[Senate Hearing 117-748]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 117-748


                  OVERSIGHT OF THE U.S. SECURITIES AND 
                            EXCHANGE COMMISSION

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

                                HEARING

                              BEFORE THE

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

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

           EXAMINING OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE 
                                COMMISSION

                               __________

                           SEPTEMBER 15, 2022

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                


                Available at: https: //www.govinfo.gov /

                                __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
53-618 PDF                   WASHINGTON : 2023                    
          
-----------------------------------------------------------------------------------     

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, SEPTEMBER 15, 2022

                                                                   Page

Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    40

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3
        Prepared statement.......................................    41

                                WITNESS

Gary Gensler, Chair, U.S. Securities and Exchange Commission.....     5
    Prepared statement...........................................    43
    Responses to written questions of:
        Senator Toomey...........................................    56
        Senator Warren...........................................    77
        Senator Sinema...........................................    79
        Senator Ossoff...........................................    84
        Senator Warnock..........................................    87
        Senator Crapo............................................    89
        Senator Scott............................................    91
        Senator Tillis...........................................    94
        Senator Kennedy..........................................   100
        Senator Hagerty..........................................   102
        Senator Daines...........................................   104

              Additional Material Supplied for the Record

Letter submitted by National Association of Manufacturers, 
  Securities Industry and Financial Markets Association, and U.S. 
  Chamber of Commerce............................................   108

                                 (iii)

 
        OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE COMMISSION

                              ----------                              


                      THURSDAY, SEPTEMBER 15, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:02 a.m., via Webex and in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order.
    Today's hearing, as usual, is in the hybrid format. 
Witnesses are in person. The witness, Mr. Gensler, nice to see 
you, Chair. Our witnesses are--Members have the option to 
appear in person or virtually.
    Welcome back, Chair Gensler, to this Committee.
    Workers and their families do not measure the economy by 
the stock market; neither should we. It is why in the Senate 
and in the still new Biden administration we work to create an 
economy that delivers results for people who get their incomes 
from a paycheck, not an investment portfolio, raising wages and 
good-paying jobs, and lowering costs. It means fighting the 
corporate price gouging that so often hurts consumers and the 
unfair labor practices that so often hurt workers. It means 
investing in American manufacturing and the workers and farmers 
who drive it. It means making sure our financial watchdogs keep 
our economy and our markets stable.
    At the SEC, that includes going after companies that try to 
cheat the market. Chair Gensler is doing that very well. It 
means strengthening corporate disclosures to stay ahead of 
risks like climate change. It means looking into the practices 
of private equity and hedge funds as they stretch their 
tentacles into more and more areas of our economy.
    It has been an eventful year. This summer, the Senate 
confirmed President Biden's two nominees to the SEC. I know 
both new commissioners got right to work on the many issues 
before this Agency and the Commission and its dedicated staff 
have been busy.
    Republicans on this Committee have bellyached, and I assume 
will today, about your ambitious agenda. If Wall Street and its 
allies are complaining, it tells me you are doing your job. You 
put America's savings first. You focus on transparency and 
fairness, two concepts critical to making sure our markets work 
for everyone, not just insiders, not just corporate execs.
    The SEC must continue making enforcement a priority. Bad 
actors are always coming up with new schemes to separate people 
from their hard-earned money or to cheat the rules to gain a 
little bit more for themselves. Under your watch, SEC has 
increased prosecution for insider trading which, as of course 
you know, under the Trump administration had fallen to the 
lowest level in a generation.
    In April, this Committee considered a Reed-Menendez bill 
that would outlaw insider trading in statute. The House has 
already passed a similar bill; the Senate must. Last month, we 
saw the successful results of bipartisan work of our Committee 
Members to improve transparency and fight fraud.
    In 2020, Senator Kennedy, who is sitting to my left, more 
or less, and Senator Van Hollen pushed for the passage of the 
Holding Foreign Companies Accountable Act, a bill to stop the 
U.S. Stock Exchange trading of foreign companies with China 
based auditors that refused to comply with our oversight laws. 
Because that law jumpstarted negotiations, the Public Company 
Accounting Oversight Board signed an agreement with Chinese 
authorities that will, finally, allow auditors to begin 
inspections.
    In March, the President signed an Executive order 
establishing a whole-of-Government strategy for digital assets. 
While agencies across our Government look at how we respond to 
the growth of crypto and best protect Americans' money, we know 
the SEC continues to enforce the laws, going after cryptotokens 
that violate security laws, shutting down crypto Ponzi schemes, 
charging insider trading crimes in crypto.
    Over the last year in the Banking, Housing, and Urban 
Affairs Committee, we have looked at how crypto assets are used 
in scams and frauds and play a role in illicit finance. We 
heard from the Treasury Under Secretary who testified on the 
President's Working Group report on stablecoin.
    This morning, the Ag Committee downstairs and Senator Smith 
and I on this Committee, on the Democratic side, sit on both of 
these Committees is considering a crypto bill sponsored by 
Senators Stabenow and Boozman that focuses on digital 
commodities. I appreciate their work to create regulation in 
the crypto space.
    It is critical, though, that we are careful and deliberate 
in drawing jurisdictional lines. In this kind of regulation, we 
have to prevent gaps and close loopholes that can be exploited 
or abuse. It is not easy. It is why action by the Agriculture 
Committee and the Commodity Futures Trading Commission Agency, 
Chair Gensler is very familiar with, why that action is 
welcome, but we also know it is not enough.
    When Congress wrote Dodd-Frank, we fixed the problems in 
the oversight of the over-the-counter derivatives market. It is 
a lesson we need to remember, thinking of the damage that was 
done prior to when it comes to crypto. Our regulators need to 
work together to make sure investors and consumers and market 
stability come first.
    SEC's work on climate risk disclosure is an important 
example of how to improve the market's understanding of risk 
and to provide transparency and comparability. Clarity and 
uniformity are key. If only a subset of companies provides 
disclosure and they do so in whatever form they want, that does 
not serve anyone. Investors outside the U.S. already benefit 
from standardized climate risk disclosure. It is time the U.S. 
market did as well.
    SEC's recent rule proposal to require more disclosure about 
corporate stock buybacks will also bring much needed 
transparency to the market. Thank you for that.
    We know stock buybacks are a big problem. They distort the 
market. They funnel profits to executives at the expense of 
long-term investment in workers and in innovation. The process 
allowed for these buybacks has only made them more 
manipulative. For decades, companies have been able to announce 
stock buybacks to juice their stock price, but then they only 
provide details months later on how, when, and even whether 
they even completed their plans. Under SEC's new proposal, the 
market and the SEC would understand when companies are buying 
their stock and if executives are buying or selling at the same 
time.
    Taken together with unprecedented steps in the Inflation 
Reduction Act to finally tax these buybacks--and I appreciate 
Senator Tester and others on this Committee supporting that--
these are the first real steps we have seen in years to rein in 
this Wall Street scheme, another example of a new President of 
the United States who fights for workers and sides with 
workers.
    Chair Gensler, I look forward to hearing more about other 
ways the SEC is working to hold bad actors accountable and 
protect Americans who invest their hard-earned money in the 
markets.
    Ranking Member Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman.
    Chairman Gensler, welcome back to the Committee. Good to 
see you again.
    The SEC, as we all know, has a critical role to play in 
protecting investors, maintaining fair, orderly, and efficient 
markets, and facilitating capital formation. Unfortunately, 
some of the SEC's recent actions and inactions raise concern 
about how well it is carrying out this important mission. Take 
for example the SEC's handling of crypto lending platforms like 
Celsius and Voyager. Celsius and Voyager were offering interest 
rates as high as 18 percent if customers would lend their 
digital assets to them. The firms would then lend that crypto 
to presumably other larger investors to make short-term bets on 
cryptomarkets. But once the crypto selloff began, many 
borrowers could not pay their debts, and these platforms froze 
customer accounts.
    The SEC did take enforcement action against BlockFi for 
similar activities last winter yet somehow let Celsius and 
Voyager continue through the spring when both companies blew up 
and found themselves in bankruptcy, with investors staring at 
billions in losses. Where was the SEC?
    And where has the SEC been in clarifying the rules of the 
road for cryptomarket participants? The Chairman insists in his 
written testimony that ``the vast majority'' of cryptotokens 
are securities, but he has also acknowledged that Bitcoin is 
not. Now presumably, that is because Bitcoin is so thoroughly 
decentralized, but that naturally raises the question: Where on 
the decentralization continuum does a token cease to be a 
security?
    Most of these tokens do not even have a financial claim on 
the issuer. Doesn't that make these tokens very different from 
at least the vast majority of ordinary securities?
    And if the Chairman is right that most tokens should be 
considered securities, then, as he himself states in his 
written testimony, ``It follows that many crypto intermediaries 
are transacting in securities and have to register with the SEC 
in some capacity.''
    But crypto transactions typically can be settled in real 
time on chain and without intermediaries. As a result, crypto 
intermediaries often serve different customer needs, they have 
got different business models, and they pose different risks 
than traditional securities intermediaries.
    All of that raises the question: What is the crypto 
specific roadmap for these crypto intermediaries to register?
    Stepping back, I think there is a larger problem here. As 
Bloomberg columnist Matt Levine put it, ``Chairman Gensler's 
posture is that he should be in charge of writing the rules for 
crypto but not write them. I just do not see how that can 
work.'' I think Mr. Levine has a good point.
    Given the novel nature of these tokens, really, Congress 
ought to step in and provide clarity. In particular, we need to 
revisit the definition of security as part of a larger effort 
to tailor a regulatory framework that is calibrated to the 
unique risks and activities of the cryptomarket.
    As I have said, cryptotokens have varying degrees of 
decentralization, they usually do not have a financial claim on 
the issuer and typically can be settled in real time without 
intermediaries. These are very major and important differences 
from traditional securities, and they merit a clearly stated 
and tailored regulatory framework.
    Now while the SEC has failed to provide the regulatory 
clarity in the cryptomarkets, it has been issuing numerous 
controversial and burdensome rules and proposed rules in the 
ordinary securities market. Top of that list is the SEC's 
climate disclosure rule. Public companies are already required, 
legally required, to disclose material climate change 
information. The proposed rule, however, would go much further, 
to require disclosure of exceedingly extensive global warming 
data.
    This data will be enormously expensive to collect, but 
almost none of it will be material to a business's finances. 
For annual reports alone, the SEC estimates that aggregate 
external compliance costs for issuers will increase from $1.9 
billion per year to $5.2 billion per year if the SEC's proposed 
climate disclosure rule becomes effective. The SEC itself again 
estimates that the external compliance cost of a company going 
public will increase by more than five times at a time when 
excessive regulatory costs are already resulting in ever fewer 
companies going public. The cost of compliance will be more 
material to the investor than the information itself.
    But, of course, the climate disclosure rule is not really 
about informed investment decision. It is about equipping 
climate activists with data to run political pressure campaigns 
against companies, which will often be to the detriment of 
shareholders. The end game is to discourage capital investment 
in oil, in natural gas, and other traditional energy 
industries, and we have seen how well that is working out in 
Europe.
    The SEC is wading into controversial public policy debates 
that are far outside its mission and its expertise, and they 
are doing it without the legal authority to do so. And in the 
process, the SEC risks politicizing the Agency, slowing 
economic growth, increasing inflation, and possibly even 
undermining national security.
    So given the importance of these issues, Banking Committee 
Republicans have written to the SEC, asking basic questions 
about how the SEC developed the climate disclosure rule. 
Instead of providing real, substantive answers, the SEC has 
been stonewalling us. Well, the SEC may not want to answer to 
Congress on its climate disclosure rule, but ultimately, the 
SEC will have to answer to the courts, which should make it 
nervous. The Supreme Court has repeatedly held ``Congress does 
not alter the fundamental details of a regulatory scheme in 
vague terms or ancillary provisions. It does not, one might 
say, hide the elephants in mouse holes.''
    This summer, the Supreme Court applied this sensible 
principle in the West Virginia v. EPA case. There, it ruled 
that the Executive branch and its agencies cannot use novel 
interpretations of existing law to pretend that they have got a 
legal authority to support sweeping policy changes, including 
on climate change, that Congress never intended. Well, that is 
precisely what the SEC appears to be trying to do with its 
climate disclosure rule. The SEC should consider itself to be 
on notice by the Court that the separation of powers still 
exists and will be upheld.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    Today, we will hear from Securities and Exchange Commission 
Chair Gary Gensler. This is his annual trip here, but he 
sometimes does that more often, and we thank him for that.
    And, Chair Gensler, you are particularly welcome because 
this will--we have a very good, well above average turnout 
today, so enjoy that, but thank you for joining us, Chair 
Gensler.

