Gensler vows to ensure compliance with Reg BI ‘as written’

Securities and Exchange Commission Chairman Gary Gensler told lawmakers Thursday that the agency would work to ensure that brokers comply with Regulation Best Interest, but he doesn’t seem to be inclined to overhaul the advice standard.

In his first appearance on Capitol Hill since being confirmed as the SEC chief last month, Gensler indicated that the agency would concentrate on overseeing broker interactions with clients based on Reg BI, which went into force last June.

“It’s important that investors actually have brokers take their best interests at heart, and that’s what we’re going to do through examinations and enforcement [and] guidance to ensure that that rule is fully complied with as written,” Gensler said at a House Financial Services Committee hearing.

Reg BI was the signature rulemaking of Gensler’s predecessor, former SEC Chairman Jay Clayton. Under the measure, brokers must not put their own interests ahead of their clients’ interests. Many investor advocates and Democrats criticized Reg BI as being too weak to curb brokers’ conflicts of interest.

In the last few months, some investor advocates have said Reg BI can be strengthened without being rewritten. That seems to be the path that Gensler is indicating he’ll take.

The approach reassured Rep. Ann Wagner, R-Mo., a strong proponent of Reg BI and the committee member who asked Gensler about Reg BI.

“Applied as written, glad to hear it,” Wagner said.

Later, in response to a question from Rep. Emmanuel Cleaver, D-Mo., Gensler indicated the SEC will be monitoring how well Reg BI works and might update it if needed.

“We’re going to vigorously get the most out of Regulation Best Interest, but we’re also going to evaluate,” Gensler said. “If it’s not serving the purpose of the investors, then we will update and freshen that rule as well as other rules. We always have to be evaluating that investors come first.”

The committee hearing was designed to focus on regulatory responses to the GameStop trading frenzy earlier this year. The session featured Gensler, Financial Industry Regulatory Authority Inc. Chief Executive Robert Cook and Michael Bodson, chief executive of the Depository Trust and Clearing Corp..

But the hearing became much more wide-ranging, as House lawmakers took advantage of an opportunity to ask Gensler questions for the first time in his role as SEC chairman.


As was the case during Gensler’s Senate confirmation hearing, oversight of environmental, social and governance investing came up.

The SEC is striving for “consistency and comparability” in ESG disclosures, Gensler said. He highlighted the request for public comment the SEC has issued regarding corporate disclosure of climate risks.

“I encourage the public to weigh in and tell us what’s important to them in their investment decisions and proxy decisions,” Gensler said.

The comment period ends in June. Gensler indicated that the SEC intends to draft a proposal but declined to offer a timeline.

Committee Republicans expressed concern that the SEC had established a task force on ESG and climate before proposing new rules in the area. They said they’re wary of so-called rulemaking by enforcement and pressed Gensler to follow rulemaking procedures.  

“I’m committed to using notice and comment for new rules, but we still have to enforce the old guidance and old rules as vigorously as you would want us to,” Gensler said.


Gensler also addressed the GameStop situation. He didn’t announce new rules or enforcement actions related to the trading, but in a written statement he outlined the steps the SEC is considering in areas such as gamification, payment for order flow and market structure.

Critics assert Robinhood catalyzes the gamification of investing, which the online broker strongly disputes. Much of the GameStop trading occurred through Robinhood.

In his testimony Thursday, Gensler said trading apps such as the one developed by Robinhood “expand access to capital” for ordinary investors but also encourage them to trade more frequently, which may lower returns.

 “While they’re encouraging investing, they may also be encouraging active trading,” Gensler said. “I’ve asked the staff to prepare a request for public comment on these issues.”

The hearing was ongoing at more than two hours as of 2:15 p.m. Thursday. Gensler, a former chairman of the Commodity Futures Trading Commission and former Goldman Sachs executive, often sidestepped specific policy stances by reminding lawmakers that he was recently sworn in.

“I’m just there three weeks right now,” Gensler said many times.

Editor’s Note: This story was updated to reflect another comment Gensler made regarding Regulation Best Interest later in the hearing.

The post Gensler vows to ensure compliance with Reg BI ‘as written’ appeared first on InvestmentNews.

As our second lead editor, Cindy Hamilton covers health, fitness and other wellness topics. She is also instrumental in making sure the content on the site is clear and accurate for our readers. Cindy received a BA and an MA from NYU.

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