A flag outside the U.S. Securities and Exchange Commission headquarters in Washington, D.C., U.S., on Wednesday, Feb. 23, 2022. Hedge funds and other investors would have less time to disclose that they've acquired a significant stake in a company under new rules proposed by the SEC. Photographer: Al Drago/Bloomberg via Getty Images
Photo: Al Drago/Bloomberg via Getty Images

The SEC’s pivotal year ahead


Hello and welcome to Protocol Policy! Today we discuss the SEC’s annual regulatory agenda and what the industry expects and hopes from it. Bill Gates and Tim Cook were spotted walking through the Senate basement — Cook, at least, took a few meetings on the tech antitrust push. And Meta might have a hard time appealing to Section 230 for the lawsuits it faces on mental health.

The SEC’s pivotal year

If history is any guide, the SEC will release its annual regulatory agenda any day now. The agenda outlines short- to long-term regulatory actions the SEC will prioritize in the coming year. Tech executives — especially in the fintech and crypto sectors, which increasingly means everyone — should pay close attention to understand what regulations might be heading their way.

Industry policy experts are hoping for fewer surprises than last year.

  • The annual regulatory agenda is “definitely something that the industry pays attention to,” Cody Carbone, policy director at the Chamber of Digital Commerce, told Protocol. He said last year there were quite a few surprises because “the industry and the SEC [were] feeling each other out — seeing where the priorities lie.”
  • With SEC Chair Gary Gensler settling into year two of his five-year term, that shouldn’t be as much of an issue.
  • Even if the agenda seems straightforward, there could still be hidden implications, Cathy Yoon, chief legal officer at MPCH, told Protocol.
  • Yoon pointed to the example of a proposed amendment on alternative trading systems: “There was no mention of cryptocurrency — but if you took a closer look and if you saw Commissioner [Hester] Peirce’s dissent to such a proposed amendment, she pretty much highlighted that it really implicated decentralized platforms.”

Gensler has been transparent about his priorities, which include increasing disclosure standards for SPACs, limiting or even eliminating payment for order flow by creating a stock trade auction market, upping regulatory enforcement for crypto and mandating public company climate risk disclosures.

  • “As much as the industry has angst when it comes to Chair Gensler, he’s been pretty transparent [about] what he wants to get done,” said Carbone, adding that the SEC is likely to first move on the climate disclosures issue.

Gensler is also better equipped to enact his agenda this year.

  • The end of partisan gridlock is in sight. Earlier this week, the Senate Banking Committee voted to advance two of Biden’s nominees for the Securities and Exchange Commission, a critical step in breaking the two-two split between the agency’s Democratic and Republican commissioners.
  • A bigger budget could help an overloaded, understaffed SEC. The SEC has seen headcount shrink since 2016. At the same time, the number of registered entities it oversees grew by 12%, and the amount of processed data increased by 20% annually in both 2020 and 2021. In May, Gensler appeared before the Financial Services subcommittee, requesting the approval of $2.1 billion in funding for the agency, which would allow headcount to increase by around 6%.

But the SEC’s “regulation-by-enforcement” approach irritates the industry — and that might not change. Both Carbone and Yoon expressed frustration with the SEC’s approach of leading with enforcement.

  • That happens when the agency signals acceptable industry behavior by taking action against specific companies, rather than establishing universal rules for everyone to follow. Carbone pointed to the overall lack of resources at the SEC, coupled with the fact that “a lot of the resources right now have gone towards enforcement actions, instead of guidance.”
  • Gensler has defended the agency’s approach to enforcement, saying investors expect the SEC to protect them. “We're gonna have a spill on Aisle 3,” Gensler said in December at an event where he chatted with predecessor Jay Clayton, who also launched some notable enforcement actions during his tenure. “And the public's gonna say: 'Where was the official sector?'”
  • Yoon attributes some of the emphasis on enforcement to the difficulties involved in rulemaking. “I don't think the SEC wants to put itself out there and come up with rules and regulations in case they get it wrong,” she said.

