[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]



                        SEC OVERREACH: EXAMINING
                          THE NEED FOR REFORM

=======================================================================




                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON CAPITAL MARKETS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             MARCH 20, 2024
                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-84
                           




                           
               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                                 ______

                   U.S. GOVERNMENT PUBLISHING OFFICE                           

56-394 PDF                 WASHINGTON : 2024                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           









                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                   Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
  Chairman                           JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                     
                     
                     
                     
                     




















                     
                    Subcommittee on Capital Markets

                    ANN WAGNER, Missouri, Chairwoman

FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California, Ranking 
PETE SESSIONS, Texas                   Member
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
FRENCH HILL, Arkansas                DAVID SCOTT, Georgia
TOM EMMER, Minnesota                 JUAN VARGAS, California
ALEXANDER X. MOONEY, West Virginia   JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
DAN MEUSER, Pennsylvania             SEAN CASTEN, Illinois
ANDREW GARBARINO, New York, Vice     WILEY NICKEL, North Carolina
  Chairman                           STEPHEN F. LYNCH, Massachusetts
MIKE LAWLER, New York                EMANUEL CLEAVER, Missouri
ZACH NUNN, Iowa
ERIN HOUCHIN, Indiana


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 20, 2024...............................................     1
Appendix:
    March 20, 2024...............................................    41

                               WITNESSES
                       Wednesday, March 20, 2024

Burton, David R., Senior Fellow in Economic Policy, Heritage 
  Foundation.....................................................     4
Gulliver, John A., Executive Director, Committee on Capital 
  Markets Regulation.............................................     6
Schulp, Jennifer J., Director, Financial Regulation Studies, 
  Center for Monetary and Financial Alternatives, Cato Institute.     8
Thornton, Alexandra, Senior Director, Financial Regulation, 
  Center for American Progress...................................     9

                                APPENDIX

Prepared statements:
    Burton, David R..............................................    42
    Gulliver, John A.............................................    63
    Schulp, Jennifer J...........................................    84
    Thornton, Alexandra..........................................    98

              Additional Material Submitted for the Record

Hill, Hon. French:
    Written statement of the American Securities Association.....   113
Burton, David R.:
    Written responses to questions for the record from 
      Representative Waters......................................   117
Gulliver, John A.:
    Written responses to questions for the record from 
      Representative Waters......................................   119
Schulp, Jennifer J.:
    Written responses to questions for the record from 
      Representative Waters......................................   120
Thornton, Alexandra:
    Written responses to questions for the record from 
      Representative Waters......................................   121

 
                        SEC OVERREACH: EXAMINING
                          THE NEED FOR REFORM

                              ----------                              

                       Wednesday, March 20, 2024

                            U.S. House of Representatives,
                            Subcommittee on Capital Markets,
                                Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:09 a.m., in 
room 2128, Rayburn House Office Building, Hon. Ann Wagner 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Wagner, Sessions, 
Huizenga, Hill, Steil, Meuser, Garbarino, Lawler, Nunn, 
Houchin; Sherman, Scott, Vargas, Gottheimer, Gonzalez, Casten, 
and Nickel.
    Ex officio present: Representative Waters.
    Also present: Representative Kim.
    Chairwoman Wagner. The Subcommittee on Capital Markets will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Today's hearing is 
entitled, ``SEC Overreach: Examining the Need for Reform.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    I want to thank you all for joining today's hearing, where 
we will address clear examples of regulatory overreach at the 
Securities and Exchange Commission (SEC). The SEC's aggressive 
and burdensome regulatory approach reveals the urgent need for 
sensible reforms at an agency responsible for protecting 
investors, maintaining fair, orderly, and efficient markets and 
facilitating capital formation.
    This hearing is specifically about examining the need for 
reform--under either a Republican or a Democrat SEC Chair--but 
reform at the SEC. SEC Chair Gensler's frenetic partisan 
rulemaking agenda at the SEC has threatened the health of U.S. 
capital markets and highlights the need for targeted 
institutional reform.
    Today's hearing will explore the negative consequences of 
rulemaking based on theoretical assumptions rather than real-
world impacts, and the alarming absence of stakeholder input 
and meaningful cost-benefit analysis during the rulemaking 
process. None of these topics covered today should come as a 
surprise to anyone who has paid attention to the SEC under 
Chair Gensler.
    Likewise, each of our proposed reforms is targeted and 
practical. They will improve the 90-year-old agency, not 
overhaul it. They will not remove investor protections or 
kneecap the regulatory process or politicize an independent 
Federal agency, despite what any Democrats may claim.
    The problems and solutions highlighted today are clear to 
any observer of the SEC, with countless examples proving that 
the SEC, under Chair Gensler, would rather pursue partisan 
policy objectives than adhere to its statutory mission.
    Democrats might argue that Chair Gensler has acted in the 
interest of investors. However, investors and companies in both 
the public and the private markets know otherwise and have been 
raising the alarm through both public comments and the courts.
    For example, if Chair Gensler were truly concerned with the 
interest of investors, wouldn't he provide more than 30 days 
for market participants to review and comment on new rules? 
Wouldn't he propose new rules that have been substantially 
changed before they are finalized or encourage the thoughtful 
cost-benefit analysis that clearly shows how the benefits 
outweigh the costs of a new rule.
    Moreover, if Chair Gensler truly believes our security 
markets are, ``the envy of the world,'' as he often claims, you 
would expect that he would propose new rules only when there is 
an ambiguous data-driven need for such new rules. You would 
also expect that he would provide a reasonable, staggered 
timeline for companies to implement and comply with his massive 
set of new regulatory requirements.
    Instead, since taking office in 2021, Chair Gensler has 
flooded the marketplace with roughly 60 new proposals and more 
than 30 final rules. Many of these proposed and final rules 
include sweeping new changes that were advanced without the 
requisite statutory authority, without a comprehensive cost-
benefit analysis, or without satisfying the requirements of the 
Administrative Procedure Act (APA).
    The best example is the Climate Disclosure Rule which was 
finalized earlier this month. As members of this committee have 
made clear, the SEC is not an environmental regulator nor was 
it given clear authority to finalize climate-related 
regulations that will only burden American businesses with 
serious costs.
    The full Committee on Financial Services will explore that 
rule in detail on April 10th. In the meantime, today we will 
hear why our proposed slate of common-sense reforms is 
necessary to prevent an activist agency from accomplishing 
political objectives, sometimes in violation of the law.
    This should not be a partisan issue. Members of Congress 
from both sides of the aisle should be concerned any time an 
agency oversteps its authority and should welcome the sorely-
needed reforms we will be examining today that improve the 
rulemaking process at the SEC.
    I would like to thank our witnesses for their testimony, 
and I look forward to our discussion.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from California, Mr. Sherman, for 4 
minutes for an opening statement.
    Mr. Sherman. I am going to use the first minute to talk 
about a housing issue and the effect of this new antitrust 
decision on first-time homebuyers. If you buy a $500,000 house, 
you are not just paying for the plumbers and the carpenters; 
you are also paying for the real estate agents, and the bank is 
financing that. So if you are going to buy a $500,000 home, you 
need $50,000 for a 10-percent down payment.
    Under the new system, the buyer is supposed to pay their 
own agent or adviser. That would mean that they would have to 
come out of pocket not just that $50,000 down payment, but 
another $15,000 for their agent. We should pass a law that 
makes it plain that when you finance a home, the loan should 
include, as it does now, the amount being charged by the 
agents. So, that same $500,000 home would get a $450,000 
mortgage. If we don't do that, then a couple trying to build up 
their down payment, instead of having to do that for 10 years 
will end up spending 13 years before they can afford to buy a 
home.
    As to the matter before us, the rule in Washington is 
clear. When the facts are with you, argue the facts. When the 
public policy is with you, argue the public policy. And when 
you have bad facts and you are wrong on the public policy, 
scream about the procedure. And that is what the detractors of 
the SEC are doing.
    The fact is that we do need guidance to be published from 
the SEC. When the SEC provides that guidance in the crypto 
accounting area, then we are told, oh my God, we don't need 
guidance. We just need a patina of regulation but not any real 
regulation for the crypto industry, so they can give the 
illusion that they are regulated.
    I should point out that the SEC is finally doing what we 
told them to do, by law, in the Dodd-Frank Act in 2010. We are 
not watching a Nascar race. We are watching a turtle race in 
which now, in 2024, the SEC is doing what we told them to do 
back when I had hair. Okay, I still didn't have hair then.
    I want to point out that this recent near government 
shutdown has delayed initial public offerings (IPOs), because 
anybody trying to raise money in the Capitol knew that the SEC 
would have to shut its doors or might not shut its doors or 
might shut its doors, and that has made it more difficult for 
the United States to compete for capital worldwide by showing 
that we had a workable government and financial system.
    As to the length of time for commenting, the average that 
the SEC is giving is 67 days. And the way to calculate that is 
from the day the SEC publishes the proposed rule on their 
website, not waiting many days later until it finally gets 
published in the Federal Register.
    Why is that more relevant? Because if you talk to 
investors, or you talk to broker-dealers, they have all heard 
of the SEC, and if they want to know what the SEC is doing, 
they are going to go to SEC.gov. None of them have thought of 
the Federal Register.
    I was just at the New York Stock Exchange. A dozen people 
mentioned the SEC. Not a single one of them mentioned the 
Federal Register.
    We need climate disclosures because they are material to a 
material percentage of the investors investing in American 
markets. And this idea that we are going to deprive investors 
of the information they want because we don't want them to have 
it is a bad approach. And thank God the SEC has gone in the 
other direction.
    I yield back.
    Chairwoman Wagner. The Chair now recognizes the ranking 
member of the full Committee on Financial Services, the 
gentlewoman from California, Ms. Waters, for 1 minute.
    Ms. Waters. Thank you very much.
    The SEC has played a critical role over the past 90 years 
in protecting investors from fraud and abuse and ensuring U.S. 
corporations provide adequate information about themselves so 
working families can make sound decisions with their money.
    While the agency has done a solid job under the Biden 
Administration, I believe there is still much more work to be 
done. For example, we need transparency in the unregulated 
private securities markets, and we need rules to stop corporate 
executives from engaging in any work stock buybacks. And we 
need more comprehensive climate risk disclosures that apply to 
all issuers.
    The SEC also needs to be fully funded so that it remains an 
effective and relevant regulator for the next 90 years. So, I 
look forward to this discussion today. And I yield back the 
balance of my time.
    Chairwoman Wagner. Today, we welcome the testimony of: 
David Burton, senior fellow in economic policy at the Thomas A. 
Roe Institute for Economic Policy Studies at the Heritage 
Foundation; John Gulliver, executive director of the Committee 
on Capital Markets Regulation; Jennifer Schulp, director of 
financial regulation studies at the Center for Monetary and 
Financial Alternatives at the Cato Institute; and Alexandra 
Thornton, senior director of financial regulation at the Center 
for American Progress.
    We thank each of you for taking the time to be here. Each 
of you will be recognized for 5 minutes to give an oral 
presentation of your testimony. And, without objection, each of 
your written statements will be made a part of the record.
    Mr. Burton, you are now recognized for 5 minutes for your 
oral remarks.

