all it can to mitigate climate-related impacts on our 
markets.

Q.9. How can the SEC promote a long-term focus among publicly 
traded companies?

A.9. The Commission should do all it can to ensure that 
American companies and their leadership pursue long-term value 
creation rather than short-term stock-price increases. There 
are at least three steps the Commission should consider that 
would encourage corporate executives to pursue sustainable, 
long-term growth.
    First, the Commission should examine executives' incentives 
to pursue stock buybacks. The Commission has not revisited its 
rules related to stock buybacks in two decades, and there is 
now significant evidence that executives use buybacks to boost 
their bonuses rather than build long-term value. It is time for 
the Commission to revisit these rules to ensure that corporate 
management is more focused on building jobs and communities 
rather than engaging in short-term trading in their company's 
own shares. See Robert J. Jackson, Jr., Letter on Stock 
Buybacks and Insiders' Cashouts, Harvard Law School Forum on 
Corporate Governance, Mar. 8, 2019.
    Second, decades of paying corporate executives in stock has 
given management incentives to boost short-term stock prices 
rather than long-run value. The Dodd-Frank Act included an 
important provision that gives the Commission authority to 
require detailed disclosure on the relationship between 
executive pay and performance. Yet those rules have still not 
been finalized, and too many companies continue to use short-
run stock prices as the sole arbiter of performance. The 
Commission should make sure that investors get the information 
they need to evaluate whether, and how, executive pay packages 
prioritize short-run stock prices over long-term value 
creation.
    Third, the Commission should evaluate the potential role of 
activist investors in pressuring companies to maximize short-
term stock prices at the expense of American workers and 
communities. These investors play a critical role in holding 
corporate management accountable, but the evidence shows that 
some activists favor strategies that can harm workers. The 
Commission's rules in this area have not been examined for 
decades despite significant changes in the law and marketplace. 
Studying those changes, and updating the rules to make sure 
that activists are pursuing sustainable, long-run strategies 
rather than profiting at the expense of workers and 
communities, should be among the Commission's priorities.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                       FROM KYLE HAUPTMAN

Q.1. The NCUA Board is an independent agency that must ensure 
the safety and soundness of the credit union system without 
regard to politics. You've served in a number of political and 
campaign positions, including on the Trump transition team. 
What is your relationship with the White House? Are you able to 
serve in this position objectively, without being influenced by 
the Executive branch? Will you commit to refuse to take any 
action based on requests from the White House?

A.1. If confirmed, I would seek to maintain the highest level 
of ethical standards. Because this Board seat's term ends in 
2025, I will serve alongside at least one additional 
presidential Administration. I pledge to ensure the NCUA's 
independence regardless of who serves as President. 
Additionally, if confirmed, I would collaborate with the NCUA's 
Chief Ethics Counsel and the Office of Government Ethics to 
design an appropriate plan for maintaining the highest ethical 
standards.

Q.2. Can credit unions and regulators do more to help the 
underserved? What specifically?

A.2. During the pandemic, the NCUA and the country as a whole 
have experimented with new ways to operate. For example, my 
nomination hearing was online, and prior to March 2020, the 
Senate Banking Committee had never held online hearings. The 
NCUA has been conducting virtual exams for credit unions 
throughout the COVID-19 pandemic. In the future, virtual 
examinations could save all parties time and money, and the 
NCUA Board should carefully consider making different parts of 
the examination process virtual.
    Two years ago, Congress approved the MOBILE Act, which 
permitted individuals to open online accounts by uploading 
their identification information. This has been very helpful, 
especially during the pandemic, when many people do not want to 
physically enter credit unions, or the lobby may be closed. 
This pandemic forced financial institutions to explore new 
online options, like opening an account online, utilizing 
shared branch networks, or using e-signatures and 
verifications. Some of these practices may be useful 
postpandemic.
    This is especially important when it comes to reaching the 
underserved in rural areas. Where I grew up in Maine, we were 
26 miles from the nearest McDonald's and even further from the 
nearest bank. Remote access and online transactions can be very 
useful in reaching citizens who reside in rural areas. If 
confirmed, I will explore diverse ways credit unions can serve 
members who are currently geographically distant from their 
credit unions.

