SEC commissioners Allison Herren Lee and Hester Peirce both agree that climate change disclosures and digital assets are among the most important issues the commission will consider in the coming months. But their positions diverge sharply when it comes to the role the agency plays in their regulation.
The robust discussion between Lee and Peirce kicked off day two of the
When discussing the direction they planned to push the commission’s priorities in the coming months, Peirce said capital formation and broadening the accredited investor definition continue to be priorities for her. But true to her “cryptomom” moniker, she hopes the SEC establishes some sort of regulatory regime around crypto to “allow for easier Innovation with a clear understanding of what the rules are.”
The conversation around digital assets turned to the Howey Test, which is the SEC’s preferred tool to determine if a digital asset is a security. The name references SEC v. W.J. Howey Co., a 1946 U.S. Supreme Court case in which the underlying assets were oranges and orange groves.
Piwowar said many in the industry believe the Howey test is ill-suited for such purposes and that an updated regulatory lens is long overdue. Peirce agreed, and said there is a great deal of uncertainty surrounding how securities definitions and laws should apply to crypto.
“What I hear from people in the space is (they) want to find a way to comply with the law but want to do it in a way that allows them to continue to develop this technology, which we think has great promise not only in democratizing access to the financial system, but in developing a whole set of new ways of doing things,” she said. “I'm concerned that if we don't provide a sound framework within which this can happen, a lot of the innovation will happen outside of the United States. People will avoid doing business and interacting with the U.S., and that is going to be to our net detriment. So why not instead come up with a framework that addresses some of the concerns that some of the securities laws are intended to address?”
Lee, however, does not believe the agency should single out any particular product or market segment like cryptocurrencies with special treatment.
“We always say that we don't pick winners and losers. That is true in this space, too,” she said. “If Congress weighs in and identifies some specific regime applicable to several of these assets, then so be it. They will have spoken. But for now, how we test is a principles-based test whether any given investment opportunity presents the sorts of risk that the Securities Act and the other securities laws were designed to address.”
Lee added that while the agency may not be able to anticipate all of the ways securities laws will apply to new products, it’s no different than when officials were trying to figure out the regulation of orange groves.
“I think we have to evolve with changing technologies, but I don't think that means we change our principles or stray from our mission, which I think has worked well for decades,” she said.
Lee said the commission’s core values should center on investor protection. But she continues to be vocal about helping investors, companies and funds deal with the risks and opportunities presented by climate change.
Piwowar said Gensler has directed SEC staff to create a mandatory climate risk disclosure rule proposal by year’s end, saying it is an issue that the commission has struggled with for years.
Lee is taking her cues from investors, and they have made it clear they would like the SEC to take some sort of action, she said.
“We have guidance in the climate space that's now 11 years old, so a lot has changed in that time … Quantity and quality of climate disclosure I think has increased significantly in the last decade or so,” she said. “That's in large part because of the efforts of investors seeking that disclosure, issuers in responding to that demand and voluntary framework and standard-setters to facilitate that disclosure. But I think we've reached the limit of the voluntary efforts at this point. We're now at a place where regulatory involvement is needed but can also add real value in the capital markets to ensure consistent, comparable, reliable disclosure.”
Pierce, however, remains skeptical of the need for a specific set of climate-related rules in the nation’s securities laws.
“It is something that's happening. It's being worked on. So my concern is that for me, the touchstone of disclosure is materiality. What's material to an investor trying to assess the long-term financial value of a company and certain climate risks may well be material and should already be disclosed. But I don't think there's a common set of metrics across every company, across every industry, that is, by default, material,” she said. “I would argue that if we start prescribing, we're going to be getting uniform disclosure that may not actually be reliable, comparable, accurate or material. So that's not the direction that I would like to go.”