       STATEMENT OF DAVID R. BURTON, SENIOR FELLOW IN
            ECONOMIC POLICY, HERITAGE FOUNDATION

    Mr. Burton. Thank you. My name is David Burton, and I am 
the senior fellow in economic policy at the Heritage 
Foundation. I would like to express my thanks to Chairwoman 
Wagner, Ranking Member Sherman, and the members of the 
subcommittee for the opportunity to be here this morning.
    As the most important regulator of U.S. capital markets, 
the Securities and Exchange Commission has a vital mission. We 
need an effective cop on the beat to prevent fraud, to ensure 
adequate disclosure, and to promote efficient markets if we are 
to have a strong capital market, a vibrant economy, and to 
protect and secure the savings of the American people.
    Unfortunately, despite its glowing self-image, the 
Commission does an increasingly bad job of discharging its core 
functions. There are at least five reasons for this. First, 
Commission resources have flowed into unnecessary management 
support and ancillary functions while core functions have been 
neglected. The SEC is managed exceedingly poorly and has been 
for quite some time. Its organizational structure is unwieldy 
and inconsistent with sound management practices. It is among 
the most management-heavy and bureaucratic agencies in 
government. Its information technology function is among the 
most expensive and least effective in government. Oversight of 
its contracting process is poor.
    Second, it provides inadequate oversight of so-called self-
regulatory organizations (SROs). And in the aggregate, these 
nongovernmental organizations (NGOs) to whom regulatory 
authority has been delegated have personnel levels and budgets 
that are comparable to the SEC itself.
    Third, the Commission does an inadequate job of providing 
the information necessary for policymakers, whether 
Commissioners or Members of Congress, to make informed 
judgments about the policy choices that they face.
    Fourth, the Commission has failed to address current 
regulatory issues, opting instead to pursue regulation by 
enforcement or to largely ignore serious problems.
    Fifth, and last, the Commission is now pursuing political 
and ideological objectives that are unrelated to its core 
mission.
    In my written statement, I address all of these issues in 
detail.
    Under Chairman Gensler, massive amounts of Commission staff 
time and resources have been diverted to ideological projects 
that are unrelated to the Commission's statutory charge. 
Entirely independent of the merits of his ideological 
objectives, this pursuit is doing real damage, because the 
Commission is increasingly ignoring its real job. Instead, it 
is focusing on climate regulation, diversity, equity, 
inclusion, board diversity, and various social justice 
objectives under the rubric of human capital management.
    The Commission is a securities regulator. Its mission is to 
protect investors and promote efficiency, competition, and 
capital formation. It is not meant to right every conceivable 
social wrong nor can it do so. It is not an environmental 
regulator. It is not the Equal Employment Opportunity 
Commission (EEOC) or the U.S. Commission on Civil Rights. It is 
not the Department of Labor or the National Labor Relations 
Board (NLRB). It should discharge the mission that Congress has 
given it.
    I would like to briefly run through a number of the pieces 
of legislation that the committee is considering. I will have 
to do this quickly, but the legislation that would roll the 
Public Company Accounting Oversight Board (PCAOB) back into the 
SEC is welcome. Creating the PCAOB was a mistake, and putting 
it back in the government will restore due process, 
transparency, and rulemaking protections normally associated 
with government.
    The SEC Regulatory Accountability Act is a very well-
drafted piece of legislation. It would codify in the Securities 
and Exchange Commission the requirement to conduct rigorous 
cost-benefit analysis in the rulemaking process and provide for 
a robust and detailed retrospective review process. It would 
also apply these requirements for the first time to the 
Financial Industry Regulatory Authority (FINRA) and the 
Municipal Securities Rulemaking Board (MSRB) by making the SEC 
determine that they complied with these requirements before the 
SEC approves those rulemakings.
    The legislation that would require a Government 
Accountability Office (GAO) study of the information technology 
(IT) programs at the SEC are welcome. As I go into significant 
detail in my written statement, the SEC's IT department is 
among the most expensive in government and among the least 
effective.
    I am very sympathetic to the goals and objectives of the 
legislation that would require a GAO review of the SEC cost-
benefit analysis and up to 10 rulemakings, and I go into some 
more detail about that in my written statement.
    I think the legislation requiring at least a 60-day comment 
period for rulemakings is entirely warranted, particularly 
given the size, scope, and complexity of the rules that the SEC 
is putting out these days.
    With that, my time has expired, and I look forward to 
answering your questions.
    [The prepared statement of Mr. Burton can be found on page 
42 of the appendix.]
    Chairwoman Wagner. Thank you, Mr. Burton.
    Mr. Gulliver, you are now recognized for 5 minutes to give 
your oral presentation.

       STATEMENT OF JOHN A. GULLIVER, EXECUTIVE DIRECTOR,
           COMMITTEE ON CAPITAL MARKETS REGULATION

    Mr. Gulliver. Thank you, Chairwoman Wagner, Ranking Member 
Sherman, and members of the subcommittee for inviting me to 
testify before you today on the topic of, ``SEC Overreach: 
Examining the Need for Reform.'' My testimony today is my own 
and does not necessarily reflect the views of the Committee on 
Capital Markets Regulation or its members.
    The United States benefits from the world's most-efficient 
capital markets. This means that companies can raise the 
funding needed to grow and investors can earn a return on their 
savings at a low cost. The U.S. capital markets are, therefore, 
critical for economic growth and prosperity.
    The SEC is tasked with the vital role of regulating 
approximately 3,600 public companies as well as the broker-
dealers, investment advisers, and other market participants 
that presently provide 76 million U.S. households with the 
opportunity to invest in our markets.
    Over the past 3 years, under Chair Gensler's leadership, 
the SEC has embarked on an unprecedented rulemaking agenda that 
will have a major impact on the cost of being a public company 
and investing in our markets.
    The SEC has done so without a new statutory mandate or a 
market crisis presenting the need for holistic reform. The SEC 
has also not conducted a comprehensive analysis of how its 
rulemakings will collectively impact public companies and 
investors. Therefore, now is precisely the time to consider 
whether reforms to the SEC's regulatory process are needed.
    As with all Federal agencies, the SEC is required to 
provide the public with an opportunity to comment on its 
proposed rules. The SEC is also required to conduct an economic 
analysis as part of each rulemaking, and SEC rules are subject 
to review and reversal by the courts if they fail to comply 
with these requirements.
    Over the past 3 years, there have been significant 
deficiencies with the SEC's regulatory process. Short public 
comment periods for SEC rulemakings have failed to reflect a 
proposal's significance and complexity. According to an 
estimate by the Securities Industry and Financial Markets 
Association (SIFMA), the average period of time for comment for 
recent SEC proposals has been just 47 days. This has made it 
difficult, if not impossible, for the public to fully analyze 
and respond to the SEC's proposals.
    The SEC has also, on several recent occasions, issued rules 
on overlapping issues, such as the securities lending and 
short-selling disclosure rules, but failed to consider their 
aggregate impact or the interaction between those rules. This 
has resulted in conflicting regulations, and the SEC's 
securities lending and short-selling rules are now being 
challenged in the Fifth Circuit on this basis.
    Economic analyses by the SEC have also had major 
shortcomings. The SEC's share buyback rule was recently 
overturned by the Fifth Circuit due to flaws with its economic 
analysis.
    And the SEC's private funds rule, which is also being 
challenged in court, also has fundamental issues with its 
economic analysis. For example, the SEC asserted that there is 
a lack of competition in the market for private equity fund, 
venture capital fund, and hedge fund advisers.
    However, the SEC ignored the fundamental metrics that both 
government authorities and academic experts use to measure 
whether a market is competitive. And the evidence on private 
fund fees, performance, and industry concentration demonstrates 
that the private funds market is highly competitive, thus 
undercutting the SEC's economic analysis and Chair Gensler's 
basis for the rulemaking.
    Due to these various shortcomings, I support legislative 
reforms to clarify and enhance the SEC's regulatory process. As 
part of its economic analyses, the SEC should be required to, 
one, clearly identify and substantiate that a market failure 
exists and that a rule will address that failure; two, make a 
reasonable determination that the benefits of a rule would 
outweigh its costs; and, three, consider the effects of other 
related rules, including proposals. These recommendations are 
consistent with the SEC Regulatory Accountability Act.
    The SEC should also be required to periodically review its 
past rulemakings to identify rules that have been become 
obsolete or ineffective, as is required now in the European 
Union.
    Congress should also establish a minimum comment period of 
60 days for SEC rulemakings, and 180 days for complex rules. 
This would be consistent with existing Federal agency 
guidelines.
    Thank you for the invitation to testify before the 
subcommittee today.
    [The prepared statement of Mr. Gulliver can be found on 
page 63 of the appendix.]
    Chairwoman Wagner. Thank you, Mr. Gulliver.
    Ms. Schulp, you are recognized for 5 minutes to give your 
oral remarks.

      STATEMENT OF JENNIFER J. SCHULP, DIRECTOR, FINANCIAL
        REGULATION  STUDIES, CENTER FOR  MONETARY AND  FI-
        NANCIAL ALTERNATIVES, CATO INSTITUTE

    Ms. Schulp. Chairwoman Wagner, Ranking Member Sherman, and 
distinguished members of the Subcommittee on Capital Markets, 
my name is Jennifer Schulp, and I am the director of financial 
regulation studies at the Cato Institute Center for Monetary 
and Financial Alternatives. Thank you for the opportunity to 
take part in today's hearing.
    Regulatory decision-making by the Securities and Exchange 
Commission directly impacts our securities markets. While the 
stock market and the economy are not one and the same, the 
ability of individuals and entities to raise capital to grow 
their businesses and the ability to invest in businesses is the 
backbone of American economic growth.
    The SEC's mission cannot be and is not intended to be 
carried out without accountability to elected officials and 
input by the public. The SEC, however, falls short of this 
ideal.
    The Commission would benefit from reforms aimed at 
increasing the agency's accountability and transparency, 
ensuring adequate input and analysis for rulemaking, and 
holding the agency to high standards in the exercise of its 
functions.
    First, congressional oversight is critical to ensuring the 
proper functioning of the Federal Government. Regular testimony 
by the SEC Chairman and Commissioners can increase the agency's 
accountability and transparency and depoliticize the fact of 
congressional oversight.
    Other reforms to the SEC's enforcement authority can 
increase accountability. The Commission's gag rule on settling 
defendants silences critics who can help Congress and the 
public hold the agency accountable. And the SEC's use of 
administrative law judges similarly denies defendants and the 
public of the accountability provided by independent judicial 
courts.
    Second, the Commission has a mixed record, at best, at 
complying with the Administrative Procedure Act (APA), which 
provides for public participation in the rulemaking process and 
sets forth the basic standards for rulemaking.
    The Commission has often inappropriately relied on agency 
guidance and enforcement actions to create new regulation. 
These tools produce less-certain and less-clear rules and can 
result in unfair treatment of market participants, undermining 
public trust in the agency.
    Moreover, pursuing these pathways decreases regulation 
quality by preventing public input, which is at the heart of 
the APA's design for rulemaking. Under the APA, an agency must 
provide a meaningful opportunity to comment on proposed rules.
    The current SEC has advanced an aggressive rulemaking 
agenda and has provided less opportunity for public comment. 
These rule proposals have been complex and interconnected, 
increasing the burdens to analyze and meaningfully respond. 
Congress should consider setting a baseline for SEC comment 
periods, ensuring appropriate time for public input. The 
Commission should also repropose rules for public comment where 
the rule is substantially revised from the proposal.
    The SEC is also required by the APA to weigh and, where 
possible, quantify the costs and benefits of a proposed 
regulation. But the SEC's economic analyses often fail to 
account for costs and rely on speculative benefits.
    This is particularly apparent where the SEC's 
interconnected rule proposals do not analyze the impact of each 
proposal on the others. A clear, legislative cost-benefit 
analysis requirement may assist in shoring up existing 
obligations.
    Third, the Commission continues to suffer from embarrassing 
cybersecurity and information technology incidents. The 
information that the Commission collects should be right-sized 
by, for example, prohibiting investor personally identifiable 
information in the Consolidated Audit Trail (CAT). This not 
only avoids the question of whether the SEC can safeguard the 
data, but also avoids serious constitutional concerns with such 
surveillance.
    The agency must also identify and promptly remedy 
cybersecurity and information technology weaknesses. The SEC 
recognizes for its regulated entities that managing cyber and 
information risks is critical to the operation of the financial 
markets. Yet, within the past 2 years, the SEC has been hacked 
on X, not received public comments due to a glitch with an 
internet comment form, and allowed enforcement staff to access 
administrative law judge documents. Such issues have market 
impacts and erode confidence in the agency.
    To sum up, the Commission would benefit from reforms to 
improve its accountability, responsiveness, and competence, 
regardless of the Commission's policy agenda.
    Thank you, and I welcome any questions you may have.
    [The prepared statement of Ms. Schulp can be found on page 
84 of the appendix.]
    Chairwoman Wagner. We thank you, Ms. Schulp.
    Ms. Thornton, you are recognized for 5 minutes to give your 
oral remarks.