STATEMENT OF GARY GENSLER, CHAIR, U.S. SECURITIES AND EXCHANGE 
                           COMMISSION

    Mr. Gensler. Chair Brown, Ranking Member Toomey, and 
Members of the Committee, I am honored to appear here before 
you today. I want to start just by thanking you, this Committee 
and all of Congress, for confirming our two new commissioners, 
Mark Uyeda, who I know worked up here on the Hill, Jaime 
Lizarraga, who worked on the other side of the Capitol for 32 
years, terrific commissioners. It is welcome that we have a 
full complement.
    As is customary, I want to say that I am speaking for 
myself; I do not speak on behalf of the fellow commissioners or 
the staff in this hearing.
    I would like to start by just discussing 2 key years in 
policymaking a while back: 1933, 1934. I think it was when 
Chair Fletcher sat in this seat, Chair Brown, if I recall my 
history right, but it was in the middle of the Great 
Depression. And President Roosevelt and Congress addressed the 
crisis through a number of landmark reforms, and among them, 
Congress and FDR came together to craft the first two Federal 
securities laws. In 1933, President Roosevelt also suspended 
the use of the gold standard. In other words, in those two 
critical years, one could say that we replaced one gold 
standard with, I would like to say, another, the securities 
laws.
    I really do believe the core principles of the securities 
markets have contributed to America's economic success and 
geopolitical standing. There was a basic bargain in there that 
investors get to decide on what risks they want to take, but 
there was a cop on the beat in securities laws where there was 
full, fair, and truthful disclosure.
    As we execute our mission to protect investors, maintain 
fair and orderly, efficient markets, and facilitate capital 
formation, we cannot take the leadership for granted, though. 
Even gold medalists, especially gold medalists, constantly 
train to stay ahead of the competition. And I do thank Senators 
Kennedy and Van Hollen to help us a little bit with this issue 
with China. We must remain vigilant to opportunities to drive 
greater efficiency, integrity, resiliency across our remit.
    First, markets work best when they are efficient. Now what 
does that mean? That means that there is competition, there is 
transparency in the middle of the market. When we lower the 
costs in the middle, that means issuers have lower costs to 
raise money and investors get better returns.
    So we have done a lot, but we have not updated our national 
market system, our equity system in 17 years. Imagine if you 
had in your pocket a phone that was 17 years old. You would 
think, oh, my God, maybe I should update that phone. Technology 
moves fast.
    We are also looking at the efficiency of our Treasury 
market and, yes, our private funds market. Issuers and 
investors also would benefit from greater competition because 
it lowers the cost of capital, as I said.
    Second, our system works best when there is integrity in 
the market, and hence, we have rule proposals to bring greater 
integrity into the market around special purpose acquisition 
companies, the insiders trading plans, and so forth.
    But another area is crypto, as Ranking Member Toomey 
raised. Of the nearly 10,000 tokens in the cryptomarket, I do 
believe that the vast majority are securities. Offers and sales 
of these securities tokens are covered by the securities laws, 
and given that, as the Ranking Member quoted me as saying, it 
follows that many crypto intermediaries are transacting in 
securities and have to register with the SEC in some capacity.
    I would note when Chair Fletcher was in that seat there was 
not a central electronic clearing and you could actually 
exchange a security, person to person, in a paper form.
    Thus, staff is working with market participants to help 
ensure investors get time-tested protections in the market. In 
that work and any work that Congress does, I do think we have 
to make sure that we do not inadvertently undermine the 
securities laws underlying a $100 trillion capital market. That 
is the sort of motherlode. That is our capital markets. Crypto 
is \1/100\th that size.
    Third, markets work best when they are resilient, both in 
normal times and stress. We have seen those stresses in 2008 
and 2020. History tell us, no doubt, we will have stresses 
again in the future. That is just the nature of economics and 
finance. Thus, we have a number of projects on resiliency. This 
includes shortening the settlement cycle. This includes the 
work we are doing in the Treasury markets. It includes the work 
we are doing around money market funds and open-end funds and 
cybersecurity.
    In all our work, we are anchored by the laws Congress 
passed, the courts' interpretation of those laws, economic 
analysis, and public input. And as the Commission, we benefit 
greatly from public input including from Congress and this 
Committee, Members, and I stand ready to meet with any of you, 
one on one, nearly any time you want. We benefit from that 
feedback.
    Our capital markets are the gold standard. Let us do 
everything we can to keep them that way.
    I thank you. I look forward to questions.
    Chairman Brown. Thank you, Chair Gensler. I think what you 
have said--and I have heard you say this before in smaller 
groups, publically, and bigger groups--that we cannot allow the 
cryptomarket to undermine a $100 trillion capital market, that 
is fundamentally our job here. Consumer protections, all that, 
but fundamentally that is our job in the Banking, Housing, and 
Urban Affairs Committee, and that is yours.
    You have made improving transparency in corporate 
disclosures a priority. In addition to the climate risk 
disclosures, enhanced stock buyback information I mentioned 
earlier, the Commission is addressing cybersecurity risks, 
improving visibility, if you will, into concentrated ownerships 
of stocks. Discuss briefly why it is critical that we improve 
these types of disclosure for investments, large and small 
investors, and for how markets operate.
    Mr. Gensler. I would say, there is two core things and it 
goes back to our founding. One was this basic bargain that 
investors get to decide as long as they get the full and fair 
disclosure, material disclosures, but full and fair 
disclosures, and they get to decide, and you cannot defraud 
them and mislead them. That lowers the cost of capital actually 
because then there is trust in the market.
    The second thing that transparency does is it helps promote 
competition in the markets, and competition, that is the nature 
of things. It promotes our economies as well and that 
competition amongst intermediaries, amongst people trying to 
raise money from the public.
    So I would say those are the two things, not to mention 
also market integrity.
    Chairman Brown. Thank you. I have noticed today--I 
commented, and Senator Toomey has confirmed this, that we have 
seen--we will see an unusually high turnout of Republicans for 
this hearing today. I think that the turnout of Republicans, 
many of whom, against all evidence--many Republican Senators, 
many of whom, against all evidence, are climate deniers, will, 
I would assume, ask you questions about that, but let me go 
with that.
    On climate risk disclosure, specifically, discuss why your 
Agency is--what you are proposing is not, quote, making climate 
policy but, rather, how improving disclosure helps all 
investors.
    Mr. Gensler. Well, it is because right now hundreds of 
companies and investors representing not trillions, but tens of 
trillions of dollars of assets under management, are in this 
conversation already. Investors get to decide. We are not a 
merit regulator. Some people think we might be; we are not. We 
are a disclosure-based regulator.
    But investors today want to know about climate risk because 
it matters to the future path of the performance, financial and 
other performance. What are customers going to do? What is the 
supply chain going to do? What might happen around the globe? 
Because our U.S. issuers are operating in many jurisdictions 
around the globe.
    So it really does go back into when I buy or sell a stock, 
or vote a proxy, climate risk matters to those investors. We 
have a role to help bring some consistency to those 
disclosures, so they are already happening.
    Chairman Brown. Your clearly saying you are not a merit 
regulator but a disclosure regulator is really important here, 
and I hope my colleagues remember that you said that and think 
that through as they ask their questions.
    Let me ask about crypto in the last minute-and-a-half, the 
cryptomarkets type securities and banking and commodities laws. 
My colleagues developed legislation, as you know, that would 
give the CFTC jurisdiction over part of the cryptomarket. 
Remind us why it is important--I will ask two questions 
together, so you can take the last minute-and-a-half.
    Remind us why it is important for financial regulators to 
coordinate oversight to make sure that gaps or loopholes do not 
exist. And, would you agree to continue to work with our 
Committee, the CFTC, and the banking regulators to make sure we 
get this right?
    Mr. Gensler. I do commit to that. Let me just say, when I 
say that it is important to protect and ensure that the $100 
trillion securities market works, it is because that is the 
heart of how we price risk in our financial markets and how 
investors save. And this Committee and the House Financial 
Services Committee oversees that and wrote into law that there 
was one cop on the beat, one regulator.
    The definition of securities should be, I think, kind of 
the exclusive remit of these two Committees--you know, I am 
looking across the aisle--and the agency that you set up. If we 
end up with that there is multiple Federal agencies defining 
what a security is and another agency tries to define it, it 
could undermine what we are doing as to when is a Treasury 
security a security, when is something else in the equity 
markets or elsewhere a security.
    To your question about working together, we work together 
with the other Federal financial regulators. We just yesterday 
announced something in the Treasury markets that we worked hand 
in glove with the Treasury and the Federal Reserve. With the 
CFTC, I was honored to chair that agency. I love the Agency, 
the CFTC. I love the SEC. It is like my three daughters.
    But I do want to say that we work closely with the CFTC 
with regard to a recent rule that we put out, and there are 
many parties in the markets that are dual registrants. We have 
dual broker-dealer registrants that are registered with the 
CFTC and us, so as well on the fund advisory side. If Congress 
moved forward to give the CFTC greater authority, let us say 
over Bitcoin, then we would, of course, work together, but we 
have already worked together dually on a number of enforcement 
actions in the crypto space.
    Chairman Brown. Thank you. One brief statement: Your 
testimony mentioned the enforcement division shrank by 5 
percent over the last 5 years; yet, despite that, the SEC has 
pursued new cases in crypto, focused on fraud and misconduct 
for financial professionals and securing admissions of guilt. 
That does not happen often enough. I thank you for doing that.
    Ranking Member Toomey.
    Senator Toomey. Thank you, Mr. Chairman.
    Chairman Gensler, in your written statement, you 
acknowledge, as you have in the past, that there are some 
tokens that are not securities, and I know your view that 
whether or not a digital asset is a security is a facts-and-
circumstances analysis. I know your view that the SEC has very 
broad authority, but you have also made it clear in the past 
that Bitcoin is not a security.
    Now some SEC staff have also previously said that Ethereum 
is not a security. The SEC's DAO report characterizes Ethereum 
as decentralized.
    So here is my question. Briefly, and without getting deep 
into the weeds on this--and I acknowledge your belief that most 
tokens have a large degree of central control. But, generally 
speaking, is it fair to say that a significant factor for you 
in whether or not a digital asset is a security is whether it 
is centrally controlled or decentralized?
    Mr. Gensler. Well, I look to the Supreme Court that has 
often written about this, probably close to a dozen times in 50 
years. And it is whether the investing public is anticipating 
profits, and that includes anticipating profits from 
appreciation as well as from, as you mentioned, rights based 
upon a common enterprise----
    Senator Toomey. Right.
    Mr. Gensler. --but the efforts of that common enterprise.
    Senator Toomey. Right. So I guess another way to put my 
question, which you have not answered is: Is it possible to 
have a common enterprise if it is something that is 
decentralized? How could it have a common enterprise? I mean, 
isn't centralization necessary to constitute a common 
enterprise?
    Mr. Gensler. You could have some things that are quite open 
but still have if the public is anticipating a profit based 
upon that common enterprise. So I am being careful with my 
words here to be accurate as best I can. The common enterprise. 
Are you relying on a group of individuals?
    And, look, these are not laundromat tokens. There is a 
group of people that are actually----
    Senator Toomey. No, you are not answering my question, 
though. Let me try it this way. What is it about Bitcoin that 
causes you to conclude it is not a security?
    Mr. Gensler. Well, there is--one is there is no group of 
individuals in the middle.
    Senator Toomey. Right. It is decentralized.
    Mr. Gensler. There is no group of individuals in the 
middle----
    Senator Toomey. Right.
    Mr. Gensler. ----that are basically--and you are not--in 
essence, we are----
    Senator Toomey. So----
    Mr. Gensler. The investing public is not betting on 
somebody in the middle or six people in the middle.
    Senator Toomey. So you are choosing not to word--use the 
term ``decentralized,'' but that is what you are describing. It 
is the decentralized nature of Bitcoin, I think, is really what 
you are getting at.
    Here is my point, and I am going to run out of time here. 
But, there are a lot of projects, as you know, that--I mean, 
decentralization and centralization occurs on a continuum 
really, I think. And you have acknowledged that there are 
tokens, plural, that are not securities. I think it is because 
of the centralization that you come to this conclusion.
    And my point is it is not reasonable to fail to provide 
clarity, to provide the definition of exactly where on this 
continuum you have a sufficient common enterprise that it 
qualifies as a security and where you do not.
    You have said Bitcoin does not. Some of your colleagues 
have said Ethereum does not. But a reasonable developer who 
wants to comply with this does not know where that line is 
drawn.
    Mr. Gensler. So I think we might have differences. There 
are many factors, and so it is not one spectrum of 
centralization versus decentralization.
    What the Supreme Court--and I try to stick to--they are the 
Supreme Court, and you know, there will be debates about other 
laws. I try to stick to what they say, a common enterprise. I 
think about a group of individuals in the middle. That 
developer is in the middle, and the investing public is betting 
on them, counting on them.
    Even if the token might be on a thousand computers, that is 
not what the Supreme Court is looking at. It is not about the 
token being on a thousand computers. It is just like a group of 
developers in the middle.
    Senator Toomey. If there is nobody controlling it in the 
middle, that is what we call decentralized, and that does 
happen.
    As you know, of course, the Howey Test requires all four of 
the tests to be met in order for something to be defined as a 
security.
    Let me move on to another related issue which is, as I said 
in my opening statement, I do not think that the SEC has 
provided a crypto-specific roadmap to the registration of 
crypto intermediaries. One example of the problem that arises 
is the SEC's consumer--customer protection rule was written in 
1972 and does not address how a broker-dealer should hold a 
customer's blockchain private keys, for instance.
    Now I know the SEC claims to have provided relief, but the 
relief has very onerous contingencies. It is time-limited, and 
my understanding is few, if any, broker-dealers have been able 
to comply.
    So I know you have said many times you want to have the 
industry, the intermediaries come in and have a conversation 
with the SEC about this. But wouldn't it be better if the SEC 
came out and laid out how you would apply the rules and 
regulations to these novel devices?
    Mr. Gensler. So we are in conversations with a number of 