Q.3. In your testimony, you highlighted three broad priorities 
if confirmed to the NCUA Board. Please elaborate on what 
specific proposals you would advocate. How do you plan to 
achieve these goals?

A.3. The first priority I mentioned was managing the fallout 
from the current pandemic and economic downturn. This includes 
ensuring that credit unions are able to work with their members 
who are experiencing financial difficulties. As not-for-profit, 
member-owned financial cooperatives, credit unions do this 
organically and have reportedly been doing excellent work on 
this effort. However, I believe it is the responsibility of 
NCUA Board Members to talk to examiners, credit union members, 
credit union managers and staff, and other stakeholders to 
ensure credit unions continue their work and that the NCUA 
removes obstacles that prevent the necessary assistance from 
being offered.
    The second priority I discussed is technology. The pandemic 
created a test case for how many things can be done remotely. I 
would like to expand technology's role in reaching the 
underserved. Given that the NCUA is a safety and soundness 
regulator, I would seek to ensure these technologies are tested 
fully in pilot programs before allowing widespread adoption.
    Finally, I want to align incentives. As we know from the 
last financial crisis, we get what we incentivize. We should 
use incentives to create positive outcomes. For example, using 
the powers Congress granted it, the NCUA currently incentivizes 
credit unions to serve more low-income individuals by tying the 
low-income credit union designation to the removal of the cap 
on member business lending, access to grants, and the ability 
to access secondary capital. If one looks at the number of low-
income credit unions over the last 10 years, they have grown 
from a quarter to almost half of all credit unions. Currently, 
there are limited incentives for credit unions to be designated 
as minority depository institutions (MDIs). The NCUA has 
recently created a pilot program that develops mentoring 
relationships among MDIs. However, I believe the NCUA should 
create significant incentives for credit unions to be 
designated as MDIs and to help create new ones.

Q.4. During the hearing, you committed to me that you would 
crack down on credit unions that charge their members high 
fees. Would you support a prohibition on credit unions imposing 
overdraft fees on their members?

A.4. If confirmed to the NCUA Board, I commit to reviewing 
credit unions' fees and working to prevent the collection of 
fees that are incompatible with the credit union system's 
mission of providing affordable financial services to working 
families. While I understand that certain fees are a necessary 
part of credit union operations, I pledge to ensure that any 
collected fees are consistent with the credit union mission. 
Set by credit union boards, fees should not needlessly penalize 
the underserved and those of lesser means. The main goal should 
always be ``a better deal,'' in that any fees charged by a 
credit union should be a superior alternative to other options, 
such as late fees charged by Government or utilities.

Q.5. You said in your testimony that credit unions were 
chartered to serve those of modest means, and you plan to work 
toward solutions for those facing financial stress because of 
the pandemic and economic downturn. Recently, the NCUA issued 
an Interim Final Rule on Overdrafts, which allows credit unions 
to charge overdrafts after 60 days and still allows the right 
to offset. Would you support efforts to amend this IFR to 
protect credit union members from all overdrafts and offsets? 
If not, how is this consistent with your stated priorities?

A.5. In May, the NCUA Board considered an interim final rule 
(IFR) that would have modified the requirement that a Federal 
credit union's written overdraft policy establish a time limit, 
not to exceed 45 calendar days, for a member to either deposit 
funds or obtain an approved loan from the Federal credit union 
to cover each overdraft. The old policy would have been 
replaced with a requirement that the written policy must 
establish a specific time limit that is both reasonable and 
applicable to all members for a member to deposit funds or 
obtain an approved loan from the credit union to cover each 
overdraft. Under the IFR, consistent with U.S. generally 
accepted accounting principles (GAAP), overdraft balances 
should have generally been charged off when considered 
uncollectible. The IFR was not approved and, thus, may be 
considered by the NCUA Board at a future date.
    As I stated during my confirmation hearing, credit unions 
were chartered to serve those of modest means. If confirmed, I 
plan to work with credit unions, the Board, and Congress on 
solutions for those credit union members facing financial 
stress. Consistent with that goal, I will review this proposed 
IFR afresh to ensure that it provides relief to credit union 
members in a manner consistent with the NCUA's responsibility 
to maintain the safety and soundness of the credit union 
system. From that perspective, if the IFR is brought up again, 
I will vote to approve it only if consumers and the safety and 
soundness of the credit union system are protected.

