MFA President and CEO Bryan Corbett penned an op-ed in Fox Business Network detailing how the SEC’s regulatory agenda is harmful to U.S. capital markets and how Democrats and Republicans are pushing back, in a rare display of bipartisanship.
The SEC’s Rulemaking Agenda has Gotten So Out of Control it’s Bringing Democrats and Republicans Together
By Bryan Corbett
Recent Congressional actions show a growing concern about the SEC’s overreach and harm to markets and investors. More than 75 Democrats and Republicans have sent letters to put the brakes on the SEC’s regulatory agenda that is jeopardizing the retirements of millions of Americans and disrupting U.S. capital markets.
At year–end, all Senate and House Democrats, except one, voted for the omnibus spending bill that expressed concern with the impact of the SEC’s rulemaking on small and women- and minority-owned businesses. The bill also encouraged the SEC to reevaluate its economic analysis on another important rule for alternative asset managers and the pensions, foundations, and endowments that invest with them.
SEC Chair Gary Gensler is ignoring the warning signs and is speeding through yellow lights that signal problems ahead. The SEC has embarked on the most expansive rulemaking agenda since the implementation of the Dodd-Frank Act. Unlike the aftermath of the great financial crisis, the overreaching suite of rules is not driven by a Congressional mandate or clear market failure. Instead, the SEC appears to be intent on reshaping financial markets and sharply reducing the role of active investing, an essential practice that aids price discovery and enhances liquidity.
Last year alone, Gensler’s SEC rushed to propose 19 rules targeting or impacting the alternative asset management industry. In comparison, the previous chair only proposed 20 rules total during his entire tenure. This is an astonishing amount of rulemaking, especially given the fact that it lacks empirical support.
Over the past two decades, despite several market cycles and significant regulatory focus on hedge funds and alternative asset managers, regulators have not found that any losses by these managers, when they do happen, have exacerbated crises or caused contagion.
The SEC has dispensed with its historically-thoughtful approach for one that measures success not through positive market impact but through the quantity and speed of new regulations.
As members of Congress have expressed, the SEC’s rush to regulate resulted in proposed rules that lacked diligent cost-benefit analysis, disregarded their interoperability with each other, and had inadequate comment periods that prevented thoughtful feedback and analyses from market participants. In fact, the SEC gave market participants just 30 days, the minimum allowed by law, to comment on many long and complicated rules that have the potential to upend markets.
The SEC is clothing these proposals under the guise of enhancing the functioning of markets and promoting competition, but these proposals will have the opposite effect. Studies show that the proposed rules will reduce liquidity in the markets as well as investor choice. The increased cost and compliance burdens associated with these rules will cause some managers to exit certain investment strategies and deter emerging managers from launching new funds, thus leading to less market participation and competition and more consolidation. All of which hurts capital formation, making success more difficult for small and women- and minority-owned businesses.
This agenda is especially devastating for public pensions, nonprofit foundations, and educational endowments that invest over $1.5 trillion with alternative asset managers. The SEC’s regulatory attacks on private funds will greatly reduce the investment opportunities available to these institutions. This lack of choice will hurt their access to the steady returns they depend on to provide comfortable retirements, improve our communities, and expand academic opportunities.
Members of Congress are not the only ones concerned about the speed and reach of the SEC’s proposals, the regulator’s Inspector General issued a report that found the SEC is shortcutting analysis of proposed rules and unable to properly manage resources given the breadth of rulemaking.
The commission is also plagued with technology failures under the crushing weight of the comment files. Unless the SEC heeds the warnings of elected representatives and its own Inspector General, America’s economic standing and the ability of investors to provide needed capital to U.S. businesses of all sizes is at risk.
The U.S. capital markets are the deepest, most liquid, and most trusted in the world. Millions of Americans benefit every day from our well-functioning markets.
Democrats and Republicans are putting up a bipartisan front against the SEC because they recognize we cannot afford to jeopardize the wealth and success of our nation because an overzealous regulator wants to impose unneeded, poorly studied rules that fundamentally alter how our markets operate.
Chair Gensler needs to change course to ensure our markets do not become an anchor on our economy but continue to be a wealth creator and driver of economic growth in the American economy.
Bryan Corbett is President and CEO of Managed Funds Association, the trade association that represents the alternative asset management industry.