these intermediaries across the exchange, the lending, the 
broker-dealer, the custody space. As I said a year ago, in the 
lending space, people should make no mistake. And I think it 
sounds like, Senator, you and I might even agree that the 
lending platforms are----
    Senator Toomey. Right.
    Mr. Gensler. ----under the securities laws.
    Senator Toomey. Right.
    Mr. Gensler. But in the exchange space and the broker 
dealer space, I accept that people have not come in and used 
what was put in place under Chair Clayton, that broker dealer 
custody rule that you mentioned. And so I have said to staff, 
let us use everything in our regulatory tool kit, whether it is 
Exemptive Orders and others, to help facilitate and get this 
industry--people will not have trust in this space unless it 
comes into investor protection.
    Senator Toomey. I am out of time, Mr. Chairman. So I would 
just say my concern is that the approach you are taking with 
these one-off discussions, if it did even result in an 
opportunity to comply, it would be this idiosyncratic Exemptive 
Order negotiated with a single company, and that is not a good 
way to pass rules. It ought to be through the APA and a very 
public process.
    Mr. Gensler. If the Chair would forgive me, I think we have 
been very clear through 70 or 80 actions, starting with that 
DAO Order, the Munchee Order, and many others, and they were 
full votes of the Commission, not just staff.
    Second, I just look at other times in history. The SEC and 
the asset-backed securities market took 10 or 11 years where 
they did these, as you would say, Exemptive Orders or relief to 
individual issuers and did a rule at the end of that 10 or 11 
years based upon all that experience. So we actually believe it 
is worthwhile to talk to the industry, talk to the market 
participants, and get them registered.
    Chairman Brown. Thank you, Chair.
    Senator Tester of Montana is recognized.
    Senator Tester. Yeah, thank you, Mr. Chairman, and I want 
to thank you, Chairman Gensler, for being here as always.
    Recently, I led a group of my colleagues writing to you 
about your process for a significant number of proposals that 
the SEC has been working on over the last year. I would think 
that you would agree that it is important there is sufficient 
opportunity for stakeholder input and feedback. One of those 
proposals that I have been hearing about is the enhancement and 
the standardization of climate-related disclosures for 
Investors.
    You probably know that I am a farmer. My wife and I, this 
is our 45th harvest as a matter of fact. And as a working 
farmer, I can tell you that I can understand the importance of 
considering the impacts of climate change. This year was our 
second worst harvest due to drought. Last year, due to extreme 
weather conditions, was our worst harvest. So climate change is 
real, and it appears like it ain't going away. So we have got 
some issues to deal with.
    I also know, though, that access to capital and markets to 
sell our product and to produce our product is really 
important, and I can tell you I understand the burden of 
reporting information. I get surveys nearly every day about 
what I am doing as a farmer. This week, there were a number of 
farm groups that were in that I visited with virtually and in 
person, a number of banks, and they were concerned about this 
rule.
    So from an ag production and agricultural standpoint, as 
you also know, I do not have a lot of options as a farmer. I 
tell folks, when I wake up in the morning and throw a couple 
hundred gallons of diesel fuel in a tractor, it is not like I 
have got an electric tractor in the garage that I can use. So I 
am pretty well locked into fuel, diesel fuel, carbon-based fuel 
at this moment in time.
    So under this rule, what responsibility would folks in 
production agriculture, specifically Montana farmers, have for 
disclosing their emissions?
    Mr. Gensler. Thank you for that question. Presuming that 
those farmers are not public companies, they do not come under 
the rule, but we have heard from various farm bureaus and, of 
course, the American Farm Bureau Federation. Zippy Duvall, and 
I have talked about this, and other Members probably know 
Zippy.
    Public companies would have an obligation under the 
proposal with regard to greenhouse gas emissions, their own 
emissions, and then we say in the rule that they estimate their 
supply chain emissions if it is material. So it has got a 
materiality catch, but it is just that they estimate. And we 
have heard some folks in the farm----
    Senator Tester. Community.
    Mr. Gensler. Community. Thank you. The farm community. That 
they are concerned. And so we are taking a very close look at 
that amongst our 14,000 other comments on this.
    Senator Tester. So let me give you a scenario. Markets are 
really important. I like to direct-market as much as I can, but 
not much is direct-marketed off of my farm. OK? I sell to 
publically owned companies. OK?
    Let us just take wheat for example. I sell wheat to a 
publically owned company, and they start doing their assessment 
on climate impacts, which I certainly do not have a problem 
with, by the way. What am I--as a farmer who sold them grain, 
for example, or you could say cattle or pick a commodity, if 
the company says to me, look, if you are going to do business 
with me, I got to have all this information, what are my 
recourses?
    Mr. Gensler. So what we put out--and again, we got some 
very good comments, and we are working through this--is that 
that public company you sell to does not have any obligation to 
ask you, specifically. They either need to estimate or, if they 
do not have an estimate, just discuss how they are managing 
that Scope 3.
    But I would say this is what the public comment process is 
about. We have heard from 14,000 other people but particularly 
in the farm community and how we sort of address this to lower 
the cost because the intent, Senator, is not that--whether it 
is the farm community or other community, if they are not 
public companies, they are not under this rule.
    Senator Tester. I have got it, but my concern, as I 
indicated with my previous statement, was we sell to public 
companies. I mean, the vast majority of the product that is 
sold is to a public company. And if the public--and I just 
bring this to your attention, and I do not want to repeat 
myself. But if the public company says, hey, we need you, Jon 
Tester, T-Bone Farms, to tell us how much fuel you used, how 
much fertilizer you used, how much your inputs were and all 
that, it becomes an issue. It becomes an issue, especially for 
the little guy who is, you know, out there running a tractor or 
fixing that tractor and does not have a lot of time to sit in 
the house behind a computer.
    Mr. Gensler. And I will say two things. One is that is not 
the intent of what we did, particularly how we did it with a 
safe harbor and only estimates, but two, that is the benefit of 
public comment.
    Senator Tester. Sure.
    Mr. Gensler. That is why this helps us. And of course, we 
will put this hearing in the public record, in our public 
record as well.
    Senator Tester. Thank you, Chairman.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Tester.
    Senator Tillis from North Carolina is recognized.
    Senator Tillis. Thank you, Mr. Chairman. I want to try and 
fulfill your expectation that some Republicans are going to 
bellyache during this hearing.
    Chairman Brown. Thrilled you listened to my opening 
statement.
    Senator Tillis. I did, and I also listened to Senator 
Toomey's. I have been watching this in my office and want to 
get back to something that Senator Toomey mentioned. You know, 
we sent an oversight request several months ago, I think a 
follow-up on July the 21st, looking for a written response to 
our oversight request.
    Chairman Gensler, I know your office, in the initial 
response, provided a one-page response that suggested that we 
meet with staff. I am kind of curious when we could expect 
specific written response to the oversight request that 
Republicans have sent you.
    Mr. Gensler. Sir, we do stand ready, the staff, to meet 
with your staff, to walk through the process, the process that 
we have on any rule. We put out to the public--and that release 
was in hundreds of pages--our economic analysis and the 
rationale and reasons for that.
    Senator Tillis. I think about 500 pages long.
    Mr. Gensler. That is correct. That is correct. And we stand 
ready, again, to meet and walk through that process with you.
    Senator Tillis. Then I guess maybe we can just get a 
commitment. There may be other Members who are interested. But 
absent a written response, getting a commitment from you to 
meet so that we can go through and get the answers to the 
specific questions we had in the oversight request?
    Mr. Gensler. We stand ready to have staff meet to go 
through and generally talk about the process. I mean, I want to 
be careful because it is really about to talk about and try to 
address the questions that you have and the concerns.
    But, again, this rule is rooted in decades of law, and it 
is about a conversation that is already going on between public 
companies and their investors. And investors, I think, would 
benefit if we can bring some consistency to this fragmented 
disclosure that is happening now.
    Senator Tillis. We may follow up with staff, but we are 
going to continue--first, again, congratulations on your 
confirmation, but we are going to continue to press on answers 
to some of the specific questions, but thank you for that.
    The U.S. Treasury market is the single-most important 
market in the world. Do you agree with that?
    Mr. Gensler. It is the base upon which the rest of our 
capital markets exist.
    Senator Tillis. It does a lot. It is important to monetary 
policy. It is important in protecting retirement savings for 
U.S. workers. We can run down a long list.
    I think your recent SEC proposal could inadvertently 
curtail involvement and liquidity in the Treasury market. I am 
kind of curious. Did the Commission really intend to require 
customers to register as dealers?
    Mr. Gensler. We put out a proposal earlier this year based 
on a 1986 law about dealer registration.
    Senator Tillis. Yeah. My understanding is the proposal 
would classify any firm as a dealer if it transacts more than 
specific amount per month. Is that true?
    Mr. Gensler. There is two prongs, but yes, it had over $25 
billion a month.
    Senator Tillis. So how would a pension fund that frequently 
transacts in the Treasury market and exceeds the trading 
threshold set by the Commission, in order to protect the 
retirement savings of its members, be considered a dealer under 
any common-sense interpretation?
    Mr. Gensler. It is about whether you hold yourself out--the 
statutory definition is about holding yourself out regularly 
and transacting in a marketplace. There is not--by the way, 
that number--and we go through this economics in the proposal--
would not cover pension funds as we know it today.
    Senator Tillis. So the nature of the trading would matter, 
too?
    Mr. Gensler. It is the size and scale of the Treasury 
markets, as large as they are. It is also that their pension 
funds are not trading at those types of levels that you 
mention.
    Senator Tillis. I have got a series of other questions, but 
it would take me probably longer to ask it than I have time 
remaining, so we will be submitting several questions for the 
record.
    And, again, I want to go back to the oversight request. We 
need to kind of figure out how we can get the specific answers 
to the question. I am happy to have my staff meet with you, but 
we would also like to get a formal written response to the 
request that we have now requested, a response in writing. A 
discussion is good, but we will continue to press for that. 
Thank you.
    Mr. Gensler. Thank you, Senator.
    Chairman Brown. Thank you, Senator Tillis.
    Senator Menendez, you may proceed.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Gensler, the last time you came before the 
Committee, I asked you to move expeditiously to adopt the Asset 
Management Advisory Committee's recommendations on diversity, 
and last October, 22 Senators, including 9 Members of this 
Committee, sent you a letter supporting the recommendations and 
asking for immediate approval. Can you give us an update on the 
status of adopting these recommendations?
    Mr. Gensler. So I thank you, Senator. We have looked at--
there was four recommendations, and there are some subpoints in 
those recommendations. And working--and I think we have 
informed your staff about this with regard to two important 
ones in there. One is a recommendation around guidance, staff 
guidance on how asset managers are selected and whether their 
years of service or their assets under management could be--
need to be taken into consideration or not, and another one is 
with regard to EEO complaints and how those complaints are 
shared with other agencies and the like. And I think we have 
made some good progress on those two. I feel that staff will 
probably shortly be putting out that guidance, and we continue 
to look at the other two matters.
    Senator Menendez. Well, look, I appreciate that you are 
giving some of these recommendations serious attention, but at 
the same time I must say I am disappointed. In so many other 
areas, the SEC under your leadership has taken bold steps to 
protect consumers, to strengthen oversight of markets, such as 
your proposed climate risk disclosure rule. However, when 
presented with AMAC's noncontroversial, unanimous 
recommendations that would promote diversity in the asset 
management field, you have not been as aggressive. So can you 
commit to make concrete progress on these recommendations by 
the end of the year?
    Mr. Gensler. So, Senator, I take very seriously how 
important diversity, inclusion, equity is important broadly in 
our society but to the SEC as an agency. Our senior leadership 
is probably the most diverse and inclusive that we have ever 
been as an agency. We continue to lean in to try to make sure 
that at our agency everybody can bring their best self to work 
and work and that we get the benefit of the talent across this 
great Nation.
    And in terms of policy, it is held up in court right now, 
but last year a self-regulatory organization, Nasdaq, put in 
place a listing requirement with regard to their boards of 
directors and diversity, and that was their decision, not ours. 
It predated me, but we approved that.
    And on these four Committee recommendations, as I said, I 
think we have made some pretty good progress on two of them, I 
think that guidance will be out in the near term, and we 
continue to work on the others.
    Senator Menendez. Well, I would like to highlight one of 
AMAC's recommendations that I think would be particularly 
impactful. The AMAC recommended that the SEC require enhanced 
disclosure by investment companies and investment advisors 
regarding diversity within their workforce and leadership. You 
and I have spoken about the importance of leadership diversity 
at your confirmation hearing. I just heard your comments now. I 
think that disclosures about diversity are incredibly 
important, which is why I introduced the Improving Corporate 
Governance through Diversity Act.
    Do you agree that enhancing diversity disclosures for 
advisory firms, investment company boards and consultants would 
empower investors and fund managers to make more informed 
decisions?
    Mr. Gensler. Again, as I said, I think that we benefit in 
our organization, at the SEC, and in our great Nation by 
tapping into the talents across our diverse Nation, and we 
continue to look at this recommendation of AMAC with regard to 
disclosures.
    Senator Menendez. But one of the key findings of the AMAC 
study is that--and for my colleagues, AMAC is an advisory board 
that is created, you know, under the--I believe it is the SEC. 
So one of their findings is that, quote, Investment performance 
by diverse asset managers is equal to or greater than the 
investment performance of firms that lack diversity in 
ownership and senior leadership despite differences in size and 
length of track record. And that is why they recommended that 
the SEC issue guidance clarifying that fulfillment of fiduciary 
duty does not require automatic exclusion of asset managers who 
are new to the industry or do not meet a certain threshold of 
assets under management.
    In your view, is it necessary for fiduciaries to 
automatically exclude new or smaller asset managers in order to 
fulfill their duty?
    Mr. Gensler. Senator, on that, on the guidance, I share 
that view, I think, that you just said, and I think that is the 