Q.6. Credit unions are playing an important role in helping to 
mitigate the economic stress of their members during the COVID-
19 pandemic. What do you think NCUA should be doing to ensure 
credit unions are able to serve their members and plan for 
potential defaults on member business loans and consumer loan 
products?

A.6. The NCUA is, and I believe correctly, encouraging credit 
unions to work with impacted borrowers and not criticizing a 
credit union's efforts to provide prudent relief for borrowers 
when such efforts are conducted in a reasonable manner with 
proper controls and management oversight. The NCUA has publicly 
stated that such efforts can ease financial pressure on 
borrowers and reduce a credit union's credit risk exposure. 
Credit unions should be encouraged to consider a variety of 
loan modifications. Of course, the proper mix of solutions will 
vary depending on the risk tolerance and financial strength of 
each institution and its membership base. The NCUA should be 
doing all it can to advise and support credit unions as they 
serve their members during this difficult time.
    The economic stress experienced by credit unions and their 
members during this pandemic reflects the financial issues 
affecting families and businesses across the financial 
spectrum. As a result, if confirmed, I would encourage the NCUA 
to work closely with Congress and the other financial 
regulators to provide holistic solutions to this overarching 
health and financial crisis.

Q.7. Last year, the New York Times reported that predatory taxi 
medallion loans trapped working taxi drivers with debt while 
creating huge profits and compensation for credit unions and 
their executives. Eventually, the financial condition of these 
credit unions deteriorated because of heavy losses on the 
loans, which were poorly underwritten, exceeded regulatory 
lending limits, and lacked board and management oversight. 
According to an Office of Inspector General (OIG) Material Loss 
Review, NCUA was aware of the risks, but failed to take timely 
action. \1\ NCUA recently sold most of the Taxi Medallion Loans 
in their portfolio to a third party asset manager. What 
consumer protections and oversight duties do you think NCUA 
should prioritize as taxi drivers and their families work with 
the third party to make payments or restructure their taxi 
medallion loans?
---------------------------------------------------------------------------
     \1\ NCUA Office of Inspector General, Material Loss Review of 
Melrose Credit Union, LOMTO Federal Credit Union, and Bay Ridge Federal 
Credit Union, March 29, 2019, https://www.ncua.gov/files/audit-reports/
oig-material-loss-review-march-2019.pdf.

A.7. Much of the information about the sale of these member 
business loans is confidential and supervisory. As a nominee, I 
do not have access to this information. However, if I am 
confirmed by the Senate, I commit to reviewing this situation 
closely to determine if this was, in fact, in the best 
interests of the medallion holders and the National Credit 
Union Share Insurance Fund. I will also work to ensure proper 
steps are taken to protect members on any similar sales of 
---------------------------------------------------------------------------
member business loans.

Q.8. Housing is the backbone of wealth accumulation for 
millions of families. During the COVID-19 pandemic thousands of 
families are experiencing economic stress and are having a hard 
time making mortgage and rental payments. Should rental and 
mortgage assistance be provided to these families?

A.8. The NCUA does not have jurisdiction to establish national 
rental and mortgage assistance plans for all renters and 
homeowners experiencing economic stress. Should Congress decide 
to authorize such programs in statute, I would ensure that 
credit unions follow any applicable laws.

Q.9. You said in your testimony you've worked closely with 
credit unions in Arkansas, Texas, and Oklahoma. How will you 
interact with the credit industry if confirmed to the NCUA 
Board? Will you commit to regulating credit unions for safety 
and soundness and consumer protection, consistent with the NCUA 
mission, instead of being a cheerleader for industry demands?

