SEC's Gensler on Systemic Risk, Climate Rule and Crypto
Summary
TLDRThe video script captures a candid interview with Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC). The conversation revolves around the SEC's role in monitoring systemic risks in the financial markets, particularly in relation to the recently adopted climate disclosure rules and the potential implications for companies regarding compliance costs and legal challenges. Gensler defends the SEC's position, emphasizing the importance of materiality and consistency in disclosures for investors. Additionally, the topic of cryptocurrency ETFs is touched upon, with Gensler cautioning about the speculative nature of these assets while emphasizing the SEC's commitment to assessing the facts and circumstances surrounding potential securities classifications.
Takeaways
- ๐ The SEC Chairman is cautious about commenting on specific banks or entities, but the SEC broadly monitors markets for systemic risks.
- ๐ The SEC adopted new climate disclosure rules requiring companies to disclose material climate risks in their filings, but with flexibility for companies to decide materiality.
- ๐ The climate disclosure rules aim to provide consistency and reliability for investors, as many companies already disclose climate information voluntarily.
- ๐ธ Compliance costs for climate disclosures are estimated to range from a few hundred thousand dollars to high six figures per company, depending on materiality.
- โ๏ธ Legal challenges from various parties, including states and corporations, are expected regarding the climate disclosure rules.
- ๐ The SEC aims to act within its mandate as a disclosure agency and ensure compliance with administrative procedures.
- ๐ There may be inconsistencies between the SEC's climate disclosure rules and stricter rules in other jurisdictions like California and Europe.
- ๐ฐ The SEC Chairman acknowledges the high volatility and speculative nature of cryptocurrencies like Bitcoin and Ether.
- ๐ฆ The SEC is considering filings for a spot Ether ETF, but the Chairman avoids commenting on whether Ether is a security or commodity.
- ๐ The SEC's approach to crypto tokens is based on the facts and circumstances surrounding the investment public's expectations of profit.
Q & A
What concerns were raised about New York Bancorp?
-The concerns raised about New York Bancorp included missed filings and potential fallout from commercial real estate investments.
Why did the SEC chair avoid commenting specifically on New York Bancorp?
-The SEC chair avoided commenting on any one specific registrant or filer, as their role is to ensure that public companies make full, fair, and truthful disclosures to the public.
What is the SEC's role in monitoring systemic risk?
-The SEC monitors markets for systemic risk, as investors can be harmed if a single bank, hedge fund, or other entity fails and spills out into the market. The SEC shares its thoughts on systemic risk with the Treasury Secretary and Federal Reserve Chair.
What were the significant changes made to the SEC's climate disclosure rules?
-The adopted climate disclosure rules were significantly watered down from the initial proposal. Scope 3 emissions were removed, and companies will have to decide whether climate risks are material to them for scope 1 and 2 emissions.
Why did the SEC adopt the climate disclosure rules instead of re-proposing them?
-The SEC adopted the rules to bring consistency and establish regulations, as hundreds or thousands of companies were already disclosing climate risk information voluntarily.
What are the potential costs for companies to comply with the new climate disclosure rules?
-The SEC estimated costs ranging from a couple hundred thousand dollars per issuer to high six figures, depending on the materiality of climate risks to the individual company.
Who is expected to bring legal challenges against the SEC's climate disclosure rules?
-Legal challenges are expected from various parties, including state governments, corporations, and environmentalists.
How does the SEC justify the climate disclosure rules in the face of potential legal challenges?
-The SEC chair expressed confidence that the rules were developed within the congressional mandate and in line with the Administrative Procedures Act, as the SEC is a disclosure agency grounded in materiality.
What challenges arise for multinational companies due to differing climate disclosure rules across jurisdictions?
-Multinational companies may face challenges in adhering to different climate disclosure rules across jurisdictions like the SEC, California, and Europe, which have varying authorities and goals.
What is the SEC's stance on the potential approval of a spot Ethereum ETF?
-The SEC chair did not comment specifically on Ethereum, but cautioned that cryptocurrencies are a highly speculative asset class with volatility. The SEC evaluates whether a crypto token qualifies as a security based on the facts and circumstances.
Outlines
🏦 Addressing Financial Oversight and Climate Disclosure Changes
The segment begins with questions about New York Bancorp and concerns around commercial real estate fallout, transitioning to a broader discussion on financial oversight and systemic risk management. The speaker, an SEC official, emphasizes the importance of truthful disclosures by banks to protect investors and highlights the SEC's role in monitoring systemic risks across financial markets. The conversation shifts to recent changes in climate disclosure rules, where the SEC has made amendments to require companies to report on climate risks if deemed material. This includes the removal of Scope 3 emissions reporting for certain companies, sparking debate on whether these changes might dilute the comprehensiveness of disclosures and lead to increased litigation risk. The official defends the SEC's approach, stressing the necessity for companies to provide material information to investors, including climate risks, within their regular filings.