guidance that the staff is working to put. And you are right; 
the AMAC is a Federal advisory committee. It is under the FACA 
committee clause.
    Senator Menendez. Let me close by saying, fundamentally, 
using the excuse of fiduciary duty to exclude women- and 
minority-led firms runs contrary to the actual data. AMAC's 
study, along with a host of other studies by McKinsey, for 
example, and others, have repeatedly shown that diversity-led 
firms outperform their non-diverse counterparts.
    And so given this data, I think that we can agree that new 
or smaller asset managers being automatically excluded under 
the guise of fiduciary duty is actually not helping investors; 
it is harming them. And so that is why I have been pressing on 
these issues and will continue to work with you. We hope to 
have a robust response by the Commission.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Menendez.
    Senator Kennedy from Louisiana is recognized.
    Senator Kennedy. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman, for being here today. I want to 
also thank you for you and your good--your colleagues' good 
work on implementing the Holding Foreign Companies Accountable 
Act. Can you give us a quick overview about where we are? 
China, I understand, has come to the negotiating table, and you 
have negotiated a statement of protocol. Could you give us an 
update on the status of your good efforts?
    Mr. Gensler. Yes, and again, I want to thank you because 
Senator Van Hollen--just came in--and you, you shepherded that 
through. I think that the Holding Foreign Companies Accountable 
Act gave us the additional leverage to work with Chair Williams 
down at the PCAOB, and we had numerous meetings with the 
Chinese.
    We said to the Chinese last August, a year-plus ago, that 
we would not be willing to send the inspectors over to China to 
look at the audit work papers and the like unless we could get 
a very detailed, prescriptive statement of protocol to 
effectuate the will of Congress, and at its core it said how 
can you trust the numbers in these Chinese companies unless 
there is somebody in the U.S. who is auditing the auditor, so 
to speak, technically inspecting and investigating. They did 
sign that. We thought it was important to get that signed.
    The PCAOB is sending inspectors over. I think they are on 
flights tomorrow because I think it starts Monday the 19th and 
it takes about 8 to 10 weeks to get through, so we will 
probably know somewhere around Thanksgiving or early December.
    And I do not know if the Chinese are going to comply. They 
have told me--I mean, the Ministry of Finance has told me 
directly on Webex calls, and the Chinese Securities Regulatory 
Commission has said they will comply.
    And it is pretty clear: No redactions in the work papers. 
Take testimony from whomever the PCAOB needs to take testimony 
from. They can onward share the information to us, and they can 
pick whichever companies they want to look at.
    Senator Kennedy. I am not sure they will comply either, but 
they moved further toward compliance than at any point in the 
past. Senator Van Hollen and I have a bill that has passed the 
Senate, as you know, being considered by the House, to move the 
deadline from 3 years to 2 years with respect to which if they 
do not comply we tell them to leave our exchanges, and I think 
that might help if we can get that passed. And I appreciate 
your good efforts there.
    In my last 2 minutes, I wanted to shift gears on the 
climate risk disclosure, and I do not mean to be critical. I am 
trying to understand because I thought Senator Tester raised 
some very good questions. What is your best guess of the cost 
of compliance with your climate risk disclosure rules?
    Mr. Gensler. So, one, I do support your accelerating the 
Holding Foreign Companies Accountable Act----
    Senator Kennedy. Thank you.
    Mr. Gensler. ----to 2 years versus three because I think it 
will continue to have the right leverage. Even if the Chinese 
authorities and the Chinese regulators allow for compliance 
this year, what about next year, what about next year? So I do 
support that.
    Senator Kennedy. Thank you.
    Mr. Gensler. In terms of the climate rule, we lay out in 
this proposal all the economic analysis. And I do not mean to 
speak for the numbers in that, but by company----
    Senator Kennedy. What is your best guess, if you could? I 
am sorry to interrupt you here, but I have only got a minute 
left. What is your best guess of the cost of it to comply?
    Mr. Gensler. So, per company, we lay that out. And 
depending on the size--and I just do not want to misspeak--it 
is, you know, from a couple hundred thousand to--I apologize.
    Senator Kennedy. What is the total?
    Mr. Gensler. And the total cost, I think Senator Toomey 
accurately quoted it. You were not maybe in the room. It is 
measured in the single-digit billions across the entire 
economy. But what we benefit from is also people are coming in 
and----
    Senator Kennedy. Yeah, yeah.
    Mr. Gensler. ----you know, giving us critical analysis to 
whether we are accurate.
    Senator Kennedy. I understand. I am sorry to interrupt, but 
I am going to run out of time. Here is my question: It will 
cost billions of dollars to comply. Those are scarce resources. 
To the extent that people like Senator Tester has to spend the 
money to comply, they cannot spend the money on something else.
    Presumably, the purpose of the rule is to focus investors' 
attention on the risk of climate change so that they will 
demand that companies do a better job, the purpose of which is 
to lower the world's temperatures. Am I doing OK?
    Mr. Gensler. Actually, it is--but that is not the purpose. 
The purpose--I mean, I can speak for the five-member Commission 
but also for myself. We are not a merit regulator. So the 
purpose actually is not to do what you said but just for 
investors to get the information.
    Senator Kennedy. I think the people supporting the rule, 
that is their intention.
    Mr. Gensler. That is not why I support it.
    Senator Kennedy. OK, fair enough, but I think that is what 
most people expect. You put pressure on the companies to 
disclose. Shareholders put pressure. People do a better job.
    But I would like to see--while you are asking Senator 
Tester and the other people to estimate, I would like to see 
some sort of estimate of how much all this money spent on 
compliance is going to lower world temperatures. I mean, we are 
spending--I believe in clean air and bright water. You know, I 
want to be able to eat and live indoors.
    But what bothers me is while we are spending these 
trillions of dollars of scarce resources India and China--China 
gets 60 percent of its energy from coal. China has 3,500 coal 
fueled power plants. We have got less than 100. We do not have 
any kind of agreement with India or China for them to reduce 
emissions. So we spend all of this money, and world 
temperatures are not reduced.
    Can you give me your----
    Chairman Brown. Chair Gensler, answer the question briefly. 
Thank you.
    Mr. Gensler. The good news is that is not what our 
authorities are or what motivates this one commissioner. It is 
about actually helping investors get more consistent 
information. Even if they want to invest in what might be brown 
assets rather than green assets, they will get more consistent 
information and we will probably lower some of the greenwashing 
that is out there and other things like that.
    Senator Kennedy. Thank you for your indulgence, Mr. 
Chairman.
    Chairman Brown. Thank you, Senator Kennedy.
    Senator Van Hollen of Maryland is recognized.
    Senator Van Hollen. Thank you, Mr. Chairman.
    And, great to see you, Mr. Chairman. Great to see an SEC 
Chairman from the great State of Maryland.
    Mr. Gensler. It is great to see my Senator.
    Senator Van Hollen. Yeah, right. Let me just pick up on the 
first point that Senator Kennedy raised in terms of 
implementation of the Holding Foreign Companies Accountable 
Act. I just want to thank you and your team for pursuing that.
    I also agree we should shorten the time period to 2 years, 
and I want to thank Senator Kennedy for his work on this. The 
idea, of course, was to make sure we protect American 
investors, especially smaller investors, by ensuring that all 
companies listed on our exchanges comply with our accounting 
rules.
    And I know you had very tough negotiations with China. 
Thank you for keeping us informed. The ultimate proof is in the 
pudding, right? Their execution of it. But I do want to salute 
you and your team for all your efforts to date on that.
    I also want to thank you for moving ahead on a rulemaking 
to crack down on abuses of 10b5-1, trading plans by insiders. 
At the beginning of this Congress, Senator Fischer and I 
introduced legislation directing the SEC to undertake such a 
rulemaking. You did it, and we are monitoring that carefully.
    I do not know if you saw the Wall Street Journal article 
back in June, which I think, along with other studies, revealed 
clear abuses by insiders in these areas. And of course, when 
insiders benefit, it means the investors lose often because 
sometimes these are gamed to take the gains before the overall 
value of a company decreases stock value. So I want to thank 
you for that, and we are monitoring that.
    I also want to thank you and your team for recognizing the 
real issue of fraudulent scams, securities scams, often 
directed against seniors. These amount to up to $3 billion 
every year. And we have a bipartisan bill here that I know the 
Chairman and the Ranking Member are probably tired of hearing 
of, but I appreciate their, I think, support for the bill which 
is to empower states to better crack down on this fraud by 
creating a grant, Federal grant, through the SEC to help them 
out. And we have heard testimony on behalf of state insurance 
commissioners and state securities commissioners strongly 
indicating their support.
    So you recognize this as a big problem that we should deal 
with, do you not?
    Mr. Gensler. Oh, I do. I think that fraud, as you said in 
the elder community, or sometimes it is affinity-based fraud, 
we see all too much of it at the SEC in our weekly enforcement 
meetings.
    Senator Van Hollen. I am sure you do, and we want to pass 
this legislation just to better fortify states to crack down on 
this kind of fraud.
    We are working with you on the TICKER legislation as well, 
Senator Scott from Florida and I.
    I want to ask you about something you and I have spoken 
about before, which is country-by-country reporting disclosures 
by big, multinational corporations. We are seeing jurisdictions 
around the world, including the EU and now Australia, move 
toward increased disclosure requirements for large, 
multinational corporations to disclose the countries in which 
they book profits and pay taxes as a way to mitigate tax risk 
to investors. We have a changing international tax 
environmental, and clearly companies that have put a lot of 
eggs in putting their profits in sketchy tax havens, their 
investors are at risk, and that is why we believe as part of 
providing investors with necessary information we should 
provide country-by-country disclosures.
    I was pleased to see the SEC take steps to protect 
investors' interest in May by allowing them to put forward a 
proposal at Amazon's shareholder meeting that would ask the 
company to disclose its country-by-country reporting.
    So my question, Mr. Chairman, is: In this rapidly changing 
international cooperation tax landscape, can you look at this 
question about whether new investor disclosures are needed in 
this area?
    Mr. Gensler. So, Senator, I thank you. And we are looking 
at it, and as I discussed with you when we got together on the 
phone, the Financial Accounting Standards Board actually has a 
project, and we sometimes, you know, let them know. And I want 
to say publically here I support the Financial Accounting 
Standards Board's project around breaking out and 
disaggregating tax reporting for public companies.
    I believe that--I do not want to speak for them, but--in 
the next handful of months they are going to go forward. And it 
breaks out I do not think every country, but I think the top, 
you know, couple of handfuls of countries. And then they will 
sort of promulgate that, get public feedback, and back and 
forth. But I think that that would be a productive approach, to 
have such disaggregation that FASB is considering right now and 
has an active project on.
    Senator Van Hollen. Thank you, Mr. Chairman. I may have 
some questions to submit for the record, but I appreciate it. 
Thank you.
    Chairman Brown. Thank you, Senator Van Hollen.
    Senator Cortez Masto from Nevada is recognized.
    Senator Cortez Masto. Thank you.
    Chairman Gensler, it is good to see you. Thank you for 
being here.
    Mr. Gensler. Good to see you.
    Senator Cortez Masto. Let me talk a little bit about crypto 
regulation. Under your tenure, the SEC has pursued enforcement 
actions against crypto asset insurers. However, few cases have 
been brought against the exchanges, and crypto assets are, as 
we know, traded primarily through the exchanges. The SEC has 
proposed that intermediaries should be regulated under the 
Exchange Act.
    So could you address this? Why should crypto asset 
intermediaries and exchanges be regulated under the Exchange 
Act, and if you would, how would investors and market 
participants benefit from regulating crypto assets under the 
Exchange Act?
    Mr. Gensler. So, I thank you. It is actually fairly 
straightforward because of these 10,000 cryptotokens. Without 
prejudging any one of them, I believe that the vast majority 
are securities because there is a--somebody in the public is 
betting on a better future, betting on anticipating profits, on 
a common enterprise group of entrepreneurs in the middle. And 
then given that, these intermediaries that often have 50 or 500 
tokens, or 150 tokens, they are going to have a bunch of 
securities on that platform.
    How does it benefit the public? It is the time-tested 
protections that these crypto exchanges would protect against 
front-running and manipulation, and there is transparency as 
you go into the New York Stock Exchange or into Nasdaq or the 
like. This Committee has worked on laws long ago. I 
complimented Chair Fletcher, who was here in 1934 and did it, 
but long ago, for that very reason, the public benefits.
    Right now, frankly, there is a fair amount of 
noncompliance, and so we are going to continue to try to work 
with the intermediaries, get them inside and regulated, if need 
be, use our tool kit, our regulatory tool kit to adjust and 
facilitate because there are some differences, as Senator 
Toomey and I talked about earlier.
    Senator Cortez Masto. Would you be able to, through the 
enforcement, also identify potential money laundering activity?
    Mr. Gensler. It is more the remit of the Department of 
Treasury. However, one of the key things under, as I 
understand, the money laundering laws, the SEC has a role that 
our registrants, the exchanges, the broker-dealers have certain 
compliance obligations over with the Financial Crimes 
Enforcement Network at Treasury. Once they register, or whether 
they should register--and I believe it is even if they do not 
register but they are legally required to--they have to comply 
with that.
    Senator Cortez Masto. Thank you. Let me jump back to--
because I do think Senator Kennedy--and I appreciate his 
willingness to explore, to understand the issue of ESG and the 
requirement.
    My understanding--and thank you for your position and how 
you perceive that regulation. But because now we have a whole 
new generation of investors that are really conscious about 
green and going green, there are new investors now that are 
looking for ways to invest to be consistent with their values 
in this role, correct?
    Mr. Gensler. There are. There are also investors that are 
just thinking, because of climate risk, it could affect the 
financial performance of a company; it could affect their 
supply chain; it could affect their competition; it could 
affect future regulations. So they are thinking about how to 
value today that future transition risk.
    Senator Cortez Masto. Thank you. And then there was also 
conversation--and I appreciate this as well--about the issue of 
greenwashing, and I know some major global asset managers and 
climate advocates have stated that the ESG integration label 
could pose greenwashing risk. Can you talk a little bit about 
that and address that?
    Mr. Gensler. So there are asset managers managing trillions 
of dollars that are saying to the public, we will invest your 
money, your money, in something that is carbon neutral or green 
and the like. And so to me it is about truth in advertising, 