A.9. If confirmed, I will work first and foremost for the 
credit union members and the taxpayers who are ultimately on 
the line for an insurance fund that has the full faith and 
credit of the United States. I pledge to listen to different 
stakeholders and work on areas of agreement. However, I will 
not take any actions that would compromise the safety and 
soundness of the cooperative credit union system.

Q.10. In your testimony, you indicated your support of a less 
frequent exam cycle for highly rated credit unions. Right now, 
we are in a severe economic downturn, and we know from the last 
crisis that even highly rated financial institutions can 
deteriorate quickly. Is it prudent for regulators to be pulling 
back on examinations and supervision during an economic crisis? 
How can the NCUA prevent credit union failures without a robust 
examination program?

A.10. In my testimony, I spoke about aligning incentives. 
Specifically, I want to use the incentive structures available 
to create a more robust credit union system. For credit unions 
receiving the highest marks on their NCUA exams for safety and 
stability, the NCUA offers a less frequent exam cycle, thereby 
encouraging credit unions to be safer. This also allows the 
NCUA to focus its resources on those who may pose a larger 
danger to the credit union system.
    Provided the NCUA continues to employ a robust and 
continuous supervision model, I believe this can continue to 
work during the pandemic. Maintaining a focus on credit unions 
with lower CAMEL scores is a way to manage risk at a difficult 
time. Although credit unions with the highest CAMEL scores 
would be eligible for less frequent examinations during a 
stressful time such as the pandemic, examiners must closely 
review Call Reports to identify adverse trends and adjust 
supervision where necessary. This is especially important for 
the largest credit unions as they potentially pose the greatest 
risk to the National Credit Union Share Insurance Fund. I 
believe new technology can assist with this effort. If 
confirmed, I would work to ensure these options are fully 
explored.

Q.11. Recently, the Supreme Court denied an appeal from the 
American Bankers Association to review the NCUA's field of 
membership rules. What is your position on the NCUA's field of 
membership authority?

A.11. Congress created the field of membership construct for 
the credit union system, and the courts have affirmed its 
validity. It is, therefore, the Board's responsibility to 
employ this statutorily granted authority. The Federal Credit 
Union Act authorizes the NCUA to grant Federal credit union 
charters based on single common bond (occupational and 
associational), multiple common bond (more than one group, each 
of which has a common bond), and community (a well-defined 
local community, neighborhood, or rural district) criteria. The 
Supreme Court's denial of the American Bankers Association's 
petition ends nearly 4 years of uncertainty, and it allows the 
NCUA to focus on its mission and expand access to affordable 
financial services to the underserved and people of modest 
means.

Q.12. Some believe that the NCUA should increase its budget for 
consumer examination and enforcement of credit unions, 
particularly for large, complex credit unions. If confirmed, 
would you support increasing the NCUA's consumer protection 
budget so that there is a stronger, dedicated consumer 
compliance examination program?

A.12. During the consideration of the 2020 NCUA Budget, there 
was a debate on the number of consumer compliance examiners at 
the agency. If confirmed, I pledge to explore the needs of the 
NCUA's consumer compliance program to gain a better 
understanding of their challenges and resource requirements. If 
confirmed, I will work to ensure that the NCUA enforces all 
consumer protection laws and protects credit union member-
owners.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM KYLE HAUPTMAN

Q.1. What are the most effective steps NCUA can take to protect 
the Share Insurance Fund in light of the economic impact of 
COVID-19?

A.1. If confirmed, I intend to ensure the NCUA is taking proper 
action to protect the Share Insurance Fund.
    Fortunately, the credit union industry was highly 
capitalized entering the crisis, with a healthy aggregate net 
worth of 11.37 percent as of December 2019. It is premature to 
determine the extent of the financial impact on credit unions 
in terms of return on assets, loan losses, and deposit growth.
    While credit unions navigate the uncertain economic 
climate, the NCUA is providing them with increased 
flexibilities through temporary and permanent regulatory 
reforms. I believe such efforts should continue. Different 
credit unions serve different types of members who are in 
different financial situations. We must recognize there is 
likely no one-size-fits-all solution to many of the challenges 
that credit unions face currently.

