The confirmation hearings for President Joe Biden’s choices to run the Securities and Exchange Commission and Consumer Financial Protection Bureau — Gary Gensler and Rohit Chopra, respectively — are set to begin Tuesday.
They will be the first of Biden’s financial regulators to face the spotlight in the Senate. The nominees pose risk to certain corners of the financial sector, according to analysts.
The two “are likely to steer both agencies in a new direction which has implications for the capital markets,” according to Brian Gardner, Stifel’s chief Washington policy strategist. The SEC and CFPB hold the keys to financial issues such as new regulations on special purpose acquisition companies cryptocurrency and consumer loans.
Student lenders and servicers Sallie Mae, Navient and NelNet are likely to get increased scrutiny under the Biden administration, as are fintech companies like LendingClub and Funding Circle.
Gensler brings a background as a reformer, having overseen the untangling of the derivatives market after the 2008 financial crisis, when he was the head of the Commodity Futures Trading Commission. Gensler is sure to be asked about recent volatility over GameStop and regulating cryptocurrencies.
Gensler joined the faculty at MIT Sloan in 2018. A November working paper co-written by Gensler warns that certain kinds of artificial intelligence “may lead to financial system fragility and economy-wide risks.”
The paper also makes the case for new regulation: “Regulators may wish to look into more technical ways of managing risk, such as adversarial model stress testing or outcome-based metrics focusing less on how the model arrives at its prediction and more on model behavior once deployed.”
After a meeting last week with Gensler, Senate Banking Committee Chairman Sherrod Brown, D-Ohio, added climate change to the agenda. In a post-meeting readout, the liberal senator said: “The next chair of the SEC will need to focus on enforcement and improving accountability and transparency, including by working to enhance corporate climate risk disclosure.”
The Biden administration has made addressing climate change a top priority. Gensler will be in charge of the agency tasked with requiring companies to disclose risks around environmental, social, governance issues.
Chopra’s task will be to bring teeth to the Consumer Financial Protection Bureau, which was tied up under President Donald Trump’s administration. Under Trump, it delivered fewer enforcement actions and monetary penalties against companies. At one point, the Trump White House tried to change the agency’s name from CFPB to BCFP, but it didn’t come to fruition.
As a commissioner at the Federal Trade Commission, Chopra earned the reputation as a tough regulator, dissenting from the majority in high profile cases including Zoom and Facebook.
In a dissenting statement on the FTC’s $5 billion 2019 settlement with Facebook, prompted by the 2018 Cambridge Analytica scandal, Chopra wrote: “In my view, it is appropriate to charge officers and directors personally when there is reason to believe that they have meaningfully participated in unlawful conduct, or negligently turned a blind eye toward their subordinates doing the same.”
Chopra has also been critical of student lenders for predatory lending practices. Biden has promised to crack down on abusive Wall Street practices and provide relief for student borrowers.
The CFPB is tasked with rooting out dangerous, deceptive and unfair financial practices, educating consumers, and enforcing the law against the predatory firms.
Democrats are also keen to see the agency bolster its commitment to racial equity by enforcing anti-discriminatory laws, including the Fair Housing Act and the Equal Credit Opportunity Act.
Chopra has also pressed for the government to act on abusive debt collection and lending practices. He worked closely with Sen. Elizabeth Warren, D-Mass., to set up the CFPB in the aftermath of the 2008 crisis, serving as an assistant secretary and student loan ombudsman.
Critics are concerned that the Biden nominee will take an arbitrary approach to enforcement and not give businesses fair treatment in the regulatory process.
“Rohit Chopra’s push while at the FTC to expand penalties against for-profit schools, franchises, Facebook, and gig economy companies was the wrong way to go,” said Competitive Enterprise Institute attorney Devin Watkins.
Source: Finance - cnbc.com