and so we put out some proposals earlier this year to address 
what stands behind a name, literally the name of a fund, and 
are you living up to the obligations that you made or 
commitments you made to your investors when you ask for their 
money. And I think that is really important, about the 
integrity, and it would address some of this, what is sometimes 
called greenwashing.
    Senator Cortez Masto. All right. Thank you.
    Thank you, Mr. Chair.
    Chairman Brown. Thank you, Senator Cortez Masto.
    Senator Rounds from South Dakota is recognized.
    Senator Rounds. Thank you, Mr. Chairman.
    I was going to start out today visiting a little bit about 
farmers and ranchers, but I understand that Senator Tester beat 
me to it. And I think the fact that we really do have a concern 
about the ambiguities that some of our farmers and ranchers 
have right now with what they are going to be expected to try 
to share with providers of products to them with regard to 
downstream environmental impacts, really is of concern, and the 
ambiguity which it has been left with what, you know, can be 
guesstimates and so forth is something that I really think you 
need to take a second look at. It is just----
    Mr. Gensler. Senator, I concur with you. As we talked in 
the anteroom earlier, we thought the proposal had the right 
balance because we said it is only an estimate. It is only 
public companies. It is only if it is material or they made a 
commitment to it and they have a big safe harbor.
    But we heard a lot from the farm bureaus, and so we are 
taking--you know, that is what we do. We take a look of all the 
public comments and see how we can ensure that it does not 
touch those private actors.
    Senator Rounds. And that is precisely what I really wanted 
to talk about. It is one thing with the rules. It is another 
thing when there is an expectation that once the rules have 
been established, if they are really ambiguous, then that means 
that each time they have to come back to a regulator to ask 
whether or not what they are doing is accurate or not. And I 
think--and that causes some serious concerns for people that 
want to invest. So I just simply say, look, if you are making 
rules on these, and clearly you are making rules, a lot of 
them, let us be as precise as we can in them, and I think that 
will eliminate a lot of the questions that are coming up, sir.
    Let me go into just a couple of items very quickly here. In 
a speech that you delivered last week, you quoted Joseph 
Kennedy, saying, no honest business should fear the SEC. You 
went on to say that, given the nature of crypto investments, I 
recognize that it may be appropriate to be flexible in applying 
existing disclosure requirements.
    Matt Levine openly questioned that sentiment in a column 
for Bloomberg, stating, the SEC has been suing crypto projects 
for illegally issuing securities for about 5 years now, but put 
in that time it has not issued any rules or proposed any rules 
or put anything on its rulemaking agenda about adapting the 
securities and disclosure rules for crypto projects.
    I echo Mr. Levine's comments. It seems to me that you want 
to regulate an entire marketplace, but clearly, it does not 
appear that you have got rules in place to do so at this time. 
In my mind, this is simply unacceptable.
    And I know that your background in the private sector is--
you know, you have got a great history in the private sector, 
so this is kind of confusing to us. I have heard from a variety 
of companies who claim they try to work with you and with your 
organization but then you turn around and then you have hit 
them with some pretty enforcement actions or slow-walk the 
process.
    Mr. Chairman, you keep telling crypto entrepreneurs and the 
companies to come in and to register. Has anyone actually tried 
to do that?
    Mr. Gensler. To answer your question, there is six 
companies that are actually registered under the disclosure 
regimes. I would say this; not liking the answer from the SEC 
does not mean there is not guidance, just with all fairness. 
And most of these tokens, a vast majority, are securities, and 
thus the intermediaries are likely to be in noncompliance with 
securities laws right now. So we are really trying to work with 
them. We are talking to a wide swath of these organizations 
right now to get them properly registered, to get them inside 
the remit, and this is what we do.
    With all respect to Mr. Levine, we have been pretty clear; 
my predecessor, Chair Clayton, was through Commission actions 
and in his public voice in front of this Committee and others 
about this matter, and we are going to continue to protect the 
public as best we can.
    Senator Rounds. Thank you. As of August 2022, the SEC had 
proposed 32 new rules in just 11 months and is preparing at 
least another 19 for release in the next year. These are 
complex rulemakings that will greatly impact markets and 
capital formation. In addition to that, these rules are being 
implemented in an overlapping timeline and affect the same or 
interconnected financial products and market sectors. However, 
despite the linkages between the various proposals, the SEC has 
assessed the economic impact of each rule independently and in 
isolation from the others. Implementing these proposals 
simultaneously, without consideration of the cumulative and 
cross-sector effects, will most certainly lead to unintended 
consequences.
    Mr. Chairman, why has the SEC not considered the cumulative 
and the cross-sector effects when simultaneously implementing 
these proposals that most certainly could lead to negative and 
unintended consequences for our capital markets and broader 
economy?
    Mr. Gensler. Senator, we actually do consider cross, even 
within any one of the 30. It is actually as of yesterday 34, to 
bring you up to date.
    Senator Rounds. Moving along.
    Mr. Gensler. Moving along. I would note that Chair Clayton, 
during his 4 years, did a little over 60 final rules. We have 
about 50 on our docket. So it is--and Chair Schapiro and Chair 
White were about the same, 40 to 60 range, during their 4 
years. We might have been a little sooner getting them out to 
proposals.
    But we do consider those cross issues. I mean, sometimes we 
even reopen proposals for that reason, like we did with stock 
lending and stock buyback, and we reopened because there was 
this cross consideration. We have done it in some other areas. 
We are even looking now whether we should do that in some areas 
and reopen some for that cross consideration.
    But last, I would say we get comment letters after the 
comment period as well, and we--you know, this is over the 
years, and we do it now. Staff reads them. They put them in. It 
takes us--it tends to take us months, sometimes a year to 18 
months to finalize a rule after it is proposed.
    Senator Rounds. Thank you. I wish we could continue the 
conversation, but my time has----
    Mr. Gensler. I think you still have my cell phone number, 
so you can call me anytime, sir.
    Senator Rounds. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Rounds.
    Senator Smith of Minnesota is recognized.
    Senator Smith. Thank you, Chair Brown and Ranking Member. 
It is interesting, just apropos Senator Rounds's comments and 
questions about crypto, I was not here earlier because I was at 
the Banking Committee, where we were having a conversation 
about issues--I mean, I was at the Ag Committee, pardon me. I 
know, where am I? See, I am a little confused. I have been 
running around.
    Anyway, I just note that there are a handful of us, you, 
Senator Brown and Senator Warnock and I, that serve on both 
Agriculture and Banking, Housing. And as the issues of how we 
should create a regulatory framework for crypto commodities, 
digital commodities as well as digital securities, I think we 
have--you know, we have an important job to do here.
    Chair Gensler, on the--I want to go to the question of 
materiality. On securities laws, they are grounded in the 
concept of materiality. And since we have emerged from the 
Great Depression, we have acknowledged that investing in the 
stock market comes with its risks, but investors ought to have 
information that they need to be able to prudently evaluate 
those risks and make good, informed decisions.
    And this is especially important today as more than half of 
families have investments in the stock market, including their 
retirement nest eggs. So could you talk to the Committee just 
broadly speaking about how climate disclosures for public 
companies are material information for investors?
    Mr. Gensler. It is material because the Supreme Court says 
substantial likelihood a reasonable investor is considering it 
significant in their mix of information. And right now, it is 
really remarkable what has happened in the last 10 to 20 years. 
So many investors are considering it.
    And why are they considering it? Because there is a future 
chance of transition risk. They might have to change their 
operations. Their competitors might change their operations. 
Laws might change. These companies that are listed here in the 
U.S. operate around the globe. On average, if you look at the 
top 500 or 1,000 companies, half their operations are overseas. 
And so it can affect all that, but it is material because, as 
the Supreme Court says, because investors get to decide what 
risk they take and investors are saying it.
    In our comment file, if you look at the top 300 or 400 of 
the investors, the big asset managers, it adds up to $50 
trillion of assets under management that have come in mostly 
supportive of this. I mean, I know that there is a lot of good 
discussion about what do we do about the farmers and not 
getting caught up in Scope 3, which is a good conversation we 
have had, but mostly the investor community has come in, in 
these 14,000 comments, supportive.
    Senator Smith. And it is good for those investors to be 
able to understand what those risks are in a more comprehensive 
and clear way.
    Mr. Gensler. Absolutely. And, investors get to decide. If 
somebody says, I think those risks are significant, but a 
company is managing it well. I should invest in it.
    They might say that, you know, I think that the market is 
overpricing a stock, and they might say, I want to sell that 
stock----
    Senator Smith. Right.
    Mr. Gensler. --because I do not think this--I think that 
assets that are emitting a lot of emissions are still going to 
be really profitable. That is up to investors.
    Senator Smith. On another topic I want to touch base on, I 
was pleased to see the SEC take action to increase transparency 
and accountability in the private fund market. Private funds, 
including private equity and hedge funds, have an outsized 
presence in our economy, $18 trillion in assets, and a 
substantial portion of that again includes retirement savings 
held in pension plans for teachers and municipal employees and 
others. And in recent years, individual ownership of private 
funds has also been on the rise.
    So, Chair Gensler, can you talk about the recently proposed 
amendments to Form PF and the private fund advisor rules and 
how they would--you know, how they interact with eliminating 
conflicts of interest issues, protect investors, and protect 
the integrity of the private fund market?
    Mr. Gensler. So we have done two sets of rules with regard 
to private funds, one, to promote greater efficiency. What that 
means is lowering the cost of this. It has actually grown since 
that number, about $21 trillion. And they probably take 
revenues of about $300 billion-plus, and that means those 
teachers, firefighters, those pensioners are getting a little 
lower, potentially, returns. So it helps them. So we are trying 
to promote greater efficiency, transparency of fees, 
performance, and side letters.
    You mention a form called Form PF, Form Private Fund. That 
is something that was put in place after the '08 crisis. 
Congress thought the SEC and our sibling agency, the CFTC, 
should get more information about these funds with regard to 
mitigating and monitoring for systemic risk, the big crisis of 
'08, and we are updating those forms.
    Senator Smith. Thank you.
    Thank you very much, Mr. Chair.
    Chairman Brown. Thank you, Senator Smith.
    Senator Lummis from Wyoming is recognized.
    Senator Lummis. Thank you, Mr. Chairman. Appreciate your 
holding this hearing on the important work of the SEC.
    And, Chairman Gensler, it is great to see you again. So I 
want to dive into a component of the Lummis-Gillibrand bill, 
which you have had a chance to see, that deals with Section 301 
of that bill. I agree with statements you and your predecessor, 
Jay Clayton, have made that initial coin offerings, where 
digital assets are sold to investors expecting to profit from 
the seller's efforts, should be considered investment 
contracts.
    Senator Gillibrand and I share your concerns about 
information gaps that can arise when digital assets are later 
used and traded by others and the need to ensure users can make 
informed decisions in the market. So we believe that it is 
those that raise the money through an initial sale of digital 
assets and those that continue to provide essential managerial 
efforts should be held responsible to provide disclosures to 
the market and that innocent secondary purchasers of digital 
assets, that may or may not be aware that they are trading in 
securities, should not be subject to strict liability.
    So in our Act, the Responsible Financial Innovation Act, 
rather than attempting to impose new, complex, difficult to 
apply rules on secondary purchasers not involved in fundraising 
transactions, Section 301 of our bill provides for robust 
technology-neutral disclosure obligations that would hold 
responsible those who benefited from that fundraising, not the 
innocent users of digital assets who have no way of knowing 
what the sponsor is up to.
    So my question is this: Do you have any thoughts on the 
need for disclosures in the digital asset markets in Section 
301 of our bill?
    Mr. Gensler. So I thank you for the question. It was good 
to meet with you and Senator Gillibrand and discuss these as 
well. I think that the disclosure, as you say, is key. We even 
recently just were setting up a new industry office to help the 
disclosure in this field in our corporate finance area.
    I do think that, as you say, the innocent purchase. Let us 
say the public. The public does not have a disclosure 
obligation when they buy a stock on the New York Stock 
Exchange, and it is not the public that should have a 
disclosure obligation if they buy some crypto security token.
    But the entrepreneurs, the sponsor, the promoter, the 
entrepreneurs, that is where the disclosure obligation ought to 
be, and I think we have authorities now to facilitate and 
actually have a different set of disclosures just as we have in 
other fields. We have different disclosures on something called 
asset-backed securities than we do for equities.
    But I do think where I might respectfully differ from, I 
think, what might be in the question is that I think in the 
secondary market, 5 years after a stock is issued, you know, a 
stock of a great U.S. company is issued, there is still a 
disclosure obligation.
    And I think that is what Congress did in 1933, passed a law 
saying you have got to make a disclosure if you raise money 
from the public.
    But the Congress knew that was not enough, and in '34 they 
came back and said, you know what? We also have to cover the 
secondary market in two ways, cover the intermediaries, like 
the stock exchange and the broker-dealers, but also say that 
there has got to be what is known as periodic reporting. You 
know, the annual report.
    And so--or maybe there is no difference here, but I think 
the investor should not have an obligation. It is the 
intermediaries, and then it is the common enterprise or the 
folks in the middle.
    Senator Lummis. And are you thinking that that disclosure 
option or obligation would be similar for initial coin 
offerings under our bill, or should be under our bill, similar 
disclosure options as were instituted in 1934?
    Mr. Gensler. I think similar in kind, but probably there 
are some things--it might be a little bit different list. I 
mean, there might not be a board of directors and things like 
that. So I really do think--your bill had a list. We might 
differ on that list. We might have other things to put on that 
list. But it is not necessarily, as you say, everything that a 
big multinational company is doing.
    Senator Lummis. OK. Well, I want you to know that Senator 
Gillibrand and I want to continue to work with you and your 
staff to make sure that to the extent that we do not 
philosophically disagree, that any of those sorts of gaps that 
you have identified in our bill can be addressed because I do 
