On March 6, U.S. SEC Chair Gary Gensler appeared on Bloomberg Television with hosts Kailey Leinz and Joe Mathieu. He shared his thoughts on the SEC’s initiatives on climate disclosure rules and the complex world of cryptocurrency regulation.

The Evolution of Climate Disclosure Rules

Gensler detailed the SEC’s adoption of a new climate-disclosure rule, emphasizing its focus on material climate risks and their disclosure. Contrary to the initial proposal, the rule now requires companies to assess whether climate risks materially affect their business and disclose accordingly. This change aims to enhance consistency and reliability in climate-related disclosures, which many companies voluntarily provide.

Addressing potential costs, Gensler acknowledged the varying impacts based on the extent of required disclosures. He assured, “Costs were measured from a couple of hundred, per issuer to, I think, upwards to high six figures but still in the six-figure range per issuer.” This reflects the SEC’s effort to balance the need for transparency with the practical challenges companies may face.

Despite concerns that the rule might lead to less disclosure to avoid compliance costs, Gensler argued for its necessity, citing the already widespread practice of climate risk reporting among large companies. He stressed the rule’s aim to bring uniformity and dependability to these disclosures, rooted in the principle of materiality.

Cryptocurrency: A Roller Coaster Ride

Gensler’s perspective on the cryptocurrency market is vividly cautious yet insightful. He metaphorically compares the market’s volatility to a roller coaster, noting, “This is a highly speculative asset class.” He further elaborates, “One could just look at the volatility of Bitcoin in the last few days and look, I grew up loving roller coasters, maybe in my adult years I don’t ride them as much, but you really should be conscious as the investing public that this is a bit of a roller coaster ride on these volatile assets.”

The foundation of his concern lies in the speculative nature and the sustainability of investments in the crypto world. He once again questions the intrinsic value of crypto: “And then the question is, is how firm is the foundation of the, you know, you get to the top of that hill, how’s the foundation underneath it and are there cash flows or what’s the use case for thousands of these tokens?”

The discussion also ventured into the regulatory classification of cryptocurrencies, particularly Ether. With the burgeoning number of digital assets, Gensler points out, “There’s about 15 or 20,000 of them, they also may be securities because the investing public is relying on the efforts of some group of entrepreneurs in the middle of these projects.”

When prodded further about whether Ether falls into the category of securities, Gensler chose to remain non-committal, reflecting the nuanced and case-by-case evaluation process the SEC employs: “I understand you’re asking the question but again I’m going to defer on that question.”

Last month, in a discussion with David Westin during an episode of Bloomberg TV’s “Wall Street Week,” Gensler talked about the complexities of overseeing the cryptocurrency sector.

Gensler reflected on the SEC’s experiences with Bitcoin-centric offerings, notably spotlighting the green light given to spot Bitcoin ETFs. He pointed out that back in 2021, the SEC sanctioned a futures-based Bitcoin product from the Chicago Mercantile Exchange. The go-ahead for several spot Bitcoin ETFs in the U.S. on January 10 was largely swayed by a judicial decision that questioned the SEC’s prior rejections of akin proposals, prompting a shift in the SEC’s stance towards endorsement. This adjustment signifies the SEC’s dedication to adapting its regulatory framework in response to the changing landscape of the market.

A paramount issue for Gensler is the existence of trading platforms that operate beyond the bounds of U.S. securities regulation. He argued that while Bitcoin itself may not be deemed a security, the trading of Bitcoin and various other digital tokens frequently happens on platforms that disregard the necessary regulatory guidelines. According to Gensler, this lack of regulation introduces considerable risks to investors, pointing out the speculative essence of Bitcoin and the danger of fraudulent activities and manipulation in these unmonitored settings.

Gensler stressed the need for investor vigilance concerning the speculative nature of Bitcoin and the operational methods of numerous trading platforms. He advised investors to scrutinize the practical applications of their crypto holdings, likening it to the more governed and straightforward domain of traditional securities investments.

Moreover, the conversation encompassed the wider scope of regulatory duties, such as the SEC’s surveillance over public entity disclosures and the prevention of inaccuracies, often humorously referred to as “fat fingers.” Gensler clarified that although the SEC is pivotal in combatting deceit and securing the dissemination of precise financial data, the onus is ultimately on the companies to ensure the reliability of their internal controls and the truthfulness of their documents and announcements.

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