        STATEMENT OF ALEXANDRA THORNTON, SENIOR DIRECTOR,
       FINANCIAL REGULATION, CENTER FOR AMERICAN PROGRESS

    Ms. Thornton. Thank you, Chairwoman Wagner, Ranking Member 
Sherman, and esteemed members of the subcommittee. Thank you 
for the opportunity to appear today.
    In the interest of time, I will focus my oral remarks on 
the Commission's rulemaking process and the Private Fund 
Advisers Rule.
    The Administrative Procedure Act (APA) does not require an 
agency to make changes in response to every comment. Court 
decisions are clear that the point of the APA process is for 
the agency to make a reasonable effort to solicit relevant 
information so that it can examine the relevant data and 
articulate a satisfactory explanation for its action, including 
a rational connection between the facts found and the choice 
made.
    This is not what is happening now. Instead, opponents of 
SEC rulemakings are misusing reasonable administrative process 
protections and turning them into years-long gauntlets for 
agency actions. And a handful of relatively recent court 
decisions have made this process even more burdensome on the 
agency and thrust important rules into jeopardy.
    These outside pressures have added unreasonable 
expectations for the administrative process, impeding the SEC's 
ability to do its job of protecting investors and promoting 
fair, orderly, and efficient markets.
    In response to attacks, the Commission appears to be 
bending over backwards to allow for lengthy periods of comment 
by routinely considering comments received outside the comment 
window even though that is not legally required, and reopening 
formal comment periods. And it now appears to seek to address 
nearly every point raised by commenters, regardless of the 
relevance or when received. Meanwhile, the Commission's 
economic analyses are longer and much more complex.
    The result of all of this analysis is paralysis. As the 
agency's agenda shows, many rules sought by business and 
investors respectively have yet to be proposed, much less 
finalized. Larger companies, financial firms, and other market 
participants often overwhelm the agency with letters, which far 
outstrips the agency's ability to sift through the morass. The 
agency simply does not have enough staff to engage in this 
strained analysis for thousands of comments on every single 
rulemaking.
    One legislative proposal being considered today calls for 
congressional disapproval of the Private Fund Advisers Rule 
finalized last September----
    Chairwoman Wagner. I would ask the witness to suspend for 
just a moment. There seems to be a ruckus here in our--if you 
would like to join us, we would welcome you, if you could just 
sit quickly and quietly. You are most welcome.
    My apologies, Ms. Thornton. Please do continue.
    Ms. Thornton. Certainly. Now?
    Chairwoman Wagner. Please do continue, ma'am.
    Ms. Thornton. Private funds have grown in size, complexity, 
and number in the past decade since the Dodd-Frank Act required 
private fund advisers to begin registering with the SEC.
    More than 5,000 SEC-registered investment advisers, roughly 
35 percent of all SEC-registered advisers, manage about $18 
trillion in private fund assets.
    The SEC's Division of Examinations has found substantial 
concerns with deficiencies of private fund advisers. In 
response, the Private Fund Advisers Rule addresses common risks 
and harms in an adviser's relationship with private funds and 
their investors: lack of transparency; conflicts of interest; 
and lack of effective governance mechanisms for client 
disclosure consent and oversight.
    The disclosures to address these are all squarely within 
the SEC's authority to require from private fund advisers. This 
essential rule takes on heightened importance, given the rapid 
growth of private markets generally.
    Today, teachers, firefighters, and millions of other 
workers with public and private retirement plans are materially 
exposed to the private markets, and private fund advisers have 
significant control over these investments.
    Over the past few decades, Congress and the SEC have 
dramatically expanded exemptions from application of the 
Federal securities laws, including ongoing public reporting 
requirements. This has led to the explosive growth of private 
markets, where more capital is now raised annually than in the 
public markets. And while companies with a large number of 
holders of record have long been required to begin public 
disclosures, a loophole has allowed companies to effectively 
avoid the law's application even if they have tens of thousands 
of beneficial owners or shareholders.
    Allowing extremely large companies that have thousands of 
employees and sell to millions of Americans to avoid basic 
disclosure rules invites waste, fraud, and abuses not unlike 
those that predated the adoption of the Federal securities 
laws. Exemptions are dismantling the securities laws that have 
served the U.S. capital markets for so long and made them the 
most-liquid and most-trusted markets in the world.
    During debate over securities legislation in the 1930s, 
Congress considered making the SEC a merit regulator with 
authority to prevent securities offerings that did not meet 
standards of quality. It rejected that idea with the 
understanding that companies seeking capital from the public 
would be required to make any disclosures that the SEC found to 
be, ``in the public interest and for the protection of 
investors.'' This language is repeatedly mentioned in the 
statutes and legislative history of the securities laws.
    But the wholesale exemption of securities offerings from 
the public disclosure framework has undermined Congress' 
intent. The solution is either to give the SEC a stronger hand 
in making regulations aimed at protecting all investors from 
investments they cannot possibly understand well enough to make 
a sound investment decision, no matter how sophisticated they 
are, or, alternatively, to shrink the exemptions, and close the 
loophole, so that larger companies comply with the public 
disclosure framework, and prevent the remaining private 
companies from raising capital from retail investors, directly 
or indirectly, without providing the same types of disclosures 
that public companies make.
    Thank you again for inviting me to testify today. I look 
forward to answering your questions.
    [The prepared statement of Ms. Thornton can be found on 
page 98 of the appendix.]
    Chairwoman Wagner. Thank you, Ms. Thornton.
    Now, we will turn to Member questions, and I recognize 
myself for 5 minutes.
    Mr. Gulliver, I am deeply concerned with the quality of 
analysis that SEC staff includes with many of its proposed and 
final rules.
    In the equity market structure proposals, for example, SEC 
staff apparently cut and pasted the same economic analysis and 
applied it to every rule.
    My bill, the SEC Regulatory Accountability Act, requires 
the SEC to consider specified factors before issuing 
regulations. Could you explain how my bill would improve the 
quality of the SEC's analysis, sir?
    Mr. Gulliver. I think the most significant improvement is 
it would require the SEC to identify an actual problem. There 
is no problem in the U.S. equity market structure. The SEC's 
economic analysis ignore the fact that the U.S. equity market 
structure provides the lowest cost in the world. The cost to 
trade in the U.S. is lower than it is in Europe, the UK, Japan, 
Hong Kong, or any other developed market. So, I think that 
would be a major improvement.
    Chairwoman Wagner. And could you explain how higher-quality 
analyses would promote better policymaking outcomes and prevent 
overreach?
    Mr. Gulliver. I think, most importantly, it is a 
fundamental point of policy that the benefits of a rule should 
exceed its cost. So, requiring that explicitly through 
legislation would serve an important policy purpose.
    Chairwoman Wagner. And we certainly need more specific 
economic analysis than just literally cutting and pasting the 
same analysis over and over again. It was stunning.
    Mr. Gulliver, what would you say to Democrats who believe 
there is nothing wrong with the quality of the SEC's economic 
analyses?
    Mr. Gulliver. I would say that issues with the SEC's 
economic analyses have been raised by former SEC Chief 
Economists from both Democratic and Republican Presidents.
    Chairwoman Wagner. Yes.
    Ms. Schulp, as Chair of the subcommittee, I am committed to 
making sure unelected officials, like SEC Chair Gensler, remain 
accountable to the American people. And as part of those 
efforts, throughout this Congress I have brought each of the 
SEC Division Directors in to testify before this subcommittee. 
The Full Committee has also brought Chair Gensler in to testify 
on several occasions.
    Ms. Schulp, can you explain why it is important that 
regulators testify before Congress on a regular and more-
frequent basis?
    Ms. Schulp. First, this type of exchange of information 
between Members of Congress and regulators is an important one, 
and it supplements letters that go back and forth that might 
not be answered.
    Chairwoman Wagner. All the time.
    Ms. Schulp. ----or may not be answered in an appropriate 
manner. But it is also important to have a live back-and-forth 
between a Member of Congress and the entity that it is 
regulating in the public sphere.
    It is very important to make sure that this is standardized 
as well and happens regularly, so that it is not simply that 
oversight happens when there is divided government.
    Chairwoman Wagner. I wonder what impact might it have if 
the full Commission, not just the Chair, were to regularly 
testify before Congress? Would it remind the Commission of its 
accountability to Congress and the American public?
    Ms. Schulp. It should remind the Commission of such. And it 
is also important, because the Commission is a five-member 
body; it is not simply the Chair. And that body was designed to 
be bipartisan.
    Hearing from minority viewpoints as well as viewpoints 
other than the Commissioner is important for Members of 
Congress as well as the public.
    Chairwoman Wagner. Mr. Burton, last year the SEC adopted an 
onerous cybersecurity risk management rule which, as 
Commissioner Peirce explained, ``ignores both the limits to the 
SEC disclosure authority and the best interests of investors.'' 
Just a few months later, the SEC's official X account, formerly 
known as Twitter, was hacked.
    Mr. Burton, can you elaborate on the quality of information 
technology management at the SEC?
    Mr. Burton. Yes. I think you have identified a very 
important problem with the SEC, and it falls under a couple of 
categories. One is data security. The SEC documents, if they 
are hacked, can move markets and people can trade on 
information that is not yet public and make a great deal of 
money.
    But there are other problems. For example, the public 
disclosure system under the Electronic Data Gathering, 
Analysis, and Retrieval (EDGAR) system sort of involves time 
travel. You feel like you are going back to the 1990s, because 
it is so bad. And most people don't use EDGAR to get the 
information. They use private systems that rely on data----
    Chairwoman Wagner. Mr. Burton, because my time is about to 
expire, what signal does it send when the SEC's own social 
media account is hacked just a few months after it imposes 
onerous cybersecurity requirements on the companies it 
regulates?
    Mr. Burton. It shows that the SEC is not doing its job. The 
SEC's IT department is 5 times more expensive than the average, 
and they have worse results.
    Chairwoman Wagner. I thank you. And my time has expired.
    I now recognize the ranking member of the subcommittee, the 
gentleman from California, Mr. Sherman, for 5 minutes.
    Mr. Sherman. I would say, what signal does it send when 
Congress comes within days of defunding the SEC or suspending 
its funding again and again?
    Perhaps the worst slogan I have heard in politics is, 
``defund the police.'' The SEC is the police department of our 
$100-trillion capital markets, and several different times we 
have come within days of not having the cops on the beat.
    I join with the Chair in saying that we should have the 
entire Commission here, and I look forward to those hearings. I 
think the ratings on C-SPAN 3 will go through the roof to the 
moon.
    There is this argument that we are moving too fast. I think 
we are just catching up with mandates that we imposed in 2010. 
And with climate disclosure, we have been wanting that since Al 
Gore was living in the Naval Observatory. Finally, we have it. 
And I think the SEC did a good job on a very difficult thing.
    This does not mean that the SEC is perfect. First, we 
haven't forced disclosures from giant nonpublic companies that 
play such a critical role in our country. But, looking at what 
the SEC has jurisdiction of, the definition of, ``accredited 
investor,'' relates to whether you have a $200,000 income when 
it should relate to the knowledge of your truly independent 
investors, and the percentage of your net worth that you are 
investing in the company.
    The SEC's proposals on swing pricing and the related 
liquidity proposals, I think will do more harm than good, but 
particularly the swing pricing proposals.
    We do need regulations. The crypto industry has come to us 
many times saying, please, tell us what the rules are. Of 
course, whenever rules are meaningful, they rebel against them.
    And it is said that our capital markets are great and they 
are the envy of the world, but that doesn't mean we shouldn't 
be looking more to cut costs.
    One of the bills that the witness pointed out deals with 
the PCAOB. We need a PCAOB. I was here when we had WorldCom and 
Enron. And I don't think the PCAOB is broken, but I would be 
supportive of that bill bringing it inside the SEC if we also 
did it with the Financial Accounting Standards Board (FASB), 
which is broken in one critical respect, which is that, flying 
in the face of any reasonable accounting theory, they have 
mandated writing off research and development (R&D) expenses 
when they should be capitalized. And if they were, our 
companies, particularly the nontech companies, would be doing 
far more R&D. So if the PCAOB structure is bad, it is also the 
same structure basically as the FASB. And if we want to bring 
them in-house, let's bring in-house the one that is broken or 
is broken as to one major aspect.
    As to insufficient comment periods, I would support 
legislation saying 60 days for any complex rule, but those 60 
days have to be measured from when the SEC puts it on their web 
page.
    Ms. Thornton, there are those who say that if you want to 
make an investment based on something other than earnings per 
share, say, on the basis of whether the company is doing a good 
job in reducing its climate footprint, that you should be 
deprived of the right to manage your own money, not by 
appointing a conservator, which we do for those who are 
criminally insane, but rather, just deprive you of the 
information that would allow you to make a decision.
    Does it make sense in a capitalist society to tell people 
with capital that they can't make a decision based on climate?
    Ms. Thornton. Not at all. In fact, capitalism is about 