not see our bill having an avenue to come before this Committee 
or the Congress before the end of the year, but we do intend to 
have it--to reintroduce it in January. And we want to make sure 
that between now and January we have worked with you and your 
staff to make sure that we can address items that we can 
mutually agree need to be in the bill.
    Mr. Gensler. I look forward to that and particularly, as I 
said, in ways that we can ensure we do not undermine the $100 
trillion capital market, the definition of security, the 
definitions of other things that really are under this 
Committee and stay under this Committee.
    Senator Lummis. And we have talked about unintended 
consequences of our bill before with you. We want to address 
those unintended consequences. Obviously, you see things that 
maybe we do not because of your perspective.
    Mr. Chairman, thank you.
    Really appreciate your being here, Mr. Chairman.
    Chairman Brown. Thank you, Senator Lummis.
    Senator Ossoff from Georgia is recognized.
    Senator Ossoff. Thank you, Mr. Chairman.
    And, Chairman Gensler, great to see you. Thanks for your 
service. Thank you for your testimony.
    Mr. Gensler. Senator Ossoff, good to see you again.
    Senator Ossoff. I have routinely asked you this question. I 
have also put this question periodically to Chair Powell and to 
Secretary Yellen. What do you see as the most significant 
threats to financial stability, or to put it another way, what 
keeps you up at night?
    Mr. Gensler. You do not want me to say my daughters. OK.
    Look, I think in terms of--we are living in uncertain 
times. I do not need to say this, but with the war in Eastern 
Europe and Ukraine, with central banks around the globe moving 
from accommodating to tightening, with the remaining, you know, 
challenges, geopolitical challenges between great Nations, and 
also with COVID and commodity prices, all of that in the mix, 
what I look at and think about is the relationship between the 
banking sector and the hedge fund sector and investors, the 
relationship between the banking sector and commodity traders. 
That is called a prime brokerage relationship, and those 
relationships I really do think a lot about.
    I think about resiliency in the market, and that is why we 
have about a dozen or 15 projects in the Treasury market, what 
we are trying to do in money market funds and open-end funds, 
shortening the settlement cycle and the like. I think that if 
we do our job well at the SEC we will build greater resiliency 
for the stresses that come in the future, and those stresses 
come because that is what an economy--we always have ups and 
downs in economies.
    So we have these longer-term projects, but near-term, it is 
these issues that I just raised.
    Senator Ossoff. Well, let us talk a little bit about the 
Treasury market. You highlighted that in previous testimony. 
You issued proposed rulemaking in the last several days. Can 
you please break down into layperson's terms the nature of 
concern about illiquidity in Treasury markets and how the 
actions you are proposing to consider taking would address 
them?
    Mr. Gensler. So I would say to the American public it is a 
big market. It is a quarter of our entire capital markets, $24 
trillion. You can think of it as the base. It is sort of the 
foundation of our financial house. Everything else is built 
upon the Treasury market.
    And what we have found is we have had real disruptions. 
Call them jitters. I hate to say it; in the house way, it is 
like there are some termites somewhere in the foundation, every 
few years. We had them in the 1980s and 1990s, and we had them 
in the last 6 years. And it put some pressure on our central 
bank, the Federal Reserve that sometimes then opens up and 
provides, using its balance sheet liquidity to the marketplace 
sort of as a lender of last resort.
    I think that we can lower the risk in that marketplace by 
bringing--ensuring that all the dealers, the high frequency 
trading dealers are registered and regulated; second, that 
where the trading happens--these are trading platforms--are 
regulated, and some of those are not; and really importantly, 
getting the benefits of something that sounds boring, but it is 
called clearing. It is the back office, which lowers risk in 
the system.
    So those are the main things. We have worked really closely 
with Secretary Yellen and her team, and Chair Powell and his 
team, on those proposals.
    Senator Ossoff. Do you think that the persistent concern 
about illiquidity in the Treasury markets threatens the Fed's 
ability to execute open-market operations in a crisis?
    Mr. Gensler. I think, if I might say, if we do this suite 
of proposals in the Treasury market, it will bring greater 
competition. There, historically, was a group of primary 
dealers. Then that started to broaden out to these principal 
trading firms, high frequency trading firms, and others. And I 
think that we will build greater resiliency and also increase 
some competition in the marketplace----
    Senator Ossoff. OK. Let us follow up on this, and I will 
have my office get with yours.
    Mr. Gensler. Please. I would love to have a meeting.
    Senator Ossoff. Great. And with my brief remaining time, I 
want to ask about something of particular concern to Georgians. 
We have thriving military communities, base communities, 
veteran communities in Georgia. The SEC has, in the past and as 
recently as December of 2021, filed emergency action to shut 
down a multimillion-dollar Ponzi scheme that targeted 
retirement funds held by veterans. I would like to ask for your 
commitment that under your leadership the SEC will redouble and 
intensify its efforts to ensure that within your jurisdiction 
you are identifying and cracking down on schemes that could 
defraud or harm America's veterans.
    Mr. Gensler. You have that. And I would also say to all 
Georgians and veterans, if you see something, you know, we have 
a tips, complaints, referrals system. We have a whistleblower 
system. Please let us know. Let the SEC know. We are a little 
understaffed. I think we should have more staff, but let us 
know. We will try to follow up and pursue those leads as people 
see them.
    Senator Ossoff. We will pass that along. Thank you.
    Chairman Brown. Thank you, Senator Ossoff.
    Senator Hagerty from Tennessee is recognized.
    Senator Hagerty. Thank you, Chairman Brown.
    Chair Gensler, I was reviewing your testimony last night, 
and I was struck by a term that you used as you described the 
Nation's securities laws and regulations. You described them as 
the ``gold standard,'' and I do not believe that is true 
anymore. What we have seen here in America over the past two 
decades is the number of publically listed companies decline by 
more than 40 percent. If you look at the U.S. share of global 
IPOs, we have shrunk to less than 20 percent in the past 
decade.
    Why is that? It is because every new regulatory requirement 
that you impose on public companies adds to the already 
crippling costs of operating as a public company. So the 
consequence of all these regulations is to encourage companies 
to stay private or to look abroad to do their IPO.
    You have rolled out 32 proposed rules in the past year, 
including your ESG disclosure rule, which will cost hundreds of 
millions of dollars a year in compliance cost and it has 
created tremendous uncertainty in the marketplace. This will 
undoubtedly make matters worse.
    America had such a big lead in terms of having the world's 
best capital markets, capital markets that have allowed 
businesses to succeed here and thrive, but it has been in spite 
of, not because of, this increasingly crushing red tape. More 
regulation is a recipe for the preeminence of American capital 
markets to die a slow death. If we continue down this path, 
there will not be any investors left to protect. American 
workers, American consumers, and retirees cannot afford that.
    So, Chairman Gensler, under your tenure at the SEC, you 
have rolled out an unprecedented slate of aggressive rule 
proposals. Among the many troubling trends in your short term 
as Chairman has been an expansion of the SEC's purview into 
sophisticated markets under the guise of, quote, consumer 
protection.
    Because not all markets are accessible to retail investors, 
the SEC has traditionally adopted differentiated levels of 
paternalism depending on the given market, but the two most 
egregious examples of this creep that is happening right now 
are the private funds rule and the SEC's announcement that it 
would begin to force significant disclosure requirements on 
fixed income securities, including those that are regulated 
under Rule 144A.
    And your staff claims that these new rules will then, 
quote, enhance investor protection, but as you know, the 
qualified investors that invest in these products are not 
unsophisticated. They do not need handholding in performing 
their own due diligence. Yet, these new rules will pose 
significant new costs, and they will act as an impediment to 
American innovators who need early stage capital to grow.
    So my question to you is: Do you think that the distinction 
between large and mostly institutional investors versus mom-
and-pop investors is somehow unimportant? Or, is there some 
other motivation that is driving the SEC under your guidance to 
dedicate so many resources to go after these larger investors, 
these investors that all of your predecessors, I think rightly, 
have given a degree of autonomy to?
    Mr. Gensler. So, Senator, I think that there is a 
distinction between what is called accredited investors and non 
accredited investors. But I do think in the private funds rule, 
if I can address that, this is now a $21 trillion assets under 
management that the general partners, the asset managers, who 
oppose what we are doing--I understand that, but those asset 
managers probably collect over $300 billion a year in revenue.
    And what does that mean? That means the issuers on one side 
and the investors on the other side have that $300-plus billion 
in the middle.
    Now I think that you gave us a responsibility to look to 
promote competition and efficiency in these markets. You did it 
in 1976 in law; you did it in 1996 in law twice, that we have 
that responsibility.
    So in that proposal, it is we took a lot of the 
recommendations from a group of limited partners, state pension 
funds, state treasurers, and a group called ILPA, and we looked 
at them and said, how can we promote greater competition 
through transparency to those investors, those sophisticated 
investors? That is what we are trying to do.
    Senator Hagerty. Your suggestion is that this is going to 
lower the cost of investment? This is going to increase the 
cost because it increases regulatory requirements. Where are 
you going with this?
    Mr. Gensler. Yeah, I think that we might have a healthy 
debate on this, but I think that actually when you have got 
general partners that are taking $300 billion out of the 
economy this will help promote greater competition----
    Senator Hagerty. Increases regulatory cost, promotes 
greater competition in the sophisticated market, I do not buy 
that one bit.
    Mr. Gensler. It is greater transparency to the investors of 
the fees and performance.
    Senator Hagerty. These are sophisticated investors, Mr. 
Chairman. This is damaging to the marketplace. I have been on 
the other side of the table there. Small companies that need to 
access capital to grow are going to be deprived of that capital 
because of this type of overreach.
    Thanks, Mr. Chairman.
    Chairman Brown. Thank you, Senator Hagerty.
    Senator Warner from Virginia is recognized.
    Senator Warner. Thank you, Mr. Chairman.
    I want to stay on this topic for a moment, Senator 
Hagerty's point. But you know, I do think from a historic 
basis, as we have talked--and good to see you again, Mr. 
Chairman--you know, that you are in that range of what your 
predecessors have done. But I do think, you know, it is an 
aggressive agenda, and candidly, a lot of it I support. I may 
disagree with some of my colleagues on the other side.
    But because you have been moving quickly, one of the things 
I would like--and this falls a little bit on Senator Rounds's 
comments. I would like you to fill in a little more both on how 
you make sure that you determine appropriate comment times--and 
I know in some of these regulations you have extended the 
comment times. Some of them I do feel have been have too short.
    But I would like you to also give me a little more 
specificity about this interaction, not simply in terms of 
total economic costs, but possible conflict for I am going to 
come back and follow up for a moment on cybersecurity areas. I 
just would like to get the sense. If all of these regs actually 
get passed by the Commission, how are you holistically looking 
at their interoperability? Drill down on it a little bit.
    Mr. Gensler. No, no, I think it is a good question. We do 
it proposal by proposal in the economic analysis. We benefit 
from the public comment. And I would say we have a long 
tradition of, regardless of what the comment period is, 60 days 
or whatever the comment period is, when comments come in after 
the comment period, we still--the staff considers it. We write 
it up. We put it in, I mean, you know, if it comes in, you 
know, not at the 1 day before we are finalizing it. Generally, 
on average, it takes a year, year-and-a-half to finalize these 
things. So I encourage people to continue to say, if you see 
that interaction.
    But second, we also occasionally--publically, we reopen 
something, and we did that earlier this year on--there was a 
security lending and a stock buyback, and we sort of reopened, 
and we sort of said: Well, those are so closely interrelated. 
Let us do that as well.
    Senator Warner. And again, that is as you are focusing 
within your purview.
    Let me give you an area that I have got. You know, I think 
too well-intentioned rules, but I worry about conflict. The 
Chairman of the Intelligence Committee--I think the 
cybersecurity issues. In my litany of things that keep me up at 
night, that is one of the ones. Matter of fact, I am surprised 
we have not seen more from Russia in light of the invasion of 
Ukraine.
    We worked in a bipartisan way really hard to get an across 
the-board, mandatory, cyber incident reporting legislation 
through and trying to find the right timing of when you make 
that report and making sure that you do not interfere with a 
criminal investigation.
    You have got a similar SEC public company requirement. 
Because I do believe a lot of these cyber incidents fall into 
materiality--but take a few minutes, and I wanted to get to one 
another quick question after this. Take a moment or two and 
tell me how you do that potential interaction between something 
that is outside your purview, this DHS CISA requirement, versus 
your SEC cybersecurity requirement.
    Mr. Gensler. It is a very good question because the 
securities laws are about those investors understanding a 
material risk and material events, and so we put out a 
proposal, as you said, about corporate public companies making 
cyber disclosure, how they manage cyber risk and when they have 
a material incident--it has got to be a material incident--and 
then report that within 4 days.
    We have also been in conversation directly with the 
Department of Justice and with the Department of Homeland 
Security--you know the particular leadership there--and had 
really good conversations. We included one important question 
in that proposal about national security, and we could tell you 
about--you know, it would take more than 50 seconds to tell you 
about that, but--and working with the Department of Justice on 
that.
    Senator Warner. Well, the more you can, I think, spell out, 
maybe not just here, but how you--the process of this 
intersection between, you know, an agenda again that I 
generally support, I think would make sense.
    And you know, to show that, I want to use my last 30 
seconds to touch on a topic that I have. You know, candidly, 
your predecessor, Jay Clayton, started down this path, and you 
and I have talked about a lot before and actually encourage 
more action, and that is in human capital reporting. I think we 
have discussed many times.
    I think many of my colleagues have heard me go through this 
litany about how assets on a balance sheet have changed 
dramatically from, you know, tangible assets to intangible. A 
lot of that is human capital. Chair Brown and I have some 
disclosure legislation on this. I have been a big advocate of a 
human capital R&D tax credit.
    Talk to me a little bit about how you think moving forward 
because I do believe human capital investment is 
