Congresswoman Ann Wagner Introduces Bills to Reform SEC Rulemaking

Rep. Ann Wagner (R-MO), Chair of the Financial Services Subcommittee on Capital Markets, has introduced three bills that would reform the Securities and Exchange Commission’s (SEC) rulemaking process and increase the Commission’s accountability.

Wagner pointed out that these bills will deal with some of the long-term issues concerning the practices of the SEC, making the processes transparent and effective.

Addressing SEC Rulemaking and Accountability

Wagner proposed the SEC Regulatory Accountability Act (HR 8239) to ensure that the SEC duly assesses the effects of its rules. Thus, the bill mandates the SEC to carry out an in-depth analysis of issues before introducing new rules that consider their costs, benefits, and possible alternatives.

The SEC Transparency Act (HR 8241) requires the SEC Chairman to provide semi-annual testimony before the House Financial Services Committee and Senate Banking Committee, including at least once with the full Commission.

The third bill, HR 8240, the SEC Cybersecurity Act, requires the SEC to review its information technology infrastructure and data management processes in-depth and share its findings with Congress. 

In declaring these reforms, Wagner slammed the current Biden administration regulatory approach of the SEC under the rule, calling it a “top-down, my way or the highway” approach that imposes a burden on retail investors. She is of the view that the new legislation will enhance the SEC’s accountability and efficiency in rulemaking.

Bipartisan Tensions Over DEBT Box Case

During a House Financial Services Subcommittee hearing on SEC enforcement, lawmakers were divided over the Commission’s handling of crypto startup DEBT Box. Wagner questioned the SEC’s behavior in the case, referring to the Utah judge’s criticism of the agency’s actions and its inappropriate filing of the lawsuit. 

The judge had imposed sanctions upon the SEC for misleading statements and inappropriate conduct. The eventual result of the SEC’s actions was that the leading two attorneys stepped down. In this connection, Wagner criticized this “outrageous abuse of power” and highlighted the necessity of the agency’s enforcement proceedings being based on ethics.

Rep. Brad Sherman (D-CA) recognized the lawyers’ resignation as a requisite. He supported the SEC’s pursuit of allegations against DEBT Box, pointing to some bipartisan support for the organization’s attempt to combat crypto violations.

FDIC Investigation Sparks Calls for Resignation

In a separate development, House Financial Services Committee Chairman Patrick McHenry (R-NC) demanded the resignation of Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg after a report disclosed improprieties at the agency. McHenry characterized the report by Cleary Gottlieb as “damning,” revealing a toxic workplace culture under Gruenberg’s leadership. 

The report summarized a large number of misconducts, inclusive of sexual harassment and discrimination, thus supporting the fact that the FDIC does not observe the standards that it sets for regulated entities.

McHenry suggested Gruenberg to leave to allow a” new set of eyes” in the agency while stating that the FDIC must ensure the stability of the financial institutions and providing a respectful workplace to its employees. The House Financial Services Committee and other regulators are still investigating these allegations and asking whistleblowers to come and tell their stories.

Balancing Enforcement and Due Process

With the SEC enforcement practices subject to a subcommittee hearing and Wagner as the chair, she advocated for a proper balance between deterring securities fraud and protecting due process rights. Wagner pointed out that although the enforcement division of the SEC is important for ensuring market integrity, the “regulation by enforcement” approach can lead to problems for market participants.

She warned that the public’s confidence in the SEC would be further undermined if staff members continued to abuse power or overstep their enforcement activities. Wagner reiterated that the purpose of reform is to protect due process rights, increase transparency, and rebuild trust in the SEC, ultimately allowing the market to function fairly for all participants.

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