information. Information is what makes capitalism work. And 
there are many kinds of information that have an impact on the 
value of a company and would impact an investor's decision 
about whether to invest--things like climate risk, because that 
can actually determine whether a company is resilient in the 
long run, whether it is prepared for changes in the law around 
emissions, for example, but also in the near term, whether it 
is ready for disasters that are obviously coming. We have more 
and more billion dollar----
    Mr. Sherman. If I can interrupt, I think investors are 
interested in how the company affects the environment, but also 
how the environment is going to affect the profitability of the 
company. That information needs to be disclosed, and we also 
need more information about workforce, particularly training 
and turnover.
    I yield back.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Sessions, for 5 minutes.
    Mr. Sessions. Madam Chairwoman, thank you very much for 
holding this hearing.
    Mr. Gulliver, thank you for being here. I am going to use 
my few minutes with you. I am delighted to see that you are 
here today.
    You have written rather extensively about what happened 
back in 2022, when the S&P companies spent over $900 billion to 
buy back their own stock, followed up in May of 2023 by the 
Securities and Exchange Commission adopting a rule that would 
have required public companies to disclose information about 
stock repurchases, including certain repurchased data within 
one business day, and the rationale for doing that. In other 
words, the Federal Government would require you to tell us why 
you did what you did, a private business.
    This was later vacated by the Fifth Circuit on December 19, 
2023. The essence of the argument was that the SEC did not even 
follow their own rules, did not include a proper cost-benefit 
analysis of what this regulatory overview would mean to the 
industry.
    But what bothers me is it is based upon a philosophy. In my 
opinion, it is a parasite designed to kill the host by the SEC. 
It is actually the SEC trying to work against that which they 
are expected to nurture and grow as part of not just American 
exceptionalism but perhaps, more importantly, capitalism.
    Can you talk about this action by the SEC to the entire 
marketplace?
    Mr. Gulliver. I think the SEC's Share Repurchase Disclosure 
Rule is an example of a particularly flawed cost-benefit 
analysis and the importance of doing a high-quality analysis.
    The SEC asserted that there was a problem where executives 
were buying back shares on a particularly advantageous basis 
for themselves, but in fact, they didn't provide any evidence 
to support that claim. And the court found that the SEC is 
obligated to do so in all of their economic analyses. So, one 
positive takeaway from this is that in future economic 
analyses, if the SEC claims there is a market failure, they 
have to substantiate it.
    And the second issue was the SEC said there was no data to 
really do an in-depth analysis of whether or not this is a 
problem, but commenters provided the SEC with that data. And 
the court said, we are invalidating the rule for that on that 
basis.
    Mr. Sessions. So, you have come to this committee, and we 
hear about the cops on the beat, and how important it is for 
the SEC to do this. Yet, they are the party that wants to 
defund the police. They are the ones that don't want police who 
follow the law and rules. A police officer on the beat can't 
just make up his own reason for doing something, can they? No, 
they cannot, but the SEC believes they can.
    Time after time, we have seen this with 1071, or any of a 
number of examples where the SEC does what they want to do. I 
believe, and I think what has been proven by this committee, is 
that they are attempting to put into place and to harm the 
economic growth of the United States of America, the 
marketplace, and the things that would build value not only for 
all Americans, but the stock market in America specifically.
    What other examples do you have of this overreach and 
overregulation?
    Mr. Gulliver. I think one of the most concerning examples 
is the SEC reaching into private markets. Our private markets 
have been successful for a number of reasons, but what we have 
been seeing in those markets is a reduction in the fees that 
the large private funds charge, increasing performance, very 
strong performance, and small companies getting a lot of 
funding in these private markets.
    The SEC is shifting in a direction of bringing more public 
regulations into these private markets. And I think that would 
be a big problem, because a big reason that companies are 
staying private longer is to avoid the burdens of being a 
public company.
    Mr. Sessions. And that harms new entrants, doesn't it?
    Mr. Gulliver. Yes.
    Mr. Sessions. Many times, businesses that are minority- or 
women-owned are trying to gain entrance into the marketplace, 
and they are making it far more difficult for them not only to 
enter the marketplace, but to be successful.
    Would you call them activists?
    Mr. Gulliver. I think it has been a very aggressive SEC, 
unprecedented.
    Mr. Sessions. It is against the free enterprise system. 
That is what this hearing is about today.
    And I want to thank each of you for taking the time to be 
here today.
    Madam Chairwoman, I yield back my time.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the ranking member of the full 
Committee on Financial Services, the gentlewoman from 
California, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much.
    I am going to direct this question to Ms. Thornton. When 
most Americans think about our capital markets, they think of 
the New York Stork Exchange, and stocks sold by large companies 
like Apple, Ford, or GE. These are the public markets where new 
companies get to ring the bell when they go public and where 
U.S. capitalism flourishes.
    However, many would be surprised to learn that the private 
markets now dwarf the public markets for where securities like 
these are normally offered and sold. Today, companies that have 
billions in revenue, tens of thousands of employees, thousands 
of shareholders, and engage in practices that impact the 
communities they operate in, are under no obligation to share 
information that their investors, consumers, or stakeholders 
may find important.
    Could you discuss what gets lost when large companies that 
access our capital markets stay opaque and unaccountable? Does 
Congress need to set new rules for these types of large 
companies that have significant impacts on our society, or do 
you think the SEC has sufficient authority to promulgate rules 
in this space?
    Ms. Thornton. Thank you, Ranking Member Waters.
    I think that there is a lot that the SEC can do here. There 
may be some things that Congress might need to do, but I think 
there is a lot that the SEC can do, because it created many of 
the exemptions that are allowing so many in the private markets 
to access capital, to grow in the private markets without limit 
and not having to go to the public markets.
    There is a lot they can do also with respect to holder of 
record. I am not 100 percent sure that they can do that on 
their own. There is some debate about it. But holder of record 
does need to be defined as beneficial owners, and that is 
shareholders, not as holders of record, so that institutional 
investors who actually hold shares for thousands of clients are 
counted as one holder of record.
    If you could change that rule, you would have a lot of 
these large companies automatically having to register, become 
public companies, and do the public reporting that is so 
necessary for huge companies that employ so many people and 
that sell products and services to millions and millions of 
Americans.
    Ms. Waters. Thank you.
    As I am listening to some of our witnesses here today, they 
oppose regulation, too much regulation.
    Do you think that they would oppose knowing and having 
information that you just described about beneficial ownership? 
What do you think?
    Ms. Thornton. I think all shareholders want information. 
Even the most sophisticated, intelligent investor cannot make 
good decisions without information. And the power dynamic in 
the private markets is unfair and unequal. Information that is 
given to one investor or group of investors does not have to be 
given to other investors because there is no cop on the beat, 
as you say.
    And to address that, I think is one of the most important 
things and a critical thing that the SEC needs to do 
immediately, today, with the growth of the private markets, to 
protect investors.
    Ms. Waters. For the record, the SEC is our cop on the beat, 
protecting investors. This criticism that you have heard here 
today about them impeding economic growth, don't you think that 
perhaps that is a little misstatement about the SEC, for the 
record?
    Ms. Thornton. Yes. I think that without information, you 
can have inefficiencies. You can have fraud. That is a huge 
waste of resources and capital. Capital can't flow to the 
highest and best use if there isn't information for investors. 
So, yes.
    Ms. Waters. Do you believe that our investors today need to 
rely and depend on the SEC? And rather than stripping the SEC 
of its ability to regulate, they want to make sure that they 
are doing the job to protect their investments. What do you 
think?
    Ms. Thornton. I think that without rules, it is possible 
for people who would do that to take advantage of others not 
having the information. And that is what the SEC is there to 
prevent, and to ensure that everybody has access to information 
and that companies disclose important information, basic 
information, financials, basic information about operations and 
so forth. This is basic information that all investors need, 
and without the SEC, you wouldn't have disclosure of that.
    Ms. Waters. Thank you. I am so pleased you are here today.
    I yield back.
    Chairwoman Wagner. The gentlewoman yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, who is also the Chair of our Subcommittee on 
Oversight and Investigations, for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman. And I don't know 
about the rest of my colleagues, but I am opposed to too much 
regulation only when it defies common sense. And that, frankly, 
is what we are seeing here today in some of the defense of the 
indefensible.
    Materiality is the watch word. And the most recent 
disclosure rule that the SEC has issued is not material. Let's 
be clear, public companies must--must--report any issue or 
circumstance that currently or in the future will materially 
affect their business operation and, therefore, affect 
investors.
    And what the courts are saying is that the Securities and 
Exchange Commission is outside not only its traditional but its 
legal bounds when it comes to that materiality question with 
this most recent disclosure requirement.
    Ms. Schulp, it's good to see you again.
    Mr. Gulliver, I think you are now my new favorite Harvard 
professor after reading your testimony.
    Mr. Burton, I want to focus in a little bit, though, on an 
issue that I have been working on about the PCAOB. The PCAOB, 
the Public Company Accounting Oversight Board, was founded in 
2002 as an independent expert, a regulatory agency to oversee 
audits of public companies. In fact, the word, ``independent,'' 
appears in statute 10 times.
    It is safe to say that when Congress created the Board, 
they intended it to operate independently and without regard to 
political considerations, notwithstanding the SEC's oversight 
authorities, including approval of the Board's rules, 
standards, and budget. Those were all created by Congress as 
safeguards to ensure the Board's nonpartisan mission was 
maintained.
    But in testimony before this subcommittee, PCAOB Chair 
Williams indicated that she was independent in her opinion and 
that her Board acts independently from the Commission. And I 
actually have a transcript, and I wanted to go back over and 
review that, which absolutely defends and says unequivocally 
yes, they are independent.
    However, one of Chair Gensler's first acts in June of 2021, 
when he took over the SEC, was to actually remove that 
independent PCAOB Chair and subsequently remove and replace all 
of the remaining Board members of that independent Board.
    In fact, Chair Gensler admitted in testimony here that the 
PCAOB was, in fact, not independent. So clearly, there is a 
disconnect.
    Mr. Burton, by ousting former Chair Duhnke, and removing 
the full Board and inserting his handpicked replacements onto 
that Board, did Chair Gensler politicize the PCAOB and erode 
its independence?
    Mr. Burton. He certainly exercised the authority that the 
SEC has over the PCAOB.
    Mr. Huizenga. In spades, yes.
    Mr. Burton. I actually think that the independence of a lot 
of these organizations--PCAOB, FINRA, MSRB--is sort of 
fictitious.
    Mr. Huizenga. Okay. Yes, let me hit on that. I am not one 
to hand over authority to the SEC or any other regulator willy-
nilly and without purpose and reason. But since the SEC already 
conducts oversight of the PCAOB, including approving the 
Board's rules, standards, and budget, it doesn't make a whole 
lot of sense to me that the PCAOB operate as a separate entity.
    Mr. Burton. But it does have an adverse effect, in that all 
of the protections we associate with government--the 
requirements with respect to regulatory analysis, due process, 
transparency, the Sunset Act, the Freedom of Information Act--
none of that exists.
    So, a lot of things that protect the public and enable you 
to conduct meaningful oversight over the PCAOB do not exist as 
it is currently structured. And your legislation would solve 
that problem.
    Mr. Huizenga. And that is what I was getting at. I think, 
as we look at it, having the SEC's Examiners and its Chief 
Accountant absorb all of the PCAOB's responsibilities seems 
like a reasonable direction. Does that seem accurate to you?
    Mr. Burton. Absolutely.
    Mr. Huizenga. Okay.
    Chairwoman Wagner, I do want to thank you for attaching our 
bill, the Streamlining Public Company Accounting Oversight Act, 
to this hearing. That essentially would fold the PCAOB into the 
SEC.
    And, as I said, I don't take handing over more authority to 
the SEC lightly, but we cannot call something independent if it 
is not actually independent. And this way, we would have the 
ability to hold to account the person who is actually running 
it, which is the Chair of the SEC.
    And with that, I yield back.
    Chairwoman Wagner. The gentleman yields back.
    And the Chair now recognizes the gentleman from Georgia, 
Mr. Scott, for 5 minutes.
    Mr. Scott. Thank you, Chairwoman Wagner.
    Ms. Thornton, my friend, Chair Gensler, recently condemned 
artificial intelligence (AI) washing as the abuse of AI, when 
members of the financial sector make false charges about its 
use, stating that such activities could violate existing 
security laws.
    And our regulators themselves have warned that some 
investment advisors and broker-dealers are quietly saying that 
they use artificial intelligence to generate higher returns on 
investments, and that executives at some publicly-traded firms 