extraordinarily material for all these companies that say their 
workforce is the most important asset. Speak to that.
    Mr. Gensler. So you are right; Chair Clayton did put out a 
rule. We now have 2 years of, you know, following of that rule 
around human capital. We are looking at those first 2 years and 
seeing what worked, what did not work, and everything.
    But I know this from my days when I was on Wall Street. 
When you bought or sold a company, there were those two or 
three key pages with the key statistics about the workforce, 
you know, turnover rates, what they got paid, were they--what 
were the benefits, et cetera, what is the training like, are 
they unionized. I mean, these were the key things when you buy 
and sell a company. And so why shouldn't the public 
shareholders also get that similar information?
    And you had wrote recently about a letter that I think a 
number of former SEC commissioners, from Joe Grundfest to Rob 
Jackson and others, wrote, and we are taking a look at that 
letter as well.
    Senator Warner. Well, I would encourage you and look 
forward to working with you on that.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator from Virginia.
    Senator Daines from Montana.
    Senator Daines. [off microphone.] Chairman, thank you.
    Chair Gensler, glad to have you here.
    Mr. Gensler. Good to see you again, Senator.
    Senator Daines. [off microphone.] I want to talk about the 
[inaudible]. The light is on, but nobody is home.
    Chairman Brown. We did not do that on purpose, even though 
you probably think we did.
    Senator Daines. I hope not. I would never assume that, Mr. 
Chairman.
    Chairman Brown. Thank you, Senator Daines.
    Senator Daines. All right, all right. Chairman Gensler, I 
want to cut right to the chase here. I know some of my 
colleagues have already talked about the proposed climate 
disclosure rule. I have looked at it. I think it truly is 
beyond unreasonable, and I would recommend it be withdrawn. The 
massive burdens that it will place not just on large companies, 
but also smaller companies, is going to have, I think, major 
downstream impacts on the companies with whom they also do 
business.
    And I really want to zero in on the Scope 3 emissions 
problem. The question: Do you really think it is reasonable to 
ask companies to collect, analyze, reconcile, report on things, 
literally, such as whether the company car of an employee is a 
Tesla or a pickup? I mean, that is, in essence, what the 
Commission is doing when it expanded now the Scope 3 rules in 
emissions.
    Mr. Gensler. So, Senator, what we have right now in America 
is that we have many companies, hundreds, that are disclosing 
greenhouse gas emissions to the public, and they are including 
also--not all of them, but many of them--something around the 
Scope 3. So this is--for the public listening, this is the 
downstream or your suppliers and the like.
    And so what we are trying to do is to bring some semblance 
to that, some standardization. So what we have said is, it is 
not a mandate, but if you have a commitment, if you have 
publically said you are managing it or if you publically feel 
it is material----
    Senator Daines. Just to make sure I am--excuse me. So it is 
not a mandate? So the rule would give the companies leeway 
whether they need to expand to Scope 3 or not?
    Mr. Gensler. Yes. It is only a proposal. The adoption has 
still not happened. But the proposal was a mandate on what was 
called Scope 1 and Scope 2 and then we took a different 
approach on Scope 3. And we said if the company deems that it 
is material or if the company already has made a public 
commitment to manage Scope 3, like if they have--and that is 
totally voluntary on their part. Then we said you had to 
estimate.
    Look, we have gotten a lot of comments on this, and there 
is no goal to like touch--we had a good conversation with 
Senator Tester and Senator Rounds. There is no goal to touch 
farmers in any of the states that you represent, or ranchers, 
and Senator Lummis----
    Senator Daines. So would that be carved out explicitly 
because it is--I mean, when you talk Scope 3, it is a very, 
very wide net as you know.
    Mr. Gensler. But it is from the public company's point of 
view. Are you making a commitment to the public on how you are 
managing it? This public company. And then how are you 
estimating it? And we did say, estimating it. We said there was 
a safe harbor, so we put some legal protections on it.
    But again, we are looking at these 14,000 comments. We are 
trying to balance this out.
    The one thing is that we have to ensure that the public 
companies that are saying this or that about Scope 3 are not, 
you know, frankly, misleading the public.
    Senator Daines. Yeah. Well, I hope you hear us out. I think 
you have heard a lot of concern from the Committee here on both 
sides on it.
    Mr. Gensler. And I look forward to more conversations.
    Senator Daines. Yeah. I have just watched--we all watch--
what is going in Europe and California, where it just moves 
from a passion for climate change to go into climate insanity 
in terms of dealing with baseload issues and creating truly 
existential threats to their economies, their national 
security, and I just do not want to see our country follow the 
same path that we have seen in Europe. I spend a lot of time 
talking to European leaders, and they wish they had a redo on 
this.
    Mr. Gensler. Yeah. I actually think this is one of the 
reasons that we could come together. And we want something here 
in the U.S. that we adopt a rule and it is sustained in court 
because, if we do not, large U.S. issuers will probably have to 
comply with that European regime because the European regime 
says if you have more than 150 million euro of sales in Europe 
you have got to comply with their regime.
    Senator Daines. Yeah. Well, they are going to have a 
really, really tough winter, and we say our prayers at night 
and pray for a warm winter in Europe.
    Chairman Gensler, I want to talk about BDCs for a moment, 
business development companies. They play an indispensable role 
in providing credit to middle market businesses in Montana as 
well as around the country. One pressing issue that has 
impacted BDCs and investors for several years is the 
application of the SEC's Acquired Fund Fees and Expenses 
(AFFE)--you are getting acronyms--rules to BDCs. But simply, 
when you apply the AFFEs to BDCs, it over-counts the true cost 
of investing in BDCs, thereby, I think, misleading investors.
    Senator Menendez and I have introduced the Access to Small 
Business Investor Capital Act, which permits BDCs to move 100 
percent of those AFFE disclosure to a footnote in lieu of a fee 
table.
    Let me just cut to the chase here on the question. Does the 
SEC plan to fully address the misleading disclosure that AFFE 
creates for BDC investors in lieu of the current unworkable 
rule the SEC has proposed, and would you agree that BDC 
investors deserve the parity in disclosure with REITs. That is 
a lot there.
    Mr. Gensler. There is a lot there. Why don't I say this; I 
look forward to helping with technical assistance on your bill.
    But also, on business development companies being owned by 
other funds, mutual funds, there is transparency in what--there 
was a 2006 rule on this, way before I got here, that there was 
this transparency that the investors in the mutual fund need to 
sort of see all those costs and rolling up in those costs, and 
I think that is what you are trying to address in your statute.
    Senator Daines. Right.
    Mr. Gensler. Yeah.
    Senator Daines. Thank you. I am out of time here.
    Is it Chairman Toomey here or it is Chairman Reed? Oh, 
Chairman Brown is still there. Chairman, I did not see you. I 
am good. Thank you.
    Chairman Brown. Senator Reed from Rhode Island is 
recognized.
    Senator Reed. Thank you very much, and Mr. Chairman, 
welcome. Senator Cortez Masto and I have introduced 
legislation, S. 4857, Private Markets Transparency and 
Accountability Act. Basically, our legislation would require 
the Nation's largest, most important private companies to 
register with the SEC, and they would then be subject to 
appropriate disclosure requirements. I think it is necessary 
because we are seeing the decline in public registrations and 
an extraordinary increase in private companies that are 
controlling some public companies, some other companies.
    Can you describe the main differences between the public 
markets and the private markets when it comes to investor 
protection?
    Mr. Gensler. We benefit in this country, vibrant capital 
markets, both public markets and private markets. My dad never 
had a company that would be caught up in your bill, but he had 
a small business that had 30, you know, employees. And so I 
think that has been very helpful.
    But there is a difference in disclosure and a difference 
in, as you said, investor protection because Congress gave this 
Agency a remit about those public companies and to protect 
against--that the disclosure is there, that it is truthful, and 
we protect against fraud and manipulation. That is, of course, 
different if it is a private company. Not that my dad would 
have done this, he was buying and selling the stock with his 
partners.
    Senator Reed. But I mean, again, I think in the--when the 
SEC came about, most of the private companies were relatively 
small, family owned, and that is not the case today. Huge 
financial----
    Mr. Gensler. No, no. It is estimated by outside public 
sources there is about 1,200 companies in the U.S. that are 
what is called ``unicorns,'' that are worth more than a billion 
dollars and that the total market value is about $4 trillion.
    Senator Reed. And the disclosure and the investor 
protections for those companies are not at the same level of 
strength as public companies?
    Mr. Gensler. It is interesting. It is not--it is not under 
our remit, but the disclosures to the holders or whatever, you 
know, is privately negotiated between the holders and those 
companies, and so it is not at the same level.
    Senator Reed. I just want to quickly shift gears a bit 
because this is the 20th anniversary of the Sarbanes-Oxley Act. 
I think you are quite familiar with that. And it was a response 
to the scandals of Enron and WorldCom, and it demonstrated why 
investors need gatekeepers in our financial markets, especially 
accountants. But one concerning trend is that the big four 
accounting firms provide also lucrative consulting services to 
public companies that they are also responsible for auditing. 
So what steps is the SEC taking to ensure that auditors 
prioritize independence over seeking non-audit revenue?
    Mr. Gensler. Yeah, I thank you because I was sitting in the 
seats behind the Chair and Ranking Member when it was Senator 
Graham and Senator Sarbanes sitting there.
    Senator Reed. I was over there.
    Mr. Gensler. And you were over here. But I think what 
Senator Sarbanes--and Senator Graham voted for that bill, 
actually. So what they tried to do in that bill was to ensure 
that there was some separation between the audit function and 
consulting and so forth.
    I have asked--because I think that there has been some 
lessening of that separation over those 20 years, I have asked 
a number of things, the Office of Chief Accountant at the SEC, 
and I have also asked the board at the PCAOB. I have told all 
five of the members there, could you put on your agenda as well 
to update the standards, the PCAOB standards and the SEC 
standards, about this separation and the independence? And I 
also know our acting Chief Accountant, Paul Munter, has given 
some speeches on this recently and leaned into this.
    Senator Reed. Just a final question, there have been 
several major cases with accounting firms over the past year, 
ethical lapses, professional problems, but those findings are 
basically not disclosed to the public. They are maintained by 
the regulatory agency. And Senator Grassley and I have 
legislation that would make them public, and I think that is 
important. I think it is important to know whether a firm has 
been engaged in----
    Mr. Gensler. I think it would be. It was one of the 
compromises laid between Senator Enzi and Senator Sarbanes as I 
remember it.
    Senator Reed. So, thank you.
    Chairman Brown. Thank you, Senator Reed.
    Senator Warren from Massachusetts is recognized.
    Senator Warren. Thank you, Mr. Chairman.
    So in March, the SEC proposed a climate risk disclosure 
rule that takes a big step toward increasing the efficiency of 
the economy and the financial markets by requiring companies to 
inform investors about the climate-related risks that affect 
their businesses. Now as part of this rule, the SEC proposes 
that companies disclose their greenhouse gas emissions and 
companies' submissions are classified into three different 
categories called Scopes.
    So, Chair Gensler, just so we can set a baseline here, let 
us run through an example. Let us say I am Exxon. My Scope 1 
emissions would be from things like my company's vehicles and 
methane leaks that occur at the wellhead of the wells that I 
own. Scope 2 emissions would be those from electricity I 
purchase, for example, in order to power my operations. Scope 3 
would cover upstream emissions from the production of what I 
buy, like the chemicals I use to refine my oil into gasoline or 
diesel fuel and the downstream emissions from what I sell, like 
the refined gas or the diesel my customers buy at the pump. Do 
I basically have that right, Chair Gensler?
    Mr. Gensler. Yes.
    Senator Warren. Good. So you need all three Scopes because 
otherwise a company could just stop doing the filthiest part of 
their business and hire some smaller, nonreporting company to 
do the same filthy work, and then report themselves as greener.
    So, Chair Gensler, for a fossil fuel company like Exxon, 
what percentage of their total emissions are Scope 3 emissions?
    Mr. Gensler. I suspect you might know that better than I. I 
have not looked, but it is often over half. It could well be in 
some companies--I do not know Exxon. Some companies, it is as 
much as 90 percent.
    Senator Warren. Well, you are close on that number. 
According to an S&P global analysis, about 88 percent of the 
emissions of these fossil fuel companies like Exxon are Scope 3 
emissions. So in other words, oil and gas companies have Scope 
3 emissions that, on average, as you say, it is about 90 
percent of their total emissions.
    Now the rule the SEC proposed in March already gives 
companies, in my view, way too much wiggle room in disclosing 
Scope 3 emissions, but evidently, that wiggle room is not 
enough benefit for Exxon. They and their trade association, the 
American Petroleum Institute, have been fiercely lobbying the 
SEC to drop Scope 3 disclosures entirely from the final rule.
    So Exxon wants to change the SEC proposal so the company 
would have to tell about emissions when their own work trucks 
were on the road but not about emissions from all the other 
trucks that are fueled by Exxon diesel when they are on the 
road, or, to say it another way, companies like Exxon do not 
want to have to tell investors or the public about nearly 90 
percent of their emissions.
    And, if Exxon and the American Petroleum Institute get 
their way, investors would remain in the dark about how 
companies would be affected down the line when policymakers get 
serious about tackling climate change and, for example, put 
significant restrictions on trucks that are powered by fossil 
fuels.
    So, Chairman Gensler, if a company discloses only 12 
percent of their total emissions to investors, do you think 
that investors have all of the information that they need in 
order to evaluate whether or not that company is well 
positioned to succeed in a greener economy with much stricter 
regulations on emissions?
    Mr. Gensler. So I look at it this way, that many companies 
today are already making commitments about all three of these 
Scopes. More are making commitments about Scope 1 and 2, but 
many are also making commitments. And our proposal was, if you 
are making a public commitment about how you are managing it, 
you ought to measure it because how do you manage that which 
you do not measure. And then we also said, if it was material, 
using a Supreme Court test of materiality, that you would have 
to measure it. But we did get a lot of comments on this; you 
are right.
    Senator Warren. So I understand this, but the question I am 
asking you is actually much narrower. It is a straightforward 
investor question. If climate emissions are going to become 
more important in valuing businesses as the regulatory 
environment changes, if you only have to disclose 12 percent of 
your emissions, does an investor have the information they need 
