Operation Tame Finance | The Economist
gARY GENSLER’S students at MIT Sloan was a grateful group. Their nominations earned him the Business School Outstanding Teacher Award for the 2018-19 academic year. Now that he’s chairman of the Securities and Exchange Commission (SECOND), the main watchdog of the American markets, its voters are rather more unruly. Finance has been turned upside down by an explosion of flashy innovations, and Gensler must figure out how and to what extent to control it all. Forget about diligent undergraduates; it’s a bit like trying to run the biggest and loudest kindergarten in the world.
The search for more adult supervision is already underway in cryptography. The SECOND recently threatened to sue Coinbase, a large cryptocurrency exchange, if it launched a loan product without first registering it as a security. And this week, the regulator squeezed $ 539 million from three media companies accused of illegal offerings of stocks and digital assets.
Crypto-believers may have expected a friendlier stance from a man whose classes at MIT included one on the uses of blockchain technology. But since I took the SECONDMr Gensler’s reins has made an effort to emphasize that while he is “neutral” on technology, he is anything but investor protection and market stability. And that means tightening regulation of the $ 2.2 billion crypto market, which he told a Senate committee this week is a “Wild West … rife with fraud, scams and abuse “.
Its agenda extends beyond the bubbling cryptoversy. He is also suspicious of other areas of next-generation finance, from trading apps like Robinhood that use “digital engagement practices” to encourage retail bettors to trade more often, to acquisition companies for purpose. special (After-sales services) pushing the boundaries of what securities laws allow (one of the first victims was After-sales service-King Bill Ackman’s complex plan to invest in Universal Music Group). Other targets include the types of derivatives that blew up Archegos, a family office, and the shell company structures used by many Chinese listed companies in America.
For all the focus on cutting edge finance, Mr. Gensler’s SECOND can end up having an equally large impact in more established markets. He thinks stock trading needs an overhaul; too much flow to “dark” places, off the stock market, where small investors can more easily be stiffened. They may also, he suspects, be harmed by potential conflicts of interest such as the “payment for order flow” that brokers receive for channeling trades to particular market makers. He wants to force companies to disclose everything from climate risks to how companies treat their workers.
A whole list of things to do, then; policy reviews are underway in at least 50 areas. And quite a change from the days of President Donald Trump, when the commission seemed happy to drag its feet to implement post-financial crisis reforms.
The obvious question is whether Mr. Gensler bites more than he can chew. His experience as a poacher and a gamekeeper should help him. After 18 years at Goldman Sachs, the last ten as a partner, he worked in the Treasury and helped draft the Sarbanes-Oxley reforms after the implosion of Enron, an energy company, in 2001. head of the Commodity Futures Trading Commission (CFTC).
Being a good communicator should also help. Mr. Gensler understands that winning the argument means reducing the message to mere analogies that most punters (and senators) can grasp. Under him, the SECOND even uses social media wisely. When the Coinbase boss said in shock that a loan product could be classified as a security, the commission tweeted a 30-second guide to how bonds work.
Good. But Mr Gensler can expect fierce lobbying against more bureaucracy. It may also have to wage turf wars with other regulators; the CFTC wants a share of the action in digital currencies. And then there are the policies. Regulatory Democrats have the upper hand in Congress, but some people are nauseous about a large expansion of the SECONDThe authority of the Institute of Commerce, given its uneven record: think of all the scandals, from Enron to Bernie Madoff, brought to light not by the regulator but by outside detectives. Mr. Gensler also needs more money. At $ 2 billion, its budget is less than JPMorgan Chase’s annual spending on marketing. But the increase planned for 2022 is only 5%. Mr. Gensler has big ambitions. His problem may be to find the big bucks to achieve them.
This article appeared in the Finance and Economics section of the print edition under the headline “The modest mission of the SEC”