🌍 Climate Disclosures and Legal Challenges in a Multi-jurisdictional World
This paragraph focuses on the implementation and potential impacts of the SEC's new climate disclosure rules, noting that a significant portion of the Russell 1000 companies already voluntarily disclose climate risk information. The SEC aims to standardize these disclosures to ensure investor access to material climate risks. The discussion also touches on anticipated legal challenges from various stakeholders, including states and environmental groups, and the SEC's confidence in its legal standing. Additionally, the conversation highlights the complexities of multinational companies navigating differing disclosure regulations across jurisdictions like California and Europe. Finally, the script transitions to speculative investments in cryptocurrencies, questioning the regulatory classification of Ethereum and addressing the broader volatility and risks associated with the crypto market. The SEC's cautious stance on crypto investments and the importance of a strong regulatory foundation are emphasized.
Mindmap
Keywords
💡Disclosures
💡Materiality
💡Systemic risk
💡Climate disclosure rules
💡Scope 1, 2, and 3 emissions
💡Crypto tokens
💡Spot Bitcoin products
💡Administrative Procedures Act
💡Litigation
💡Volatility
Highlights
Discussion on New York Bancorp and the concerns over commercial real estate fallout.
SEC's role in monitoring banks and public companies for truthful disclosures.
Connection between bank disclosures and climate change impacts.
SEC's approach to systemic risk monitoring in financial markets.
Adoption of climate disclosure rules by the SEC, focusing on materiality for investors.
Significant watering down of initially proposed climate disclosure rules by removing Scope 3.
The decision to leave it up to companies to determine the materiality of climate risks.
Concerns over potential increased costs and red tape for companies due to new disclosure rules.
Estimation of the cost involved for companies in complying with new climate disclosures.
Possibility of less climate risk disclosure by companies to avoid compliance costs.
The prevalence of climate risk discussions among top companies in the Russell 1000.
Legal challenges anticipated against the SEC's climate disclosure rules.
SEC's confidence in its rule-making within legal and regulatory frameworks.
The challenge of multinational companies facing different climate disclosure rules in multiple jurisdictions.
Speculation and uncertainty surrounding ether as a security or commodity in the context of spot ETFs.
The highly speculative nature of cryptocurrencies and the volatility of assets like Bitcoin.
Transcripts
I have to ask you first about New York Bancorp with some of the drama that
we've seen over this past week of missed filing concerns about commercial real
estate fallout. Are you monitoring this?
Is there anything you can do to protect investors here?
Well, I think your viewers would understand that I'm in the role I'm in,
and I'm not going to comment on any one registrant or filer.
But many banks are public companies. Those banks need to make sure that they
make full, fair and truthful disclosures to the public so that the public can
make their investment decisions. I know we're going to be talking about
climate, but it turns out it turns out it's connected.
They need to make those disclosures that investors take, you know, investment
decisions on and make sure they have proper controls to make those
disclosures. And but I don't have anything more on
this one bank. But just broadly, you're not concerned
about systemic risk that might be emanating from commercial real estate?
I again, I'm not going to comment on one bank and so forth, but broadly speaking,
broadly at the FCC, we are always monitoring markets for systemic risk.
And the reason is, is because investors get harmed when one bank or one
non-bank. It could be a bank, it could be a hedge
fund that fails and spills out into the market.
I've been kind of it's ain't my first rodeo.
I was even in the Clinton administration when long term capital management
failed. I was in the Bob administration when we
were, you know, cleaning up after the crisis.
And it's always the American public, both investors and issuers, that get
hurt. So at the SEC, we do monitor for
systemic risk in our remit. And then we work with Secretary Yellen
and Chair Powell and share our thoughts. So to return to this question of
disclosures and this gets us to the news out of the SEC today.
You have adopted now climate disclosure rules that have been significantly
watered down from what was initially proposed.
Scope three has been removed for scope one and two companies are essentially
going to have to decide whether these climate risks are material to them.
It's a pretty significant change. Why not re propose it by just adopting
it today rather than opening it back up for comment?
Have you opened the SEC up to more scrutiny and potentially more litigation
that could come from this? Well, let's just step back for your
viewers just for a moment. What we have here is that today,
literally hundreds, maybe a thousand companies already today
are making information about climate risk available to their investors.
They're often doing it on the Internet, their sustainability reports and so
forth. What we did today is we adopted a rule.
We hadn't had a rule book previously, and we said, yes, these disclosures need
to be in your filings, in your annual reports, in your registration
statements, if material that's consistent with five, seven decades of
what we do, materiality is the benchmark.