to make a good investment decision?
    Mr. Gensler. So again, I will quote from our comment file, 
if we look at the top three or four hundred investor letters 
that we got that manage tens of trillions of dollars of assets, 
most--I do not remember the percent--most are supportive to 
have all three Scopes part of this disclosure. So that is 
straight from the investors rather than from me.
    Senator Warren. Actually--and I think that is exactly the 
right point because for months now the big banks, the pension 
funds, and the investment management companies have been asking 
for this Scope 3 information because it is crucial to making 
good investment decisions.
    I appreciate that you are working to protect investors and 
not some particular industry because that is the job of the 
SEC, and we are counting on you to do that.
    Mr. Gensler. Thank you, Senator.
    Senator Warren. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Warren.
    Senator Toomey has a couple, the last two questions, a 
couple questions.
    Senator Toomey. Thank you, Mr. Chairman.
    You know, I have made no secret about my concern that there 
are people in this Administration, in this Congress for that 
matter, who wish to use financial regulators as the tool by 
which they will advance a liberal agenda, and I have criticized 
this, among other reasons, because it is so undemocratic, 
right. It is so undemocratic to have unelected, unaccountable 
agency bureaucrats making the tough decisions that should be 
made by the accountable parts of our Government. I have 
criticized the Fed, the CFPB.
    And, Mr. Chairman, I am putting you in this category, and 
the climate disclosure rule, I think, is the example. You know 
very well the Supreme Court held in the West Virginia v. EPA 
case that the EPA lacked the authority under the Clean Air Act 
to regulate greenhouse gas emissions. In coming to that 
conclusion, they relied on the Major Questions Doctrine. In 
that, the Court held that given the economic and political 
significance of the asserted authority the Agency must point to 
clear congressional authorization.
    Now among the factors they used to decide that something is 
a major question, yeah, the major question, the Court noted it 
involved a novel approach, it involved technical and policy 
expertise not traditionally needed by the Agency, such a 
consequential decision is unlikely to have been left by 
Congress to Agency discretion, and the Agency had adopted a 
scheme that Congress had considered and rejected multiple 
times.
    Mr. Chairman, it looks to me that the climate rule that you 
have proposed, under the Major Question Doctrine, just does not 
have the congressional authority. So my question is: In light 
of the EPA v. West Virginia case, have you given any 
consideration to rescinding that rulemaking?
    Mr. Gensler. Thank you, Senator. We take seriously the 
courts and particularly the Supreme Court, and so we are 
considering 14,000-plus comments in that comment docket, and we 
are considering it in light of our authorities and the law. I 
would say most of the comments are supportive.
    Investors are using this information now, and they want the 
information. And I think it does fit into our 80- or 90-year 
history of how we do disclosures, that the disclosures are 
already being made. And so what I just want to finish on is I 
think we have a role to ensure that there is not only investor 
protection but, as the law said, fair dealing, that the actual 
disclosures are not misleading and the like.
    Senator Toomey. Well, as I predicted, I think if you go 
ahead with something substantively similar to the proposed 
rule, you are going to find a very unsympathetic Court with 
regard to the authority that you have.
    Chairman Brown. Thank you, Senator Toomey.
    Thank you, Chair Gensler, again, for joining us.
    For Senators who wish to submit questions for the record, 
those questions are due 1 week from today, Thursday, September 
22nd.
    Chair Gensler, per our Committee rules, we ask you respond 
to any questions within 45 days from the day you receive them. 
Thank you again.
    The Committee is adjourned.
    [Whereupon, at 12:06 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    Welcome back Chair Gensler.
    Workers and their families don't measure the economy by the stock 
market, and neither should we.
    It's why in the Senate and in the Biden administration, we are 
working to create an economy that delivers results for people who get 
their incomes from a paycheck, not an investment portfolio--rising 
wages and good-paying jobs and lower costs.
    That means fighting the corporate price gouging that hurts 
consumers, and the unfair labor practices that hurt workers.
    It means investing in American manufacturing and the workers who 
drive it.
    And it means making sure our financial watchdogs keep our markets 
and economy stable.
    At the SEC, that includes going after companies that try to cheat 
the market. It means strengthening corporate disclosures to stay ahead 
of risks like climate change. It means looking into the practices of 
private equity and hedge funds, as they stretch their tentacles into 
more and more areas of our economy.
    It's been an eventful year.
    This summer, the Senate confirmed President Biden's two nominees to 
the SEC. I know both new Commissioners got right to work on the many 
issues before the agency. And the Commission and its dedicated staff 
have been busy.
    Republicans on this Committee have bellyached about your ambitious 
agenda.
    If Wall Street and its allies are complaining, it probably means 
you're doing your job.
    You put Americans' savings first and you focus on fairness and 
transparency--two concepts critical to making sure our markets work for 
everyone, not just insiders and corporate executives.
    The SEC must continue making enforcement a priority.
    Bad actors are always coming up with new schemes to separate people 
from their hard-earned money, or to cheat the rules to gain a little 
more for themselves.
    Under your watch, the SEC has increased prosecutions for insider 
trading, which under the Trump administration had fallen to the lowest 
level in a generation.
    In April, this Committee considered a Reed and Menendez bill that 
would outlaw insider trading in statute. The House has already passed a 
similar bill. Now the Senate must pass it.
    Last month, we saw the successful results of bipartisan work of our 
Committee Members to improve transparency and fight fraud.
    In 2020, Sens. Kennedy and Van Hollen pushed for the passage of the 
``Holding Foreign Companies Accountable Act'', a bill to stop the U.S. 
stock exchange trading of foreign companies with China-based auditors 
that refused to comply with our oversight laws.
    Because that law jumpstarted negotiations, the Public Company 
Accounting Oversight Board (PCAOB) signed an agreement with Chinese 
authorities that will--finally--allow auditors to begin inspections.
    In March, President Biden signed an Executive order establishing a 
whole-of-Government strategy for digital assets.
    While agencies across our Government look at how we respond to the 
growth of crypto, and best protect people's money, we know the SEC 
continues to enforce the law-going after cryptotokens that violate 
securities laws, shutting down crypto Ponzi schemes, and charging 
insider trading crimes in crypto.
    Over the last year in this Committee, we have looked at how crypto 
assets are used in scams and fraud, and play a role in illicit finance. 
We also heard from the Treasury Under Secretary testify on the 
President's Working Group report on stablecoins.
    This morning, the Agriculture Committee is considering a crypto 
bill sponsored by Sens. Stabenow and Boozman that focuses on digital 
commodities. I appreciate their work to create regulation in the crypto 
space.
    It's critical that we are careful and deliberate in drawing 
jurisdictional lines.
    In this kind of regulation, we have to prevent gaps and close 
loopholes that can be exploited or abused. That's not easy, and it's 
why action by the Agriculture Committee and CFTC is welcome. But it's 
not enough.
    When Congress wrote Dodd-Frank, we fixed the problems in the 
oversight of the over-the-counter derivatives market. That's a lesson 
we need to remember when it comes to crypto--all our regulators need to 
work together, and to make sure investors, consumers, and market 
stability comes first.
    The SEC's work on climate risk disclosure is also an important 
example of how to improve the market's understanding of risks and to 
provide transparency and comparability. Clarity and uniformity are key.
    If only a subset of companies provides disclosure, and they do so 
in whatever form they want, that doesn't serve anyone. Investors 
outside the U.S. already benefit from standardized climate risk 
disclosures; it's time the U.S. market did as well.
    The SEC's recent rule proposal to require more disclosure about 
corporate stock buybacks will also bring much-needed transparency to 
the market.
    We know stock buybacks are a big problem--they distort the market, 
and they funnel profits to executives at the expense of long-term 
investment in workers and innovation.
    And the process allowed for these buybacks has only made them more 
manipulative. For decades, companies have been able to announce stock 
buybacks to juice their stock price, but then only provide details 
months later on how, when, and even whether they ever completed their 
plans.
    Under the SEC's new proposal, the market and the SEC would 
understand when companies are buying their stock, and if executives are 
buying or selling at the same time.
    Taken together with our unprecedented step in the Inflation 
Reduction Act to finally tax these buybacks, these are the first real 
steps we've seen in years to rein in this Wall Street scheme.
    Chair Gensler, I look forward to hearing more about other ways the 
SEC is working to hold bad actors accountable, and protect Americans 
who invest their hard-earned money in our markets.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Mr. Chairman, thank you. And welcome, Chairman Gensler.
    The SEC has a critical role to play in protecting investors, 
maintaining fair, orderly, and efficient markets, and facilitating 
capital formation. Unfortunately, some of the SEC's recent actions--and 
inactions--raise concerns about how well it's carrying out this 
important mission.
    Take for example the SEC's handling of crypto lending platforms, 
like Celsius and Voyager. Celsius and Voyager were offering interest 
rates as high as 18 percent if customers would lend their digital 
assets to them.
    The firms would then lend that crypto to other larger investors to 
make short-term bets on cryptomarkets. But once the crypto selloff 
began, many borrowers couldn't pay their debts, and these platforms 
froze customer accounts.
    The SEC took enforcement action against BlockFi for similar 
activities last winter, yet somehow let Celsius and Voyager continued 
through this spring, when both companies blew up and found themselves 
in bankruptcy, with investors staring at billions in losses. Where was 
the SEC?
    And where's the SEC been in clarifying the rules of the road for 
cryptomarket participants? The Chairman insists in his written 
testimony that ``the vast majority'' of cryptotokens are securities.
    But he has also acknowledged Bitcoin is not. Presumably that's 
because Bitcoin is so decentralized. That naturally raises the 
question, where on the decentralization continuum does a token cease to 
be a security?
    Most of these tokens don't even have a financial claim on the 
issuer. Doesn't that make these tokens very different from the vast 
majority of securities?
    And if the Chairman is right that most tokens should be considered 
securities, then as he himself states in his written testimony, ``it 
follows that many crypto intermediaries . . . are transacting in 
securities and have to register with the SEC in some capacity.'' 
However, crypto transactions typically can be settled in real-time on-
chain and without intermediaries.
    As a result, crypto intermediaries often serve different customer 
needs, have different business models, and pose different risks than 
traditional securities intermediaries. That raises the question, what 
is the crypto-specific roadmap for these crypto intermediaries to 
register?
    Stepping back, there's a larger problem here. As Bloomberg 
columnist Matt Levine put it: ``[Chairman] Gensler's posture is that he 
should be in charge of writing the rules for crypto, but not write 
them. I don't see how that can work.'' I agree.
    Given the novel nature of these tokens, Congress ought to step in 
to provide clarity. In particular, we need to revisit the definition of 
``security'' as part of a larger effort to tailor a regulatory 
framework that is calibrated to the unique risks and activities of the 
cryptomarket?
    As I've said, cryptotokens have varying degrees of 
decentralization, usually do not have a financial claim on the issuer, 
and typically can be settled in real-time without intermediaries. These 
are important differences from traditional securities. And they merit a 
clearly stated and tailored regulatory framework.
    While the SEC has failed to provide regulatory clarity in the 
cryptomarkets, it has been issuing numerous controversial and 
burdensome rules and proposed rules in the ordinary securities market. 
At the top of the list is the SEC's climate disclosure rule.
    Public companies are already legally required to disclose material 
climate change information. The proposed rule however would go much 
further to require disclosure of exceedingly extensive global warming 
data.
    This data will be enormously expensive to collect, but almost none 
of it will be material to a business's finances. For annual reports 
alone, the SEC estimates that aggregate external compliance costs for 
issuers increases from $1.9 billion per year to $5.2 billion per year 
as a result of the SEC's proposed climate disclosure rule.
    The SEC itself estimates that the external compliance cost of a 
company going public will increase by more than five times, at a time 
when excessive regulatory costs are resulting in ever fewer companies 
going public. The cost of compliance will be more material to the 
investor than the information itself.
    But of course the climate disclosure rule isn't about an informed 
investment decision. It's about equipping climate activists with data 
to run political pressure campaigns against companies, often to the 
detriment of shareholders.
    The endgame is to discourage capital investment in oil, natural 
gas, and other traditional energy industries. We've seen how that 
worked out for Europe.
    The SEC is wading into controversial public policy debates that are 
far outside its mission and its expertise and without the legal 
authority to do so. In doing so, the SEC risks politicizing the agency, 
slowing economic growth, increasing inflation, and even undermining 
national security.
    Given the importance of these issues, Banking Committee Republicans 
have written to the SEC asking basic questions about how the SEC 
developed the climate disclosure rule. Instead of providing real 
answers, the SEC has unacceptably stonewalled.
    The SEC may not want to answer to Congress on its climate 
disclosure rule. But, ultimately, the SEC will have to answer to the 
courts, which should make it nervous.
    The Supreme Court has repeatedly held that ``Congress . . . does 
not alter the fundamental details of a regulatory scheme in vague terms 
or ancillary provisions--it does not, one might say, hide elephants in 
mouseholes.'' This summer the Supreme Court applied this sensible 
principle in West Virginia v. EPA.
    There it ruled that the Executive branch and its agencies, cannot 
use novel interpretations of existing law to pretend they have legal 
authority to support sweeping policy changes, including on climate 
change, that Congress never intended. Well, that's precisely what the 
SEC appears to be trying to do with its climate disclosure rule.
    The SEC should consider itself to be on notice by the Court that 
the separation of powers still exists and will be upheld.
                   PREPARED STATEMENT OF GARY GENSLER
             Chair, U.S. Securities and Exchange Commission
                           September 15, 2022
                           
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              Additional Material Supplied for the Record
 LETTER SUBMITTED BY NATIONAL ASSOCIATION OF MANUFACTURERS, SECURITIES 
    INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, AND U.S. CHAMBER OF 
                                COMMERCE
                                
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