Q.2. Do you believe it was a wise decision for the NCUA to 
delay the implementation of the risk-based capital rule to 
2022?

A.2. Because I do not have access to the confidential 
supervisory information that informed their decision, I am 
hesitant to criticize the actions of the current NCUA Board. 
Further, it is important to note that the NCUA currently has 
risk weightings in place. The new rule would update the NCUA's 
rule, and have new risk weights.
    If confirmed by the Senate, my priority is capital, which 
is the holy grail of regulation. Entering into this crisis, the 
credit union system as a whole was well capitalized, 
significantly above statutory requirements, and that is good. 
Indeed, in times like these, capital matters most. That is why 
we have it.

Q.3. Please describe your views on the effectiveness of NCUA's 
current process for examining credit union compliance with 
consumer financial protection laws. Do you believe that the 
current approach is sufficient to mitigate consumer abuses from 
credit unions with less than $10 billion in assets? If not, 
what changes do you believe should be made?

A.3. Every decision the NCUA makes should ultimately protect 
the credit union system--and by extension, its members. If 
confirmed by the Senate, I will ensure that credit unions have 
the tools they need to safely help their borrowers, especially 
during this difficult time.
    As noted in your question, the NCUA has the primary 
authority to monitor consumer compliance at credit unions with 
less than $10 billion in assets. For these credit unions, the 
NCUA takes a similar risk-focused approach to consumer 
compliance regulation and supervision as the FDIC, Federal 
Reserve, OCC, and CFPB. I support the risk-focused approach 
because it provides flexibility to regulators to respond to 
areas of higher risk or need. I also understand that the NCUA 
examines consumer complaints to determine whether credit unions 
are deficient in a specific area.
    While it appears to me that the NCUA's consumer protection 
program has been effective, if confirmed by the Senate, I 
pledge to work with NCUA's Office of Consumer Financial 
Protection to gain a better understanding of the challenges 
involved in their work. I commit to ensuring the NCUA enforces 
consumer protection laws and properly protects credit union 
member-owners. I also commit to ensuring that the consumer 
compliance staff has the resources necessary to accomplish the 
agency's mission.

Q.4. Separate from the economic impact of COVID-19, what do you 
view as the greatest risks to NCUA's Share Insurance Fund? For 
each area of risk you identify, please describe how you believe 
NCUA should be monitoring and addressing those risks.

A.4. Often the greatest risk is the one you do not see coming. 
In the last 50 years, each of the financial crises came from 
areas not previously identified as a key risk to the financial 
system. A year ago, few would have cited a pandemic as a 
significant risk. While it is essential to understand the risks 
involved in the system, it is also important to look for risks 
that people are not watching.
    If confirmed by the Senate, I want to spend significant 
time working with agency experts to understand the risks they 
are monitoring. I will then talk to outside people who are 
involved in providing financial services to the same industries 
to better understand the risks they see in the industry. I 
think it is important that a new NCUA Board Member ask the hard 
questions and not rely on the assurances of others.

Q.5. What steps should NCUA take to support Minority Depository 
Institutions (MDIs)?

A.5. If confirmed by the Senate, I want to do a top-to-bottom 
review of what pain points exist for the chartering of new MDI 
credit unions. Last year, there were only two new charters 
granted--one of these was for an MDI. I want to ask the hard 
question of why it took so long to start that MDI credit union. 
My goal will be to create more MDIs.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR CORTEZ MASTO FROM KYLE HAUPTMAN

Q.1. What risk does climate change pose to credit unions?