It's investors get to make the investment decision based upon the
material disclosures. In this case, climate risk is something
investors want to know about. Hundreds of companies are already making
such information available, but this will give it more reliability.
What's the cost involved here for companies that will be new to these
disclosures? Typically, critics point to red tape
beyond the politics here, red tape and increased costs.
You actually have a sense of this already for those that are disclosing.
And I suspect from the comments that you received, particularly companies that
are just making the threshold and now you have carve outs for some smaller
publicly traded companies. But what would be the additional cost of
this due diligence? Could you put a number on it?
So so we we lay this all out in this release.
It's over 800 pages if you want to have some weekend reading.
But we really based a cost estimates on what commenters had given us and us, We
got some very we got 24,000 comments on this.
And in terms it depends on the issuer. If an issuer actually determined that
it's not material to their investors, the cost would be
probably quite low. But if they determine that, for
instance, to inform their investors properly that
greenhouse gas emissions are material, then the costs go up.
But but again, in the release it was measured from a couple hundred thousand
per issuer to I think upwards to high six figures, but still in the six figure
range per issuer. But leaving it up to the issuer to
decide whether this is material, could this actually result in less disclosure
around climate related risks, not more. To avoid incurring some of those
compliance costs. Well, what's interesting is if you look
at the Russell 1000, the top thousand companies, some surveys show that
already 90% talk about climate somewhere climate risk, and about 60% put out
something about these so-called greenhouse gas emissions.
And they're already doing it because investors want to get that information.
But again, our history, our remit is about that, which is material for
investors. And that's that's what we're doing here.
And we're we're climate risk agnostic. And if if if more companies make this
disclosure or fewer make the disclosure, it's about materiality.
But I would say what we did today is important because it will bring some
consistency and it's a real role. Kelly referenced the potential for legal
action here. I suspect that it's part of our talk
with some time into this. Indeed, and obviously legal challenges
are already being planned. There are nine states being led by West
Virginia at this point we've heard about.
But I wonder when you consider this and you've been down this road before, is it
governments? Is it corporations?
Is it environmentalists who will bring the legal challenges to the SEC?
Here it is, all of them. I again, I think that at the FCC, we
endeavor to do things within the law and how the courts interpret the law.
And so we take the economics into consideration.
We take these 24,000 comments into consideration.
And of course, we take in another law. It's not the securities law called the
Administrative Procedures Act. You know how we do rule writing.
I feel quite confident that we've done something
within the congressional mandate. And why is that?
It's because we're a disclosure agency, and that's all we're doing here.
Companies already thousand plus companies are already.
Putting out some climate risk information.
Investors are already making decisions and we're saying grounded in
materiality. Put it in your filings and be consistent
with what you're doing. On the subject of consistency, though,
if you're a big multinational company, the FCC rules are now what they are.
California's rules. Europe's rules are significantly
stricter. How is this supposed to work if you have
to answer to multiple jurisdictions? KELLY It's a very good question.
They have different authorities.
We're a securities regulator in Europe, passes a law through the European
Parliament that had a goal to manage the environment.
California similarly through their legislation.
That's not what we do. We stay within our we stay within our
chalk lines, if I can use tennis, staying within the chalk lines, despite
conversations that you're having today around climate risk, you also, I'm sure,
as a five member commission and as the staff are going to be considering in
recent months, because you are facing a deadline coming up in May around a spot
Etherium ETF having a is Kelly you had to do you have to question this
question. Of course we are now about two months
into a world in which spot Bitcoin products exist.
They have had incredible demand, more than $8 billion in inflows.
Now the optimism is ether spot ETFs are next.
Do you not? First have to settle the question as to
whether ether is a security or a commodity?
Can you answer that first? Well, Kelly, again, on any one of these
crypto tokens is about the facts and circumstances as to whether the
investing public is anticipating a profit based on the efforts of others.
But we do have filings in front of us. I'm not going to comment.
I will say this. This is a highly speculative asset
class. One could just look at the volatility of
Bitcoin in the last few days. And look, I grew up loving roller
coasters. Maybe in my adult years I don't ride
them as much. But you really should be conscious as
the investing public that this is a bit of a roller coaster ride on these
volatile assets. And then the question is, is how how
firm is the foundation of that? You know, you get to the top of that
hill. How is the foundation underneath it nor
their cash flows or what's the use case for thousands of these tokens?
There's about 15 or 20,000 of them. They also may be securities because the
investing public is relying on the efforts of some group of entrepreneurs
in the middle of these products. Would you consider ether as part of that
group that may be securities? I understand you're asking the question,
but again, I'm going to defer on that question.
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