February 23, 2023 - The LSTA and a number of trade associations have worked endlessly over the past year to respond to an untenable number of SEC rulemakings – many of which would have profound loan market implications – with unreasonably short comment periods. As we have foreshadowed, the shift to a Republican-led House of Representative was expected to lead to inquiries on the SEC’s approach to rapid rule making. These inquiries have started.

As reported in Politico this week, House Financial Services Committee (HFSC) Chair Patrick McHenry was joined by Senator Tim Scott, Ranking Member of the Senate Banking Committee and Congressman Bill Huizenga, Chairman of the HFSC Oversight Subcommittee in a letter sent to SEC Chair Gary Gensler demanding information on the SEC’s proposed climate disclosure for public companies.  While not the first letter sent to Gensler by members of Congress, it is the first major shot across the SEC Chair’s bow by the newly installed Republican head of the House committee that supervises the SEC.  It portends a flurry of letters and hearings that will target the SEC and its Chair and focus on many of the rules proposed as part of the aggressive agenda described by the Wall Street Journal as “Gensler’s Regulation Raceway”. 

The LSTA last week described its own challenges in keeping up with “The SEC that Never Sleeps”.  Having just submitted a comment letter on the 429-page Liquidity Risk Management Rule, we are now deep in the weeds on the SEC’s proposed rules on Conflicts in Securitization (189 pages; 30 days to comment) and Custody of Client Assets (434 pages; 60 days to comment).

The new letter from the lawmakers accuses the SEC of exceeding its mission, expertise and authority by seeking to “advance progressive climate policies” and ignoring previous bipartisan requests for information from the SEC.  Previous letters from members of Congress on both sides of the aisle have focused on climate as well as the extremely short comment periods that have been set by the SEC on almost all of its proposed rules despite their complexity.  The LSTA and many other trade associations have also jointly submitted several letters to the SEC pushing back on the short comment periods that have made it challenging to respond with thoughtful feedback.  Unfortunately, until now, these requests have fallen on deaf ears; the relentless pace of the rulemakings has not slowed and the length of the comment periods has remained untenably short. In the coming months, we expect that Chairman McHenry and the HFSC subcommittee chairs to pressure Chair Gensler and the SEC on many fronts, pushing back both on many of the substantive rulemaking issues on which we’ve engaged, as well as on the accelerated process.  There will doubtless be many more letters, requests for information and hearings – and it will interesting to see how the SEC responds under the new supervisory regime.  We hope to see a return to a more normalized, effective and constructive rulemaking process. Only time will tell.