are attempting to improve their stock prices by using AI.
    And the SEC recently took steps to charge a number of 
companies which engage in this type of investor abuse with 
violating the existing Marketing Rule of the Advisers Act.
    So, Ms. Thornton, I want to ask you, is this statute enough 
to ensure that the SEC continues to hold bad actors 
accountable? If not, what more can we do?
    Ms. Thornton. I think that its efforts in enforcing the 
marketing rules are very, very important, and can go a long 
way, and we have seen that it has brought cases like the one 
you mentioned.
    But I think when it comes to AI, Chair Gensler has been 
very clear that there are possibly unique risks associated with 
AI that require us to take a closer look. He is deeply 
knowledgeable about AI, and I think that he is very interested 
in considering whether there are other rules that should be 
made.
    Mr. Scott. Yes, but let me ask you this, because this is 
important. Artificial intelligence is here. It is here for our 
productive use. But how can we ensure that the SEC does not 
exhibit hostility towards technological innovation that could 
have a positive increase in our access to our markets among 
low-income and underserved investors?
    Ms. Thornton. I think that Chair Gensler has acknowledged 
the value of AI, the many good aspects of AI, and it is just a 
question of how you create the guardrails.
    But I think it is important to make sure that any 
guardrails protect the very people you are talking about, who 
may not understand how it is being used.
    But I am not a deep expert on AI, so that is probably about 
all I can say on that.
    Mr. Scott. AI is with us.
    Ms. Thornton. It is.
    Mr. Scott. And we have to make sure it serves us properly. 
And when used responsibly, I do believe that artificial 
intelligence has the unique and transformative potential to 
improve inclusion, efficiency, and user experience within our 
financial system.
    We have the best financial system in the world, and the 
world depends on the United States' financial system as the 
bulwark in making sure this happens.
    However, absent a robust regulatory regime addressing the 
rise in false and misleading statements regarding the use of 
intelligence technology, we risk hurting more investors.
    And let me conclude by saying, this is sort of like the 
instrument that we created to serve us. We must not become 
servants of AI.
    I yield back.
    Mr. Garbarino. [presiding]. The gentleman yields back.
    The gentleman from Arkansas, Mr. Hill, who is also the 
Chair of our Subcommittee on Digital Assets, Financial 
Technology, and Inclusion, is now recognized for 5 minutes.
    Mr. Hill. I thank the chairman.
    And I thank our panel for being with us today.
    We have heard directly from the SEC Director-level 
officials over the course of the last few months, and we have 
certainly enjoyed having Chairman Gensler here to have his 
point of view on behalf of the Commission.
    So, it is great to have your expertise, and we thank you 
for being with us.
    Not only has the SEC lost in the court of public opinion, 
even on a bipartisan basis here on Capitol Hill, but the agency 
is now getting trampled by the Federal courts as well, 
especially as it relates to digital assets. In July 2023, a New 
York judge determined that Ripple Labs did not violate Federal 
securities law by selling its XRP token on public exchanges. In 
fact, in that case, they were referred to as being arbitrary 
and capricious.
    Last August, the court rejected the SEC's reasoning for 
blocking Grayscale Bitcoin Trust from converting to an 
exchange-traded fund.
    And just in the last few days, a Utah judge imposed 
sanctions on the SEC for, ``bad-faith conduct and gross abuse 
of power,'' that the Commission had demonstrated in a case 
against Dropbox.
    This is important, because we haven't talked about this in 
a long time on this committee. And as a result of that gross 
abuse of power, the Commission is required to pay the legal 
fees, which means that our constituent tax dollars are now 
being used to pay for the SEC's overreach and failure.
    So, whether it is refusing to comply with the 
Administrative Procedure Act (APA) or providing clear rules of 
the road for the digital asset ecosystem, it is clear that the 
SEC, under Gary Gensler, blatantly and repeatedly oversteps its 
statutory authority.
    Our citizens are also very concerned about privacy and 
about their private information. We have seen the Office of 
Personnel Management (OPM) have a records leak. We have seen 
the IRS see constituent records leak. We have seen the Consumer 
Financial Protection Bureau (CFPB) collect transaction data on 
consumers and seen it leak. We have seen that the Financial 
Crimes Enforcement Network (FinCEN) now collects millions of 
records for beneficial ownership.
    And, finally, the SEC is proposing to collect every 
American's brokerage account statement, every trade, every day, 
through their Consolidated Audit Trail (CAT). They have tried 
to work on this for a decade, but they are now planning to roll 
that out as we speak. FINRA President Robert Cook testified 
here that even his 80-year-old mother's information will be 
stored in the CAT, despite absence of any likelihood that an 
investor like his mom would try to manipulate the stock market.
    So, Mr. Gulliver, let me start with you. What do you 
believe are the biggest cyber vulnerabilities of the CAT? What 
do you think are the biggest risks to the Consolidated Audit 
Trail from a cyber point of view?
    Mr. Gulliver. I think it is completely unnecessary for the 
CAT to store Social Security numbers for all U.S. investors, 
and there is a real risk there that it could be breached and 
this information would be exposed.
    Mr. Hill. We have asked both Robert Cook at FINRA, and the 
SEC, what their plan is to protect that personally identifiable 
information (PII), and they have not really responded 
effectively with their plans.
    Do you consider that, if they do store it, it is at risk 
for breach?
    Mr. Gulliver. Yes.
    Mr. Hill. Ms. Schulp, as a former enforcement attorney at 
FINRA, can you explain why the SEC can still do its job 
effectively without collecting this personally identifiable 
information of investors through the CAT?
    Ms. Schulp. The SEC has been able to do it for years, and 
has continued to be able to do so with the transaction data 
without the personally identifiable information that has 
already been collected in the CAT.
    Mr. Hill. Right.
    Ms. Schulp. The way it previously worked is that the SEC, 
upon noticing some sort of pattern or suspicious activity, 
would create a request for the investor's information to the 
brokerage firm.
    Mr. Hill. Right. This is something that we have done for 
years. We have market surveillance of our exchanges, and we 
have surveillance of the activities of every brokerage firm, 
and we can do a sweep exam and get this information.
    I really believe this is a huge expense that is 
unnecessary, which is why I support Congressman Barry 
Loudermilk's bill to protect that PII.
    Let me stick with you. The cost estimate was originally $55 
million to implement the Consolidated Audit Trail, and the most 
recent estimate is $250 million, increasing at the rate of 30 
percent per year.
    Who ultimately bears the expense of this item that you say 
is unnecessary?
    Ms. Schulp. The investors will.
    Mr. Hill. I also think the investors will; I think it is a 
bad idea.
    I yield back.
    Mr. Garbarino. The gentleman yields back.
    The gentleman from California, Mr. Vargas, is now 
recognized for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. I appreciate 
the opportunity.
    Again, I thank all of the witnesses for being here.
    At the beginning of the hearing, I heard that we should 
talk about real-world impacts, and the SEC should be worried 
about real-world impacts and not theoretical stuff. And I agree 
with that.
    How many of you believe in climate change? If you could 
raise your hand.
    Okay. Did everyone raise their hand?
    Yes. Okay. So, that is a real-world impact, then? I would 
say it is--if you all believe in it, I certainly do.
    Yesterday, the Republican Chair of the Texas State Board of 
Education pulled $8.5 billion in investment from BlackRock. For 
years, BlackRock has outperformed the market and provided 
positive returns for the Texas Permanent School Fund, a fund 
specifically created to support the State's public schools. 
However, because of my good friends on the other side's anti-
ESG dogma, cultural politics have been prioritized over the 
well-being of constituents.
    And, unfortunately, this is not an isolated incident, but a 
trend. A recent study by the Texas Association of Business 
Chambers of Commerce Foundation found that Republican anti-ESG 
laws have cost Texas taxpayers an average of $270 million a 
year in debt-related costs since the measure took effect in 
2021.
    Thankfully, the Securities and Exchange Commission has 
decided to put people over politics and to listen to investors. 
Earlier this month, as we have been noting, the SEC adopted 
rules to enhance and standardize climate-related disclosures by 
public companies. These long-awaited rules require companies to 
disclose information about climate risks that have materially 
impacted their businesses' operations and strategy.
    Additionally, companies must disclose costs, expenditures, 
and losses incurred because of severe weather events such as 
wildfires and flooding, which have drastically impacted my 
constituents in San Diego, and which we would have never 
thought would happen--a 1,000-year flood in San Diego. But it 
happened.
    We know that climate risk is a financial risk. I applaud 
the SEC for considering feedback from investors, businesses, 
academics, industry experts, and Congress.
    A recent Morgan Stanley Institute for Sustainable Investing 
report reflects that over 75 percent of individual investors 
believe that corporations should address environmental impacts 
and plan to make sustainable investments based on those 
decisions.
    Ms. Thornton, I agree with what you said earlier: 
Information is what makes capitalism work. This is information 
that I think is material, and investors want it.
    Am I wrong about that? You were talking about that earlier. 
Isn't this what investors want these days?
    Ms. Thornton. Oh, absolutely. It has a profound impact, 
potentially, on companies.
    Mr. Vargas. Why does this have a profound impact?
    Ms. Thornton. For two reasons: one, the physical risks of 
climate change. We now know that these billion-dollar disasters 
are increasing. There is coastal flooding, and more is expected 
in the next 5 to 10 years. So, there is that. Companies that 
have operations in those areas are at risk and need to make a 
plan, and investors need to know that they have a plan.
    But there are also transition risks, because there are all 
kinds of States changing laws, and creating laws that they hope 
to protect----
    Mr. Vargas. And there are even States where you can't even 
seem to get insurance these days, because the insurance 
companies take a look at these risks and say, ``That is not a 
good risk for us. We are not going to insure. We can't get the 
right price.'' That is what is happening now.
    I do want to talk, in my last minute and a half, about 
cost-benefit analysis. I do think that it is important to look 
at the cost of something. But how do you measure discrimination 
against women? What is the cost?
    And, especially, let's say, a mother who is discriminated 
against because she is a woman, what is the cost to her 
daughters who are watching? How do you measure that?
    Ms. Thornton. You're absolutely right. It is difficult to 
measure many of the benefits of rules that are done that help 
people like that and it's difficult to measure many of the 
costs.
    But the whole point of the cost-benefit analysis is not to 
get an absolutely perfect answer, but rather, to weigh things 
and get more information.
    And the honest truth is that the SEC actually needs more 
high-level economists to be able to really do what folks on the 
other side want them to do on cost-benefit analysis, so they 
need a bigger budget.
    Mr. Vargas. And that is why--I am not against taking a look 
at the cost of things, but I guess you have to look at it 
holistically, because some of these things lead to really awful 
conclusions when you take a look at the cost of something.
    Discrimination--you can say, ``Well, that is not much of a 
cost. We will just get somebody else to do it. It doesn't have 
to be a woman.'' Well, you discriminated against her because 
she's a woman; that is not right.
    But, anyway, with that, I have 7 seconds left, so I will 
yield back, and thank you.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Meuser, for 5 minutes.
    Mr. Meuser. Thank you very much, Madam Chairwoman.
    And thank you all very, very much for being here with us.
    Small businesses, the backbone of America's growth, do face 
significant barriers in accessing capital, including from 
excessive regulations, inflation, interest rates, new bank 
reserve requirements, loss of profits, scope requirements, and 
the list goes on and on.
    The regulatory processes at the SEC have lacked inclusion, 
for lack of a better word, and do not foster trust and 
facilitate market participation. So, I have two pieces of 
legislation noticed in today's hearing aimed at addressing 
these issues, including the ACCESS Act, H.R. 6825, and a 
discussion draft of legislation that will increase 
accountability and provide transparency into important SEC 
staff-level actions.
    Ms. Schulp, I would like to start with you, please. As you 
know, companies are required to file financial statements that 
are reviewed by independent public accounting firms if they 
conduct a regulation crowdfunding offering that exceeds 
$100,000.
    My bill, H.R. 6825, the ACCESS Act of 2023, raises that 
threshold from $100,000 to $250,000, as was done without issue 
during COVID.
    So I would just ask you, do you think this legislation will 
have a positive impact on small businesses that are considering 
raising money in a crowdfunding offering?
    Ms. Schulp. I believe so. And I think the fact that it was 
done without issue for more than 18 months during COVID is a 
sign that it was well-accepted and is a reasonable change to be 
made.
    Mr. Meuser. Great. And the fact that it sometimes will cost 
as much as $10,000 for all these small businesses to--for their 
accountants and other requirements to raise $100,000, that is a 
pretty steep percentage, would you agree?
    Ms. Schulp. Really, any additional cost that a small 
business needs to undertake to deal with its financial 
statements on that small of a capital raise is an undue burden.
    Mr. Meuser. Great. Thank you.
    Mr. Gulliver, a discussion draft of legislation attached to 
this hearing could make certain actions by SEC staff, including 
Rule 14a-8, no-action letters and denials, review by the 
Commission, and require a report to Congress of their actions--
we sent it to you. I am not sure, Mr. Gulliver, how familiar 
you are with it.
    But, in doing so, the goal is to increase accountability, 
period, around such SEC actions that take place outside of the 