A.1. The two largest components of credit union lending 
portfolios are home mortgage loans and automotive loans. Both 
of these portfolios are subject to the negative effects of 
natural disasters. The risk of natural disasters is often more 
pronounced for coastal areas, and credit unions must use their 
best judgment and follow best practices when making these 
loans. If I am confirmed to the NCUA Board, I will ask the 
difficult questions to ensure that proper risk-management 
practices are followed for all possible risks to the National 
Credit Union Share Insurance Fund (Share Insurance Fund).

Q.2. How will you ensure NCUA considers those risks?

A.2. All risks to the Share Insurance Fund must be given full 
and careful consideration. Any credit union with substantial, 
concentrated risk in its portfolio due to future natural 
disasters should have sufficient capital and follow best 
practices for risk mitigation. If confirmed by the Senate, I 
will thoroughly review the possible risks to the Share 
Insurance Fund and ensure best practices are followed.

Q.3. If you were confirmed to the board of the NCUA, what steps 
would you take to ensure that credit unions are able to work 
with Fannie Mae, Freddie Mac, USDA, VA, or FHA to provide loans 
to families who are able to finance a home with a downpayment 
below 5 percent of the value of the home?

A.3. Credit unions currently play a critical role in 
facilitating affordable home ownership. In many cases, mortgage 
rates for credit union loans are significantly below the rates 
charged by other financial institutions. In terms of 
sustainability, I would stress that credit union mortgages 
traditionally have had significantly lower default rates than 
other loans. The NCUA should always remain vigilant in ensuring 
that underwriting standards are safe and sound. The strong 
historical loan performance for credit union mortgages 
indicates that mortgage sustainability has been a critical 
industry value.
    Fannie Mae, Freddie Mac, USDA, VA, and FHA have programs 
that help credit unions manage the risks to their lending 
portfolios. If confirmed, I will work to understand the reasons 
credit unions may avoid providing these mortgages. I will also 
seek to find ways that will enable more credit union members to 
leverage the benefits of these programs.

Q.4. What are some specific ways you will work to increase 
access to the financial sector and wealth building 
opportunities such as mortgages and small business loans for 
black, Latino and Native Americans?

A.4. As I noted during the hearing, the NCUA must enforce the 
existing laws on the books, including the Fair Housing Act, the 
Equal Credit Opportunity Act, and the Fair Credit Reporting 
Act. If I am confirmed, I will work to ensure the NCUA does 
this vigorously. No entity--whether it is the NCUA, a credit 
union, or this country--can fully succeed unless we allow all 
individuals to have access to wealth-building opportunities.
    If confirmed, I hope to work with Congress to expand the 
ability of credit unions to serve underserved areas and to 
evaluate ways to start more credit unions. Only two new credit 
unions were chartered last year--one was a minority depository 
institution (MDI).
    If confirmed, I want to do a top-to-bottom review of the 
pain points in starting new credit unions. For example, we must 
examine why it took so long to start that MDI credit union. My 
goal is to eliminate unnecessary pain points and create more 
credit unions, particularly MDIs. I would also like to expand 
the NCUA's Second Chance Initiative, which enables people who 
had minor criminal convictions years ago to be employed in the 
credit union system. I have seen friends and people from my 
high school who have changed their entire trajectory after 
having one minor conviction when they were 19 years old. This 
is an untapped pool of talent for our country.
    Studies have shown that automatic savings programs can be 
very helpful for wealth building for low-income individuals. If 
confirmed, I want to encourage innovative products and 
publicize best practices to help to promote wealth building for 
all Americans.

Q.5. What is your understanding of the role NCUA plays as 
insurer for State-chartered, federally insured credit unions?

A.5. State-chartered credit unions are primarily regulated by 
their State's respective department of financial services. For 
federally insured, State-chartered credit unions, the NCUA's 
role is to ensure the safety and soundness of these 
institutions to safeguard the National Credit Union Share 
Insurance Fund, which the NCUA administers for the benefit of 
all federally insured credit unions.

Q.6. How do you think the transition to LIBOR will affect 
credit unions? What effect will you think a delay in 
transitioning away from LIBOR will have on credit unions?

