Banking Republicans to press Gensler on SEC climate rule, cryptocurrencies

GOP members see ESG rules as exceeding agency’s agenda

Sen. Patrick J. Toomey and other Banking Committee Republicans are expected to press SEC Chairman Gary Gensler about rules on ESG disclosure. (Tom Williams/CQ Roll Call file photo)
Sen. Patrick J. Toomey and other Banking Committee Republicans are expected to press SEC Chairman Gary Gensler about rules on ESG disclosure. (Tom Williams/CQ Roll Call file photo)
Posted September 15, 2022 at 7:00am

Senate Banking ranking member Patrick J. Toomey and other committee Republicans are expected to use a hearing Thursday to air their grievances about Securities and Exchange Commission Chairman Gary Gensler’s handling of environmental, social and governance issues, as well as about cryptocurrency.

Toomey, R-Pa., and his GOP colleagues are preparing to argue that “Gensler’s pursuit of a highly politicized liberal policy agenda has distracted him from fulfilling the SEC’s core mission of protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation,” according to a Republican committee aide.

Republicans’ line of questioning will focus on ESG matters such as the SEC’s proposal to require publicly traded companies to disclose climate-related financial risks, the aide said.

The SEC climate risk rule would require reporting of direct greenhouse gas emissions and indirect emissions from purchased electricity and other forms of energy. Registrants would have to report indirect emissions from supply chains only if they are material or if companies have set reduction goals that include supply chain emissions. 

Since the agency debuted the proposal, it has received support from Democrats and major investors. Many companies that would be subjected to the rule — including Amazon.com, BP America, Fidelity Investments and United Airlines Holdings — agree with the effort to mandate standardized reporting on direct emissions, though some have reservations about certain aspects, such as supply chain emissions reporting.

Republicans argued aggressively in the past several months that the SEC lacks statutory authority to implement a climate disclosure rule, a view that Gensler and other supporters reject.

“Rather than doing its job, the SEC is far exceeding its mandate to pursue a radical agenda, like attempting to set climate and energy policies through its proposed climate disclosure rule,” said the aide, who spoke on condition of anonymity. 

Throughout June and July, Toomey and the 11 other GOP committee members sent letters to Gensler asking him to explain whether the agency considered potential effects on energy prices, whether it coordinated with other federal agencies and whether the rule violates the right to free speech.

Gensler offered SEC staff to meet with committee members to discuss their concerns in a July 12 letter, but he didn't answer Republicans’ specific questions or provide records. The Senate Banking Republicans, dissatisfied with that response, are expected to press Gensler on why he disregarded the congressional oversight request.

Senate Banking Chairman Sherrod Brown's office declined to outline specific policies that Democrats would raise during the hearing, but another staff member said Brown, D-Ohio, would focus on how he and Gensler could work together on stronger protections for Americans saving for retirement. 

"The Wall Street system prioritizes short-term, quarterly corporate profits over long-term investment, and the last Administration only made it easier for big corporations and big banks to take advantage of financial markets," the staff member said.

Crypto concerns 

Republicans will also bring up concerns about regulatory clarity for cryptocurrency firms amid market volatility, according to the GOP aide.

Cryptocurrency markets have experienced a steep decline following the demise of an algorithmic stablecoin called TerraUSD and the bankruptcies of two crypto lending firms — Voyager Digital and Celsius Network LLC. The value of bitcoin, the largest cryptocurrency by volume, has fallen more than 60 percent since November.

Congress has acknowledged that there is not an overarching and centralized regulatory framework in the U.S. for crypto.

Lawmakers have introduced bills that would give the Commodity Futures Trading Commission jurisdiction over the largest digital assets, a move praised by cryptocurrency backers. 

One bill was introduced last month, sponsored by Senate Agriculture Chair Debbie Stabenow, D-Mich., and co-sponsored by ranking member John Boozman, R-Ark.

Another bill, introduced in July by sponsor Sen. Cynthia Lummis, R-Wyo., and co-sponsor Sen. Kirsten Gillibrand, D-N.Y., would give the CFTC jurisdiction over most large digital assets. The bill includes a wide range of other crypto provisions and has tax implications. 

Toomey introduced draft legislation in April that would, in part, establish a special license for stablecoin issuers and subject them to reserve asset requirements. He also criticized the SEC during a hearing in July for doing “nothing” before Celsius went bankrupt. 

“In the last several weeks, we've seen the sensational and terrible cases where companies whose crypto lending services, the activity regarding these tokens, were very arguably within the SEC's purview, and they collapsed,” he said at the time.

The SEC relies on the Howey test — stemming from an often-cited 1946 Supreme Court case that defines an investment contract — to determine the extent of its jurisdiction. Generally, a security involves an investment of funds with an expectation of profit from the labor of others. Despite this test, debate continues over whether crypto-assets meet the definition.

Republicans have also criticized the SEC’s “regulation by enforcement” approach. For example, when the SEC brought insider trading charges against a former Coinbase Global manager — a case in which the SEC determined that nine cryptocurrencies involved were securities — Toomey called it the “perfect example” of the agency having a clear opinion on why certain tokens are securities yet not communicating its view to the industry before launching an investigation.

"The SEC's regulation-by-enforcement approach to digital assets poses a serious challenge for any well-meaning innovator who's striving to comply with existing laws and regulations," Toomey said. "Providing regulatory clarity prior to enforcement would benefit regulators and investors alike."

Some Democrats have been wary of crypto.

Sen. Elizabeth Warren, D-Mass., has said high and unpredictable fees present severe risks to investors. Last year, she called on regulators to “step up to address crypto’s regulatory gaps,” noting that she expects Gensler to take a leading role. Brown raised concerns in February about the risks digital assets pose to consumers.

Brown, who is also a member of Senate Agriculture, raised concerns about the risks digital assets pose to consumers in February at a hearing with that panel.

“We hear a lot about innovation, but I’m concerned that digital assists create big risks for consumers," Brown said. "The Banking and Housing Committee has been looking at cryptocurrency for years, and we’re going to continue to make sure consumers are protected in these markets.”