formal rulemaking process.
    If you're familiar with what we have just recently sent 
you--and I appreciate it if you are--could you comment on this 
action?
    Mr. Gulliver. Yes. I think these no-action letters now are 
handled by the SEC staff through delegated authority from the 
Commission, and there is not a lot of transparency in how these 
decisions are made. They are made largely at the staff level. 
And I would be supportive of a bill that would enhance 
transparency of these decisions, especially when they have a 
major impact on the market.
    Mr. Meuser. Okay.
    Not to be political, but have you found that these concerns 
of the process have been or could be politicized by SEC staff, 
especially with the ESG-related shareholder proposals?
    Mr. Gulliver. Yes, I certainly think these no-action 
letters in general can have a--can pertain to issues that are 
political. So, as the SEC staff----
    Mr. Meuser. Right. It just gets subjective at a certain 
point.
    Mr. Gulliver. Yes.
    Mr. Meuser. Right.
    Mr. Burton, a question for you. On a scale of 1 to 10, how 
disruptive has the SEC's speed of new regulations and other 
actions been to capital markets and capital formation, this 
SEC, over the last 3 years and 2 months, on a scale of 1 to 10, 
or however you want to express it?
    Mr. Burton. I think there are two sides to that. In terms 
of the proactive regulatory agenda, it is a 9\1/2\ to 10. The 
climate change rules and then all the various things they have 
in their pipeline, and so on down.
    But on the flip side, it is close to zero. Because you 
mentioned concern about entrepreneurs and small businesses 
starting to raise capital; there is a need to fix a lot of 
things, and the SEC has simply utterly failed to address the 
entrepreneurial capital formation issues, finders being an 
example, your crowdfunding rules. The SEC made the crowdfunding 
regulation much worse than it had to be, and so on down the 
line. It is a long, long list of failures of small businesses--
--
    Mr. Meuser. Wow.
    Mr. Burton. ----by the SEC.
    Mr. Meuser. My next question was going to be, on a scale of 
1 to 10, how helpful, but I think you have just answered that.
    I yield back, Madam Chairwoman. Thank you. I appreciate it.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Gonzalez, for 5 minutes.
    Mr. Gonzalez. Thank you, Madam Chairwoman.
    And thank you to the panel for joining us today.
    Mr. Gulliver, many on this committee have compared the 
SEC's recent rulemaking to throwing spaghetti at the wall and 
seeing what sticks.
    Now, I am a strong supporter of increased regulation to 
maintain strong capital markets, but there is a balance to be 
struck, where you don't overregulate and stifle the ability of 
our markets to operate, and you don't underregulate, leaving 
avenues for investors to take excessive risks.
    With that being said, how do you propose the SEC address 
these issues? And at what point do you believe legislation 
should be the answer, rather than rulemaking from experts?
    Mr. Gulliver. I think it would be important to take the 
economic analysis process more seriously. I think the SEC could 
use additional economists to help them with that process. But 
it should be sort of a--the economic analysis should be driving 
the policy decisions, rather than sort of coming after the fact 
and being more limited.
    Mr. Gonzalez. Thank you.
    And my next question is for Mr. Burton.
    Mr. Burton, you mentioned in your testimony that the SEC 
has set a precedent of short comment periods lasting less than 
the standard 60 days, especially for complex rulemakings. But I 
would be remiss to not mention that the SEC has been receptive 
to investor feedback and has reopened the comment period for 
some of the more-contentious rulemakings to allow for 
additional input.
    I am just curious, what do you believe is the magic number 
for a comment period, in your eyes? And at what point should a 
rulemaking be 90 days versus 45 days? And what qualifications 
should we be using to set these deadlines?
    Mr. Burton. I think it depends on the nature of the 
regulation. If it is, say, just making an inflation adjustment 
as required by law, the comment period doesn't matter very 
much.
    The APA actually has no minimum. But for something like an 
inflation adjustment, 30 days. For something that is a simple 
rule, easy to grasp, 60 days. And for some of these 
extraordinarily-complex ones, with hundreds of pages of text to 
absorb, I really think 120 days is appropriate. It simply 
depends on the nature of the regulation.
    It is important that we get these things right. It is 
important that people have the opportunity to give the SEC 
meaningful comment, not just boilerplate. And I think, in some 
of these cases, they simply haven't given people enough time.
    Mr. Gonzalez. Thank you.
    Are the extensions of the comment periods--have they 
created a better picture for the SEC of the proposed rules?
    Mr. Burton. Yes. They extended them, I think, under 
pressure from the public, and particularly industry, that they 
need more time to absorb the rules. And, in some cases, the SEC 
has been responsive to that by reopening the comment periods.
    They haven't been universally bad about this, just too 
often.
    Mr. Gonzalez. Right.
    Thank you. Thank you for your comments.
    And I yield back.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Steil, for 5 minutes.
    Mr. Steil. Thank you very much, Chairwoman Wagner.
    I will start with you, Ms. Schulp, if I can.
    One of the first things Chair Gensler did at the Securities 
and Exchange Commission was gut the proxy advisor rule that was 
put forward previously. And as we look at Commissioner Uyeda, 
he calls this type of action, ``regulation by theory and 
hypothesis.''
    Would you agree that it is an unusual step for the SEC to 
take? And did it raise concerns about rule quality and 
legality, in your opinion?
    Ms. Schulp. It was an unusual step, and it does raise 
concerns. When the Commission has set its rule and finalized 
it, a new Commission coming in and immediately walking it back 
does not usually result in, I would say, good rulemaking.
    Mr. Steil. Thank you.
    Let me follow up, then, with you, Mr. Gulliver, on the same 
topic. Do you think Chairman Gensler prejudged the outcome and 
stopped a well-researched and important rule from being 
implemented?
    Mr. Gulliver. I think the decision came very, very early in 
his tenure, and it seemed to be rushed and have immediate 
effect and was a major concern.
    Mr. Steil. Thank you.
    Mr. Burton, kind of on the same broader theme here, 
Chairman Gensler and the SEC's unwillingness to reign in proxy 
advisors, to me, is a larger effort to force politics into the 
boardroom. And what we are looking at as a loosening of the 
rules governing proxy advisors, to me, gives them a pass to 
push misguided, politically-motivated proposals, with really 
limited accountability.
    Another factor in driving the politicization of investments 
is a new understanding by the left of materiality. So, based on 
this new understanding, the SEC has sought to deem more 
environmental, social, and governance (ESG) issues as de facto 
material.
    Can you talk, really briefly, about the importance of 
materiality as a threshold, where we continue to see 
materiality gutted by those on the left?
    Mr. Burton. Both in the United States and already in 
Europe, there is an attempt to redefine materiality in a way 
much different than traditionally understood. Traditionally, it 
is material to financial risk and financial outcomes of 
corporations. Now, they are trying to redefine it----
    Mr. Steil. And why would somebody want to skip over a 
materiality threshold? In your research, why do you see that 
being done time and again?
    Mr. Burton. Yes. They are trying to redefine material as 
something a proxy advisory firm or a registered investment 
advisor, BlackRock, would care about, not whether it is 
material to the financial outcomes----
    Mr. Steil. But why would they care about it? For 
politically-motivated purposes?
    Mr. Burton. Absolutely, it is for political purposes, 
social, ideological----
    Mr. Steil. So, it doesn't help investors; it is purely 
someone driving a political----
    Mr. Burton. Correct.
    Mr. Steil. ----agenda. Is that your position?
    Mr. Burton. And fiduciaries are increasingly trying to 
throw their investors under the bus without their consent to 
achieve political objectives rather than investment returns.
    Mr. Steil. I agree.
    I am going to come to you, Mr. Gulliver, if I can. I think 
it is the same theme.
    We saw the Securities and Exchange Commission move forward 
Staff Legal Bulletin 14L, which makes it harder to exclude 
shareholder proposals on significant social policy questions, 
as determined by the SEC staff.
    What is the impact that this is having? Does it raise 
transparency and accountability concerns to you?
    Mr. Gulliver. Yes. I think it just increases the burden on 
public companies. So, it is just one other reason why companies 
would rather stay private than go public.
    Mr. Steil. Does it provide a benefit to investors to 
analyze the financial or investment thesis of a business? Or is 
it simply being utilized to drive forward a political agenda?
    Mr. Gulliver. I think it definitely has political 
connotations.
    Mr. Steil. I think it is really concerning when we see 
staff at the SEC, under this legal bulletin, being able to run 
roughshod over what are historical and traditional mechanisms 
for making sure that we have proper oversight and guidance over 
companies. But, instead, leveraging that authority to drive 
forward a political agenda, I think is incredibly concerning.
    With the 50 seconds I have left, Mr. Gulliver, in your 
opening remarks, you noted, I think, an important topic, and I 
would just like you to elaborate briefly on how Chair Gensler's 
SEC actions differ from those carried out under previous 
Chairs, and, in particular, how you think that the Chairman of 
the SEC is doing?
    Mr. Gulliver. Oh, Chair Gensler's actions--he has 
implemented substantially more rules than either of his 
predecessors, Chair White or Chair Clayton, and almost as many 
as Chair Schapiro, who was there during the financial crisis 
and the implementation of the Dodd-Frank Act. So, I think what 
we are seeing is pretty unprecedented in a time without a 
market crisis or new legislation.
    Mr. Steil. I thank you all for being here.
    Madam Chairwoman, I yield back.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Casten, for 5 minutes.
    Mr. Casten. Thank you, Madam Chairwoman.
    And thank you to our witnesses for being here.
    I am struck that this hearing reminds me of what I have 
long felt about this job, that the single-loneliest position in 
Washington, D.C., is to be an advocate for competitive markets.
    There is not a single business who comes to Washington, who 
pays their lobbyists, who pays the budget of The Heritage 
Foundation or the Cato Institute to say, ``Can you please make 
my market safer for competitors? Can you please lower barriers 
to entry, lower barriers to exit, increase transparency of 
information?'' Nobody does that.
    And let none of us in this room ever trust someone who 
claims to be pro-market when all they are really doing is 
trying to protect the power of the powerful.
    I say that just to say: Let's be honest here, as we get 
into this.
    Mr. Burton, I am quite certain you and I disagree on 
whether the SEC's climate disclosure rule was a good idea. But 
hopefully, you do agree that the Commission did, in fact, 
receive significant public feedback and made adjustments in 
response to that feedback?
    Yes? I see you nodding your head.
    Mr. Burton. Oh, definitely. They received a lot of 
comments.
    Mr. Casten. Good. Okay. Because I saw that you said that 
the draft rule, in your opinion, would have raised costs by 300 
percent. Now, you think it is 20 percent. Setting aside whether 
I agree with that--that sounds like a significant change--they 
did, in fact, respond to a lot of comments, and make 
adjustments, in response to a stakeholder process. Let's not 
forget that.
    Ms. Schulp, in a podcast you did last week, you said that 
companies already provide a ton of voluntarily-disclosed 
financial information. I just want to be clear: That is not 
consistently described, right? They don't have a standard 
format? They are providing this in ways that they choose to 
describe, correct?
    Ms. Schulp. I was referring to climate-specific financial--
--
    Mr. Casten. Yes. But they are not providing that in a 
consistent format?
    Ms. Schulp. Unless it is information that they are 
providing in SEC filings----
    Mr. Casten. Which doesn't exist yet, right?
    Ms. Schulp. ----where they do define----
    Mr. Casten. Because we don't actually mandate consistent 
format.
    So, Ms. Thornton, can you please educate our economically 
moderately literate Members in the room why basic economics, 
why competitive markets, why investor protection demands that 
we provide consistent, accurate information?
    Ms. Thornton. Because if you don't standardize it somehow 
and make a format, investors may not be able to find it. If you 
don't tag the information, investors may not be able to find it 
in the voluminous 10-Ks that are filed.
    And that information needs to be in a format where an 
investor can compare it one year to the next, so it is 
consistently reported from one year to the next, so the 
investor can see whether the company is making progress on the 
commitment that it made about reducing its emissions or 
whatever.
    Mr. Casten. And isn't that true for all accounting? There 
are probably businesses which could make more money if they 
didn't have to comply with Generally Accepted Accounting 
Principles (GAAP) accounting.
    Ms. Thornton. Correct.
    Mr. Casten. Right? It would probably be cheaper for them if 
they didn't have to have audited financials, wouldn't it?
    Ms. Thornton. Probably, but it wouldn't----
    Mr. Casten. Does anyone think we should not have GAAP 
accounting?
    I mean, my God, we are complaining that there is a cost of 
providing information. Free markets are awesome; sing it from 
the rafters. I hope that is not partisan someday.
    Let me talk about a couple of things here, just for the 
record.
    In 2020, the Trump Commodity Futures Trading Commission 
(CFTC) issued a report, ``Managing Climate Risk in the 
Financial Sector,'' that said--and I quote--``Climate change 
poses a major risk to the stability of the U.S. financial 
system.''
    ``Regulators and financial institutions need reliable, 
consistent, and comparable data and projections for climate 
risks, exposure, sensitivity....''
    That was the Trump White House.
    A 2021 report from the Financial Stability Oversight 
Council (FSOC) said that climate change is an emerging threat 
to the U.S. financial system.
    And I could go on.
    Show of hands, raise your hand if you agree that climate 
risk can pose a significant risk to the U.S. financial system.
    Only the Democrats raised their hands. That is freaking 
insane, people.
    You're going to deny--let me remind you, insurers are 
pulling out of Florida, they are pulling out of Louisiana, they 
are pulling out of Texas, and California. Who is left holding 
