SEC Chair Gensler slammed by House GOP on regulatory agenda: 'This should be no shock to you.'

Securities & Exchange Commission Chair Gary Gensler defended his agency’s agenda during a contentious hearing Tuesday before the House Financial Services Committee as Republicans accused him of overreaching.

“Chair Gensler, welcome to the committee,” said committee chair Patrick McHenry, a Republican. “As you can see, we’re under new management. So, get comfortable, we have a lot to get to today."

The hearing, which lasted more than four hours and was the first appearance for Gensler since leadership switched to Republicans, largely focused on cryptocurrencies and climate change disclosure rules. McHenry accused Gensler of refusing to provide clarity on whether crypto as part of an investment contract is subject to securities laws, and how cryptocurrency firms should comply with those laws.

The SEC has been stepping up its efforts to rein in that fledgling market. It has issued 14 enforcement actions since the beginning of January against crypto firms and individuals, while serving formal letters to Paxos, DeFi exchange Sushi, and Coinbase Global warning the agency plans to bring an enforcement action. Coinbase is the largest U.S. crypto exchange.

The SEC chair defended the agency’s approach to the industry. He said its firms don't want to come into compliance, and disputed that the SEC has not described how to do so. Each enforcement action, he said, explains how the laws apply to crypto.

“It's not a matter of lack of clarity,” said Gensler. “I think this is a field that in the main is built up around noncompliance and that's their business model and have chosen, even though it's not the law, they've chosen to be noncompliant and not provide investors with confidence protections and it undermines the $100 trillion capital markets.”

Gensler reiterated that the vast majority of crypto tokens are securities. He signaled he intends to continue pushing more enforcement action against crypto firms.

“It’s the law; it’s not a choice,” he said. “Calling yourself a DeFi platform …is not an excuse to defy the securities laws.”

When asked several times by Chair McHenry whether ethereum, the second largest cryptocurrency, is a security or a commodity, Gensler declined to say.

“Chair Gensler, I said this in private. This should be no shock to you. I'm asking this question. Is ether a commodity or security?” McHenry asked.

“It depends on the facts and the law…Mr. Chair, I think you would not want me to prejudge,” said Gensler, appearing to want to preserve flexibility in the event of future regulatory actions.

The top Democrat on the House Financial Services Committee, Maxine Waters, called Tuesday's hearing unfortunate. “Republicans threatened to do a big number on the SEC and chair Gensler, and today is the start of them making good on that promise,” she said.

Republicans also confronted Gensler on the agency’s proposed climate disclosure rules. He said the SEC is trying to help investors better understand a company's climate risk when they buy or sell securities. Gensler repeatedly said the rules are not a back door effort to regulate climate change.

Beyond crypto and climate change, Gensler faced a range of questions over how the SEC oversees capital markets, including the Treasury market, and how failure to raise the debt ceiling could impact capital markets.

If the US failed to raise the nation’s borrowing limit, Gensler warned of less liquidity in markets that could raise the cost of borrowing and infect the banking sector.

“If we were to get close to that state…it is likely that we would start to see fraying— less liquidity in the Treasury markets, which ultimately means higher cost to the taxpayers,” he said. “If we were to go over that default cliff…it'd be one heck of a mess of capital markets. It would hurt the equity markets, the rest of the fixed income markets, and it would ripple into the banking system as well.”

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