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Senate Banking Committee Nomination Hearing

Senate Banking Committee

“Nomination Hearing”

Tuesday, July 21, 2020

Nominees

Opening Statements

Chairman Mike Crapo (R-Idaho)

In his opening statement, Crapo commended Peirce and her colleagues at the Securities and Exchange Commission (SEC) for their quick and decisive response to the pandemic as they successfully balance the emergency response while maintaining fundamental operations. He encouraged the SEC to continue their efforts, and noted Peirce is “highly qualified for her position.” Crapo addressed Hauptman’s nomination to the Board of the National Credit Union Administration (NCUA) and said he is “well prepared” for the position due to his prior government service and career in the financial services industry. Crapo concluded that the SEC and the NCUA have a key role to play in the recovery from the economic crisis and he expressed his excitement to work with the nominees.

Ranking Member Sherrod Brown (D-Ohio)

In his opening statement Brown noted Peirce’s past experience and commented that both Peirce and Crenshaw will be called upon to tackle market swings and investment scams related to the pandemic while also dealing with existing problems. He noted the SEC’s role in addressing the growth and power of larger companies as well as ensuring that executives are accountable to stakeholders, including workers and local communities. He stressed the importance of providing more information to the public regarding how a company engages with its workers, implementing an overhaul on stock buyback rules, as well as the need for local financial institutions to serve local communities. He concluded that the job of the regulator is to “make sure all Americans can prosper in a safe financial system and a fair economy.”

Testimony

The Honorable Hester Peirce

In her testimony, Peirce expressed her hope to “unleash the power of the securities market” to improve the future of children, transform communities and raise the economy out of this downturn. She noted her effective efforts to promote the Dodd-Frank security-based swap regime as well as carry out the SEC’s regulatory, compliance and enforcement agenda. Peirce added that she will continue to work to support information sharing and the use of joint analyses. Peirce concluded that she will redouble her efforts to “create a more welcoming environment for innovation and new entrance” to ensure the capital markets remain “dynamic, vibrant, and preeminent.”

Mrs. Caroline Crenshaw

In her testimony, Crenshaw summarized her work to strengthen investor protections and expressed that if confirmed it is her goal to ensure that Americans can build the financial futures they deserve, to make sure the markets unite job creating capital with small business owners, and to promote a level playing field for Americans to fund the rising cost of education by investing in the markets. She stated that she will “be a tireless advocate for ordinary American families who are the backbone of our economy and who face some of the largest challenges such as retirement crises.” She continued that the Commission should help to: 1) provide access to high quality investment advice to better help retail investors distinguish between financial advisors and fraudsters; 2) help Americans fund retirement in safe and sustainable ways; and 3) oversee the large growing institutions who safeguard American savings. She pledged to utilize her “commitment to public service” and “appreciation for diverse views” in order to help Americans recover from current economic challenges.

Mr. Kyle Hauptman

In his testimony, Hauptman noted his past experience working with regulatory policy and in the financial services sector, saying that these experiences have provided him with the unique perspective of understanding the “firsthand risk associated with liquidity, interest rates, and balance sheet management.” He noted his passion for public service, his ability to work in a bipartisan fashion, and his commitment to being an “independent regulator who works only for credit union members and the taxpayers who back NCUA.” He expressed his overarching goal to extend American opportunities with a focus on three priorities: 1) manage the fallout from the current pandemic and economic downturn; 2) expand technology’s role to reach the underserved and provide more inclusive financial services; and 3) align incentives by prioritizing policy where “safety and soundness is aligned with serving members,” which if done correctly will “cut back poor quality high-priced products with better, lower-priced products.”

Question & Answer

SEC Regulations

Sens. Mike Rounds (R-S.D.), Jon Tester (D-Mont.), Crapo and Brown asked both Peirce and Crenshaw for their views on a variety of issues within the purview of the SEC’s authority including capital formation, corporate governance, market stability, market structure, retail investor protection and executive compensation. Peirce outlined that capital formation remains a priority as does making sure that companies deserving of capital actually receive capital. She continued that the Commission continues to work on crowdfunding issues and exemptions, specifically whether to issue new exemptions. Crenshaw continually emphasized market stability and investor protection, highlighting the importance of robust and accessible disclosures as well as the proper functioning of circuit breakers. Crenshaw added that if confirmed, she would focus on finalizing the outstanding Dodd-Frank provisions, specifically executive compensation. In response to a question on the subject from Brown, Crenshaw elaborated that it is critical that executives are held to account and that they do not receive money that they did not earn.

Brown also asked Crenshaw for her views on how to make Regulation Best Interest (Reg BI) most effective. Crenshaw stated that the Commission, the SEC Office of Compliance Inspections and Examinations, and FINRA must work together with firms to mitigate conflicts of interest. She vowed that she would hold firms accountable for not mitigating these conflicts.

Tester focused his questioning on the SEC’s work relating to small and rural businesses. Peirce highlighted the work of the SEC’s Office of the Advocate for Small Business Capital Formation as well as Small Business Capital Formation Advisory Committee. Crenshaw said that she looks forward to working with the SEC’s small business advocate to make sure that regulations are clear, straightforward and ensure that capital flows to entities most deserving.

Rounds inquired on multiple market structure related items including the operational resilience of the national securities exchanges and the functioning of the market circuit breakers. Peirce noted that the markets have functioned remarkably well given the large amount of volatility in recent months. She then stated that while the circuit breakers have generally worked as designed, she believes small changes can be made to improve their function. Regarding the exchanges’ continuity of operations throughout the COVID-19 pandemic, Crenshaw stated that it is essential that the correct processes and procedures are in place to make sure that exchanges can continue to operate in a crisis period.

China & Foreign Investment

Sen. John Kennedy (R-La.) took the opportunity to highlight his Holding Foreign Companies Accountable Act and called on the Commission to do more to hold companies accountable if they fail to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits. Sen. Bob Menendez (D-N.J.) asked how the SEC can better ensure that foreign companies do not gain a significant ownership in American companies without complying with the requisite disclosure requirements. Both Peirce and Crenshaw noted that there is more work to be done both within the SEC Division of Enforcement as well as the Division of Corporation Finance.

ESG

Sen. Mark Warner (D-Va.) asked whether there is a need for an increased level of standardization of ESG measurements and metrics. Crenshaw responded that there is clear investor demand for these ESG metrics, and the Commission should work on how best to ensure investor access to comparable and clear information.

Cryptocurrencies

Sen. Catherine Cortez-Masto (D-Nev.) raised concerns about the potential for fraud in the cryptocurrency space and asked for Peirce to outline the SEC’s role in addressing such fraud. Peirce stated that the SEC must have clear guardrails and guidance in place as to when something is truly a securities offering. Specifically, she raised the possibility of creating a safe harbor for types of crypto-offerings and requiring enhanced disclosure. Both Peirce and Crenshaw spoke to the importance of enforcement and investor protection on this front.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.