the bag? Those are billions of dollars. And we are going to 
somehow deny that this is real?
    Look, I get it, you are protecting the interests of the 
powerful. Those of us up here have to represent everybody.
    Mr. Burton, I understand that you are one of the authors of 
Project 2025, which provides a, ``conservative blueprint for 
the next Republican President.'' Yes, that is true?
    Mr. Burton. I was a co-author of the Treasury chapter and 
the----
    Mr. Casten. Okay. That is massively irresponsible.
    I want to just point out in the time I have left, Richard 
Nixon created the EPA. Ronald Reagan's EPA said we need to use 
the markets to price environmental externalities. That led to 
the Montreal Protocol, a global agreement on pollution control. 
George H.W. Bush's White House extended that to the acid rain 
reduction program.
    Do not be an embarrassment to the party of Nixon----
    Chairwoman Wagner. The gentleman's time has expired.
    Mr. Casten. ----the party of Lincoln, the party of Reagan, 
the economic----
    Chairwoman Wagner. The gentleman's time has expired.
    Mr. Casten. I yield back.
    Mr. Burton. I would be happy to talk to you----
    Chairwoman Wagner. The gentleman's time has expired.
    And let me just say that I would caution all members of 
this committee to maintain the decorum that has always been 
consistent in the Financial Services Committee. We are a 
group----
    Ms. Waters. Will the gentlelady yield?
    Chairwoman Wagner. The gentleman----
    Ms. Waters. Will the gentlelady yield?
    Chairwoman Wagner. I absolutely will not.
    I would like all to maintain decorum.
    And the Chair now recognizes the gentleman from New York, 
Mr. Garbarino, for 5 minutes.
    Mr. Garbarino. Thank you, Madam Chairwoman.
    And thank you to all the witnesses for being here today.
    Mr. Burton, I will start with you. Under Chair Gensler, the 
SEC has proposed sweeping new regulatory requirements, often 
without a clear, data-driven need. We have seen this, from his 
overhaul of the regulations governing equity markets, to his 
plan to alter the liquidity risk management requirements for 
open-end funds.
    Over this time, Commissioner Uyeda has often referred to 
this approach as--as we have heard before; it has been brought 
up several times--``regulation by theory and hypothesis.''
    Mr. Burton, would you explain some of the problems with 
Chair Gensler's rulemaking approach?
    Mr. Burton. For one, he is extraordinarily aggressive in 
terms of his objectives. And most of those objectives, on the 
important rulemakings, are not really related to the core 
mission of the SEC, the statutory charge of the SEC. They are 
to pursue environmental objectives. The human capital 
management rule that is in the regulatory pipeline is basically 
to pursue objectives that are more appropriate at the 
Department of Labor (DOL) or the National Labor Relations Board 
(NLRB), and so on down the line.
    The corporate board diversity rule presumably will be 
something similar to the NASDAQ board diversity rule and impose 
racial, ethnic, or sex quotas on boards unless they explain why 
they didn't meet the quota. It is a form of racism, racism that 
I thought was a relic of the past.
    So, you have that.
    You also have the fact that the economic analysis at the 
SEC--and this predates Chairman Gensler--is becoming 
increasingly bad and not serious.
    There is a fairly long list, but I don't want to take all 
your time.
    Mr. Garbarino. Actually, that was my next question, has the 
SEC's economic analysis suffered from Chair Gensler's pace of 
rulemaking? And you just said, yes, it is getting extremely 
bad. So, I appreciate that answer.
    And I agree; I think he is treating everything as if it is 
a security. And he is putting out rules--there is another one; 
I know, Ms. Schulp, you brought it up--about the cybersecurity 
rule and his new one----
    Mr. Burton. On that, the SEC has operationally adopted the 
position that anything you buy for the purpose of making money 
is a security, which is, of course, not true. It can be real 
estate, it can be a commodity, or so on down the line.
    Mr. Garbarino. Absolutely.
    And I wanted to bring up about the cybersecurity rule, we 
are now seeing what we thought was going to happen: The hackers 
are actually using this rule to their benefit and are reporting 
people that they are hacking to the SEC just to get them in 
trouble.
    So, everybody agrees investor information is important, but 
not at the cost of national security. And I asked Mr. Gensler 
which was more important, and he did not seem to think that 
national security would suffer, but we are now seeing that.
    But, Ms. Schulp, I wanted to bring back up--Mr. Hill, my 
colleague, had some questions before on the CAT. While the CAT 
is problematic on several fronts, I would first like to focus 
on its implications for American privacy.
    The security concerns with collecting personally 
identifiable information was touched on, but I would like to 
provide you with the opportunity to further explain potential 
dangers of this practice.
    Ms. Schulp. Absolutely. And thank you for that.
    The CAT is collecting all transaction information--buys, 
sells, cancellations--for every trade done in the United 
States, along with the personal information of the trader.
    What that creates is a giant database of information about 
how investors are spending their money, which says a lot about 
people's beliefs, their desires, their political opinions, and 
the way they think that the country's economy is going to grow.
    And that information is being required to be provided to 
the government, likely in violation of the Fourth and Fifth 
Amendments. And it raises First Amendment issues, as well, with 
this expressive speech and how people are investing.
    That type of information should not be given to the 
government to scan at will to determine whether or not someone 
is investing in a way that the government feels is appropriate. 
That is a major privacy concern.
    And that type of surveillance is something that we have 
largely rejected and we should continue to reject and not allow 
the SEC to go down that path.
    Mr. Garbarino. In addition to the PII concerns and privacy 
concerns, there are also cost concerns. Do you think we should 
move the CAT onto the SEC's budget?
    Ms. Schulp. I think that is a better way to start thinking 
about how to control the costs if the CAT were to go forward. 
Allowing the SEC to essentially dictate this new tax or fee on 
investors is contrary to the powers of the SEC. That should be 
something Congress is supposed to do, not the SEC. And if this 
were to go forward, it should be part of the SEC's----
    Chairwoman Wagner. The gentleman's time has expired.
    Mr. Garbarino. Okay. Thank you.
    Chairwoman Wagner. The Chair now recognizes the gentleman 
from North Carolina, Mr. Nickel, for 5 minutes.
    Mr. Nickel. Thanks so much, Madam Chairwoman, and thank you 
to our ranking member, and to our witnesses for being here.
    While I applaud the great work of the SEC to protect 
investors, I have some concerns with the policy and the process 
surrounding the SEC's Staff Accounting Bulletin No. 121 (SAB 
121).
    My questions are more process-related. What we are seeing 
makes the digital assets industry less safe for consumers by 
preventing well-regulated banks from safeguarding digital 
assets owned by their clients.
    Last October, the Government Accountability Office (GAO) 
concluded that the SEC breached statutory rulemaking 
requirements by issuing SAB 121. As it meets the Administrative 
Procedure Act's definition of a rule, it must be submitted to 
Congress for approval. That is why our committee passed a 
bipartisan Congressional Review Act resolution last month to 
eliminate SAB 121.
    Mr. Gulliver, aren't staff accounting bulletins supposed to 
guide market participants in understanding and interpreting 
existing rules, rather than making new policies, as SAB 121 
does?
    Mr. Gulliver. Yes, they should. SAB 121 is extremely 
harmful for investors in crypto markets. They benefit from 
having custody from well-regulated financial institutions, and 
SAB 121 prevents it.
    Mr. Nickel. What should the SEC have done differently?
    Mr. Gulliver. I think they should rescind SAB 121, and they 
should actually promulgate rules that would allow for the 
regulation of crypto exchanges so investors in crypto markets 
can be better protected.
    Mr. Nickel. I certainly agree. I hope they will withdraw 
the rule. I haven't heard any news about that happening anytime 
soon, but I think that would be a good way to go.
    Moving on to the SEC's predictive data analytics (PDA) 
rule, I agree with the SEC's rationale for eliminating investor 
harm resulting from AI. However, I am worried about the rule's 
adverse effects on innovation and retail investors seeking 
inclusion in the financial system.
    The proposal's scope is extremely broad and could be 
applied to virtually any technology used by broker-dealers and 
investment advisors. So, as we sit here today, I understand 
that the SEC is grappling with whether and how to narrow the 
rule's scope to be workable for market participants.
    While I respect the work the Commission's staff is doing to 
try to get this right, the only recourse to address such an 
overly-broad and inherently-flawed rule is to withdraw and 
repropose it after adequate stakeholder engagement. I worry 
that the rule could be finalized with substantial changes and 
no public notice-or-comment period.
    Mr. Gulliver, to you again, can changes be made to the rule 
without the SEC running afoul of the Administrative Procedure 
Act?
    Mr. Gulliver. No. I think finalizing that rule in any form 
would violate the APA. The final rule needs to be a logical 
outgrowth of the rule proposal, according to Federal law, and 
the rule proposal was so extreme that it couldn't possibly be 
finalized.
    Mr. Nickel. And, Mr. Gulliver, how has the SEC engaged with 
your members on this rule?
    Mr. Gulliver. I am not aware of the extent of communication 
between the SEC and our members on that. We have met, our 
staff, with the SEC to discuss this rule and shared views 
consistent with those that I just expressed.
    Mr. Nickel. And in terms of the process, what has been most 
concerning to you during this rulemaking process?
    Mr. Gulliver. I think one of the biggest issues--and you 
can see this for all of the SEC rulemakings--is that they are 
issuing these pretty extreme proposals and not consulting with 
market participants before doing so. So, that is how you get 
into this problem.
    And that is not typical for the SEC. Past SECs, under 
Democratic or Republican leadership, typically have held public 
roundtables and consulted extensively with the market before a 
proposal was issued.
    Mr. Nickel. With all of the issues we have talked about, 
how could we here in Congress improve on the SEC's regulatory 
process?
    Mr. Gulliver. Well, a number of things: providing more 
opportunity for public comment; requiring the SEC to repropose 
a rule when a final rule would deviate too much from the 
proposal; and the various enhancements to the economic analysis 
process.
    And I also think that having the Chair and the 
Commissioners speak to you all would be helpful.
    Mr. Nickel. Thank you so much.
    Madam Chairwoman, I yield back.
    Chairwoman Wagner. The gentleman yields back.
    And I now recognize the gentleman from New York, Mr. 
Lawler, for 5 minutes.
    Mr. Lawler. Thank you, Madam Chairwoman.
    And thank you to our witnesses for being here and helping 
address our concerns on this important topic.
    Like my fellow members of the committee, I am extremely 
alarmed by the pace and aggressiveness of the SEC rulemakings, 
which will add to the cumulative regulatory burden on companies 
in the U.S. economy.
    To make matters worse, this constant stream of proposals 
has regularly been paired with concerns of regulatory 
overreach, theoretical assumptions and hypotheses, solutions in 
search of a problem, and the alarming absence of stakeholder 
input and meaningful cost-benefit analysis during the 
rulemaking process.
    Chair Gensler's frenetic, partisan rulemaking agenda has 
threatened the health of U.S. capital markets, highlighting the 
need for targeted institutional reform.
    Ms. Schulp, this hearing has a few bills attached to it 
intended to continue Committee Republicans' goal of spurring 
capital formation. Under Chair Gensler, the SEC has completely 
neglected this aspect of its statutory mission, opting instead 
to raise compliance costs and regulatory burdens.
    What are the consequences of the SEC neglecting this 
important duty?
    Ms. Schulp. The consequences are terrible. In fact, when we 
have smaller businesses that are unable to raise capital, we 
don't have businesses that can continue to grow into bigger 
businesses. It creates a drag on the economy and creates a drag 
on the ability of investors to have companies to invest in as 
well.
    Mr. Lawler. Thank you.
    And, as I alluded to earlier, a concern that goes with the 
flow of burdensome new proposals is the lack of meaningful 
consideration of stakeholder input.
    Ms. Schulp, as someone who has written plenty of comment 
letters in response to SEC rulemakings, can you discuss the 
amount of time and work it takes to submit a comment letter 
addressing each of the SEC's questions while also evaluating 
their data?
    Ms. Schulp. I think it is impossible to address each of the 
SEC's questions in any given comment letter that they--and any 
given rule proposal they put out that often runs in the 
hundreds of questions. SEC rule proposals tend to run in the 
hundreds of pages, and this is a very burdensome task.
    First, a company must determine--or a commenter generally 
must determine whether or not they are interested in 
commenting, and then prioritize their ability to comment on 
multiple letters at the same time.
    Personally, as someone who writes comments, it takes 60 to 
80 hours, minimum, for me to review and write a comment. The 
SEC would put my time as an attorney at about $600 an hour, 
which means that a comment letter costs somewhere between 
$36,000 and $48,000 to write. And I think that is a low-ball 
estimate.
    And that is a big burden, particularly on smaller 
businesses, which don't have the staff or the resources to be 
able to outsource multiple comment letters at the same time. It 
really decreases the ability of a company to make a comment on 
a rule that might affect them.
    Mr. Lawler. In your opinion, why is the SEC acting 
inappropriately when it imposes substantial hurdles to prevent 
thoughtful public feedback?
    Ms. Schulp. The APA is built on thoughtful public feedback, 
and thoughtful public feedback is important to creating good 
public policy. Not allowing conditions where that can happen is 
a major problem.
    Mr. Lawler. Okay. Thank you.
    I yield back.
    Chairwoman Wagner. The gentleman yields back.
    The Chair now recognizes the gentleman from Iowa, Mr. Nunn, 
for 5 minutes.
    Mr. Nunn. Thank you, Chairwoman Wagner.
    And thank you to our witnesses for joining us today.
    Like many members on this committee, the consequences of 
SEC rulemakings come up almost every day in my meetings with 