A.6. While LIBOR is often viewed as a reference rate used by 
larger financial institutions, it is also important to smaller 
financial institutions, including community banks, savings 
institutions, and credit unions.
    An estimated $200 trillion in financial contracts reference 
USD LIBOR. LIBOR is used in contracts governing financial 
derivative transactions, such as interest rate swaps and 
interest rate caps. Some qualifying credit unions use these 
tools to hedge interest rate risk. Thus, discontinuing LIBOR 
poses a significant risk for the financial system as a whole.
    Multiple options exist for a LIBOR replacement. For 
example, some credit unions may find an unsecured rate more 
accurately tracks their cost of funding than a secured rate 
does. I believe credit unions should find the measurement that 
works best for them. While the transition poses risks, delaying 
the transition will also create a lot of uncertainty for banks 
and credit unions. The best policy is one that will create more 
certainty and confidence in the market.

Q.7. What are your top 3 priorities that you would like the 
NCUA to focus on during your tenure?

A.7. As I noted in my oral testimony, I will have three 
priorities at the NCUA:
    Priority number one is the same as America's: managing the 
fallout from the current pandemic and economic downturn. Over 
50 million people have filed for unemployment since March. 
While the 2008 crisis began in the financial sector and then 
hit Main Street, our current crisis may be the reverse. Credit 
unions were chartered to serve those of modest means, and I 
plan to work with them, the Board, and Congress on solutions 
for those facing financial stress.
    My second priority is technology. The pandemic created a 
test case for how many things can be done virtually. I would 
like to expand technology's role in reaching the underserved. 
If we recall the litigation years ago about Blockbuster Video's 
late fees and market dominance, the ultimate solution was 
American startups like Netflix. While this analogy does not 
perfectly align with credit unions, I am convinced innovation 
can provide more inclusive financial services.
    Last: Aligning incentives. As we learned from the previous 
crisis, we get what we incentivize. An excellent policy that 
serves as a model here is the less-frequent exam cycle for 
credit unions receiving the highest marks on their NCUA exams 
for safety and stability. This policy enables regulators to 
focus on problematic credit unions, while the well-run credit 
unions strive to keep earning that benefit. Through this 
policy, safety and soundness are well aligned with serving 
members. Do this correctly, and we will combat poor-quality, 
high-priced products with better, lower-priced ones.

Q.8. What is your view on virtualization of the examination 
process? More broadly, what are your general thoughts on how to 
effectively and efficiently examine credit unions to ensure 
safety and soundness of the system?

A.8. The NCUA has already been working on virtual examinations; 
indeed, it has been a nationwide, almost worldwide, experiment 
in how things are done virtually or remotely during a pandemic. 
My July 21, 2020, nomination hearing was also conducted 
virtually, and before March, the Senate Banking Committee had 
never conducted virtual hearings.
    The MOBILE Act allowed potential credit union members to 
open an account online by uploading their identification 
information. This has been very helpful, especially during the 
pandemic, when many people do not want to physically enter a 
financial institution or the lobby may be closed. The pandemic 
has forced us to experiment with doing things virtually, and 
some of these, such as utilizing virtual examinations, helping 
people open accounts online, and using e-signatures and 
verifications, may be useful postpandemic.

Q.9. What benefits do you think the Dodd-Frank Wall Street 
Reform and Consumer Protection Act provides to banking 
customers, credit unions and the overall economy?

A.9. The Dodd-Frank Wall Street Reform and Consumer Protection 
Act has been significantly changed by the Economic Growth, 
Regulatory Relief, and Consumer Protection Act (or S. 2155). 
Today, we are talking about a revised Dodd-Frank 2.0. The Dodd-
Frank provisions I support include critical corrections to the 
mortgage process, including underwriting and appraisals. I 
believe that the provisions for the still-unused resolution 
authority that created an orderly liquidation process for 
financial firms was an appropriate development.
              Additional Material Supplied for the Record
               LETTER SUPPORTORTING NOMINEE HESTER PEIRCE
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

               LETTER SUPPORTORTING NOMINEE KYLE HAUPTMAN
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