Securities and Exchange Commission Chairman Gary Gensler testified before the House Financial Services Committee on Monday. Ohio Representative Warren Davidson, a right-wing Republican, gave the SEC head his toughest grilling of the session and listed a number of reasons why Gensler should resign.
1. Too many new rules
One of the SEC's key jobs is to propose new rules in financial markets. The commission publishes the text of the proposals on the website, followed by a comment period during which the public can express their opinions. In 2022, the regulator submitted 26 proposals for new rules. This is twice as much as in 2021 and the highest figure in the last five years. To politicians skeptical of government oversight, Gensler's actions are highly controversial.
2. Inappropriately short periods for collecting comments
This week, Gensler reopened the comment period on the proposal to redefine the exchange with just 30 days. Many in the industry and Congress believe that this is too short a time frame - especially for such a new and complex industry as cryptocurrencies.
3. Unenforceable and illegal ESG mandates
The acronym ESG stands for Environmental, Social, and Governance, and represents criteria for assessing the social and ethical impact of a company. Davidson has said in the past that the SEC's proposed ESG compliance disclosure rules were beyond its authority. He compared ESG compliance to the Chinese Communist Party's "social credit" system and recalled that last year Gensler proposed expanding the existing ESG disclosure system.
4. Disadvantages for SEC registrants
Last September, Gensler reported that only a few companies had applied to register tokens with the Commission. This is largely due to the fact that US regulators have not been able to come up with final language for defining securities.
Under federal law, a company cannot offer or sell securities unless they are registered with the SEC or have an exemption from registration. Until recently, registration for most cryptocurrency companies and digital asset-related service providers was voluntary. However, if a firm is registered with the SEC, the list of compliance tasks will be much longer - so it is not surprising that participants in the crypto industry try to avoid it.
5. Lack of clear action algorithms
One of the main complaints about Gary Gensler's work at the SEC is that lawsuits and investigations take a long time: the Commission's case against Ripple, for example, has been going on for several years and could drag on until 2026. While the agency debates what is legal and what is not, crypto companies remain in limbo.
6. Unfeasible proposals for restructuring the market structure
On February 15, the head of the SEC proposed a new rule that would require investment advisers to use only qualified custodians, and noted that most crypto exchanges do not fall under this definition. A custodian is an organization that is engaged in the storage of securities or other financial assets, including cryptocurrencies. This is an official activity that is regulated at the legislative level. In the US, custodians are regulated by the Securities and Exchange Commission.
Commissioner Hester Pierce said Gensler's proposal "expands the scope of crypto asset custody requirements while likely reducing the ranks of qualified custodians."
7. Hiring unqualified employees at the SEC
The SEC has a very high turnover rate, with a turnover rate of 6.4% in 2022, a record high in the last decade. As a result, the financial regulator is increasingly relying on temporary staff with little experience to fill gaps. Such personnel often do not have sufficient experience in developing rules.