constituents, business leaders, and fellow Iowans. From Main 
Street to Wall Street, insurance firms in Des Moines, the 
cascading effects of rulemaking after rulemaking have 
negatively impacted their ability to not only do business but 
to serve their customers and their clients in my district.
    Worse yet, it isn't just the SEC; it is the unelected 
bureaucrats from almost every agency that are causing 
regulatory havoc on our hometown communities. In fact, I 
believe, if this Administration gets its way, Madam Chairwoman, 
the SEC will finalize 63 new rules impacting Iowa companies in 
just 4 years. And it is just that one agency, the SEC, that has 
been blasted for its gross overregulation in this environment.
    As was noted today, it is now easier for a company to work 
to sue and go to court to get regulatory clarity from these 
agencies than it is to deal with the massive costs of trying to 
make a compliance that may or may not fall in line with an 
ever-changing regulatory and rules system, particularly coming 
from the SEC.
    And so, whether it is Chair Gensler's intention or not, the 
unintended consequences of his actions are very clear within 
the industry, making it impossible for small businesses, new 
businesses, innovative businesses, and long-time Main Street 
businesses just to keep their doors open.
    The bottom line in my State is, I can say clearly, Madam 
Chairwoman, Iowans are suffering. So, I know my colleagues on 
both sides of the aisle are not going to continue to stand by 
and allow the regulatory overreach to be what defines it.
    I would like to talk about both the insurance and the 
custody rules.
    Mr. Gulliver, I am concerned about the SEC's expanding 
authority and its, often, role in superseding our State and 
local officials, who are really leaders in this area.
    One example of this is the SEC's attempt to overhaul the 
custody rule and possibly include fee-based annuities within 
the scope of regulation. This would be unworkable within many 
of our State laws and would take authority from State insurance 
regulators, who have successfully overseen the insurance 
industry in my home State for over 150 years.
    As a Member who represents an industry that is a critical 
component of our economy--in fact, 12 percent--I want to know 
if you can explain why this is a concerning trend, that 
Chairman Gensler should continue to push the boundaries of his 
authority well beyond their limits and infringe on State 
abilities to do this.
    Mr. Gulliver. I think the custody rule is another example 
of a proposal that really can't be finalized. It is just too 
extreme. It sweeps in assets that really can't be custodied in 
the way that the SEC would now require.
    And the existing process for registered investment advisors 
and the custody that they provide their clients isn't broken. 
The SEC hasn't really established that there is a problem, 
either. So, the custody rule is a major problem.
    Mr. Nunn. I would concur with you on that, Mr. Gulliver. I 
think you are right when you say it is not a rule that is 
broken. In fact, it is a rule that is well in hand for most of 
our State regulators.
    Ms. Schulp, I would like to talk about AI and innovation, 
particularly in this area. I am concerned about the SEC's use 
of a blunt, one-size-fits-all approach to its rulemaking, 
particularly regarding new technologies coming on the market.
    In Chairman Gensler's world, real-world analytics and cost-
benefit analyses cease to exist. Just bad actors and broad-
sweeping rules that do not allow our economy to flourish. In 
fact, in his world, everyone is a violator; it is just a matter 
of finding the right regulation to hold them accountable.
    I guess I would be interested to hear that the Federal 
judge sanctioned the SEC's--what they identify in this 
regulation as a, ``gross abuse of power,'' but beyond that, 
ultimately pay the price to shut down companies that the SEC 
has pushed away, shut down other companies here in America and 
push them overseas.
    Just yesterday, Chairman Gensler said that, ``powerful AI 
systems in the financial system make up the potential for an 
economic disaster, particularly acute here in the United 
States.'' This level of fearmongering is frightening.
    Can you explain why the SEC's approach to rulemaking is 
chilling innovation or may even hurt technologies for decades 
to come?
    Ms. Schulp. This approach to regulation is absolutely the 
wrong one. And this is, I will say as a side note, an important 
reason why it is good to hear from the entire Commission, not 
just from the Chair, who gets the most airtime, in order to 
take these types of fearmongering statements about innovation.
    Statements on AI, statements on crypto--all of these are 
making business environments in the United States much more 
uncertain, if not downright hostile. Other countries--the 
European Union, many in the Middle East, many in the Far East--
are creating regulatory systems for crypto that are much more 
friendly and workable and, at the very least, are more 
certain----
    Chairwoman Wagner. The gentleman's time has expired.
    Mr. Nunn. Thank you.
    Chairwoman Wagner. The Chair now recognizes the gentlewoman 
from Indiana, Mrs. Houchin, for 5 minutes.
    Mrs. Houchin. Thank you, Madam Chairwoman, and Ranking 
Member Sherman. And thanks to the witnesses for being here 
today.
    Under Chair Gensler, we have seen the SEC move at an 
unprecedented pace to propose and then finalize politicized 
rulemakings that hurt our markets, discourage growth, and do 
nothing to help those who are saving for retirement or to 
better their lives.
    From proposals like those on swing pricing and predictive 
data analytics that cut off tools and opportunities for 
everyday investors, to the recently-finalized rule on climate 
disclosures that goes well beyond the Commission's statutory 
authority and pushes a Green New Deal agenda, the SEC under 
this Administration has shown time and again that it is 
committed to pursuing ideological goals at the expense of 
ordinary Americans.
    In my view, and that of many who serve on this committee, 
that has to change. With the number of wide-ranging effects 
that we have seen from the Commission under Chair Gensler, one 
of my foremost concerns is the way that the cumulative effect 
of this will change the way our U.S. capital markets work.
    This issue goes well beyond just the SEC. We have also seen 
financial regulators become increasingly interested in 
implementing the initiatives of international organizations.
    Between Basel III, the new environmental accounting 
standards coming out of the U.N., and the EU's Corporate 
Sustainability Directive, I am concerned that we don't fully 
understand yet the potential consequences that all of these 
rules will have on our markets.
    Mr. Gulliver, what do you see are the potential 
consequences of implementing international policies without 
input from our market participants and stakeholders?
    Mr. Gulliver. I think there is a real risk that the 
policies that would be implemented in the U.S. wouldn't be in 
the United States' best interest. Our financial institutions 
and market participants have unique perspectives, and those 
need to be incorporated in rules here.
    Mrs. Houchin. Thank you. There is little need for us to 
take directives from outside the United States, especially as 
other proposals from our Federal regulators are threatening to 
change the ways that our markets current operate.
    A few weeks ago, the House voted to pass Chairman McHenry's 
H.R. 2799, the Expanding Access to Capital Act of 2023. As a 
member of the Rules Committee, I was proud to manage the Floor 
debate on the rule that provided for its passage. It also 
included my legislation, the Regulation A-Plus Improvement Act, 
as part of the bill.
    Together, these proposals would strengthen our public 
markets and expand opportunities for small and mid-sized 
businesses to raise capital and create new investment 
opportunities for everyday Americans.
    This committee understands just how important capital 
formation is to creating new jobs and achieving economic 
growth. That is why I have been so upset at the SEC's direction 
under Chair Gensler, that they have neglected their statutory 
obligation and prioritized other items, like ideologically-
driven climate reporting mandates and crackdowns on investment 
advisers' use of basic technology over its obligation to 
promote capital formation.
    Mr. Burton, are there better ways for the SEC to spend its 
limited resources rather than this hyper focus on achieving 
their partisan objectives?
    Mr. Burton. Yes. And I go into quite a bit of detail about 
that in my written statement. But the core function of the SEC 
is extraordinarily important to our capital markets, to the 
success of our economy, and to the standard of living in this 
country. And it needs to focus on that instead of pursuing 
these ideological and political objectives that are simply not 
related to the core mission of the SEC.
    And it is about to get worse. If you look at the regulatory 
pipeline that they filed with ORIA, it is full of politically-
motivated rules.
    But also, the fact that the agency is so badly run. They 
waste so much money on things that are--it is not ideological; 
it is just incompetent. And they need to work on that as well.
    There is one manager for every nonsupervisory employee at 
the SEC, for example; it is just bureaucratic and ineffective.
    Mrs. Houchin. And inefficient. Instead of prioritizing its 
congressionally-directed mission, they seem to be focused on 
squashing opportunities for growth, and adding more red tape 
for average investors, without any concern for the effects of 
all of this cumulative rulemaking and what that will do to the 
financial markets.
    They also seem to be, as you stated, acting not only 
inefficiently but maybe incompetently on some of these fronts, 
and looking at things that, if I were a business owner seeking 
investments from other individuals, I would want to look at the 
bottom line and not necessarily the climate effect of what we 
have going on.
    I appreciate the witnesses' testimony today, and I yield 
back to the chairwoman.
    Chairwoman Wagner. The gentlelady yields back.
    The Chair now recognizes the gentlewoman from California, 
Mrs. Kim, for 5 minutes.
    Mrs. Kim. Thank you, Chairwoman Wagner, for allowing me to 
waive onto this very important hearing, and for including my 
bill, H.R. 7030, the Review the Expansion of Government (REG) 
Act.
    Since the spring of 2021, the SEC has proposed and 
finalized over 60 rules. When we compare the pace and scope of 
rulemaking with recent SEC Chairs, only former SEC Chair 
Shapiro has issued more rules than Chair Gensler.
    My legislation, H.R. 7030, the REG Act, directs the SEC to 
review all rules every 5 years. And if the SEC determines that 
the rule is no longer appropriate or necessary to uphold its 
three-part mission, the SEC could revise or eliminate it.
    In addition to the review process, my legislation would 
require the SEC to consider the cumulative effects of every 
rulemaking, which is something that Chair Gensler has failed to 
address.
    Mr. Gulliver, your group has commented on the substantial 
overlap between many of Chair Gensler's rules. Even the 
Department of Justice has indicated that without an assessment 
of a rule's overlapping effects, the SEC cannot effectively 
assess the impact on investors, registrants, or the markets.
    Mr. Gulliver, as you mention in your testimony, our capital 
markets are the largest and most efficient in the world. So, 
would you explain why the SEC's decision to review rules in 
isolation without considering their aggregate impact and 
interconnectedness can make our capital markets less efficient?
    Mr. Gulliver. I think there would be unnecessary compliance 
burdens. And I think, even more importantly, there will be 
conflicts between rules. And we are seeing that. We are seeing 
that the SEC's Securities Lending Rule and the SEC's Short-
Selling Rule are directly in conflict. One requires disclosure 
on a daily basis, and the other would delay the disclosure of 
the very same financial activity for a month. Those are in 
conflict, and that is in court for that reason now.
    Mrs. Kim. And how would market participants benefit from an 
understanding of how related proposals interconnect with each 
other?
    Mr. Gulliver. It would allow them to better understand 
their compliance burden, and to comply.
    Mrs. Kim. So, would you agree that my legislation can help 
market participants, investors in capital formation?
    Mr. Gulliver. Yes. I think it is critical to look back and 
assess whether or not rulemakings are still serving their 
purpose. That is required in the EU now. And that would be an 
important way that the U.S. could remain competitive 
internationally.
    Mrs. Kim. Right. I agree. My hope is that the SEC 
understands how each proposed rule can increase costs for 
smaller market participants.
    Ms. Schulp, in your written testimony, you speak of a 
regularized process for revisiting some of the Commission's 
rules. And my legislation would establish a 5-year review 
process. Hopefully, you agree with the intent of my 
legislation. Can you elaborate on how a regular review process 
can help improve efficiencies in our capital markets?
    Ms. Schulp. A regular review process is important, because 
what it does is set a schedule. Rather than the political will 
of a particular Chairman, it requires every so many years the 
review to take place. And that is important, because you could 
very well see a situation where a general idea that we want to 
revisit rules just never happens when the political will is not 
there.
    Taking a look back, particularly where cost-benefit 
analyses rely on speculative benefits or costs that are not yet 
able to be quantified is very important, because then, actual 
costs can be weighed against actual benefits to determine 
whether the rules are justified or serving their purposes.
    Mrs. Kim. Thank you. Under Chair Gensler, the SEC has 
proposed sweeping new regulatory requirements, often without a 
clear, data-driven need. So this regulation, by theory and 
hypothesis approach, is blurring the regulatory lines between 
the private and public markets.
    Ms. Schulp, as you know, the SEC's mission is to protect 
investors, maintain fair and efficient markets, and promote 
capital formation. However, the SEC, under Chair Gensler, seems 
to have neglected its statutory obligation and prioritized 
other factors over its obligation to promote capital formation.
    What factors should the SEC be considering in its economic 
analysis to properly consider a rule's impact on capital 
formation?
    Chairwoman Wagner. The gentlelady's time has expired.
    And I respectfully ask that the witness respond in writing. 
It is a very important question.
    Mrs. Kim. Thank you very much.
    Chairwoman Wagner. I thank you all.
    With that, the gentlelady yields back.
    And we thank our witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I ask our witnesses to please respond as promptly as you 
are able.
    And this hearing is now adjourned.
    [Whereupon, at 12:11 p.m., the hearing was adjourned.]
    
















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