— Hirsh Chitkara (email | twitter)

In Washington

CFTC head Rostin Behnam insisted the agency wouldn’t go easy on crypto, pushing back on the popular narrative that the industry would be happier under his agency’s oversight than it would be under Gary Gensler’s SEC. Sen. Kirsten Gillibrand, who helped draft legislation that would give the CFTC a leading role in regulating crypto, said at the same event that she hopes the bill will move forward “maybe even by the end of the year.”

The SEC is reportedly investigating Terraform Labs over whether the marketing of the TerraUSD stablecoin — an algorithmic stablecoin that turned out to be not very stable at all — violated investor protection regulations.

The Biden administration proposed a set of national EV charging standards. States can make use of the standards as they build EV stations with the help of $7.5 billion from the bipartisan infrastructure law.

Big Tech and its allies have so far spent more than $36 million trying to stop the Senate’s antitrust push aimed at companies such as Google and Amazon, according to a Wall Street Journal analysis.

The U.S. Chamber of Commerce is trying to stop the privacy proposal that three of the four main congressional negotiators worked out. The lobbying group has spent years pushing for a data-protection bill that overrules state statutes and ensures consumers can’t sue companies, and the draft makes compromises on both.

Bill Gates and Tim Cook both strolled through the Senate basement on Thursday, according to a POLITICO reporter. Cook, at least, took a series of meetings on the tech antitrust push, POLITICO said.

The National Highway Traffic Safety Administration upgraded its probe into Tesla’s Autopilot systems to an engineering analysis, which clears the way for the agency to issue a recall if it deems that necessary.

In the states

New York’s Department of Financial Services cracked down on stablecoins that aren’t actually backed by assets. The agency said crypto entities must fully back stablecoins with assets in their reserves, such that any holders can redeem their holdings within two business days. That ruling takes aim at products such as TerraUSD.

Sec. 230 may not protect Meta as it faces down eight lawsuits filed in as many states this week over the effects of its algorithm on mental health. Courts are increasingly willing to entertain the notion that platforms may be liable for their own design decisions, although that may not extend to decisions around the ordering and recommending of user content.

California is working on a bill, AB 2269, that would subject crypto projects to more intense licensing standards. Protocol spoke to Suzanne Martindale, head of California’s Division of Consumer Financial Protection, to learn more. Martindale said: “We know we need to act, but we want to do it right.” There’s a sense of urgency behind the bill since some people are “outright just getting scammed,” she added.


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On Protocol

FTC Chair Lina Khan told Protocol she wants the agency to do more to protect digital privacy, even as Congress debates new legislation. She also said her interest in the effect of M&A on labor has zoomed in on wages and schedules. And she made clear that video games, AR and VR are “top of mind” during a period of rapid consolidation and open questions about risks to users.

Salesforce CEOs Bret Taylor and Marc Benioff told employees that the company won’t cut ties with the National Rifle Association at an all-hands meeting Wednesday. Thousands of Salesforce employees had previously signed a letter asking for the company to do so in the wake of the mass shooting in Uvalde, Texas.

Might a “supergroup,” like existing social media initiatives to combat child sexual abuse material and terrorist content, help tackle climate change disinformation?

Around the world

The U.K.’s competition enforcers are considering an investigation into how Apple and Google allegedly control the market for mobile browsers. The Competition and Markets Authority is also planning a look at Apple’s position in cloud gaming, and formally opening a probe into Google’s in-app payments.

In data

$13 million: That’s how much money online mental health startup Cerebral spent on TikTok advertisements between January and May, according to a Wall Street Journal investigation. After the federal government loosened restrictions on selling Schedule II drugs online during the pandemic, Cerebral began aggressively marketing ADHD medication, which fueled tremendous growth. The company is now being heavily scrutinized for its practices and received a federal subpoena for potentially violating the Controlled Substance Act.

Logo no-go

Mark Zuckerberg recently posted a picture of himself working at his laptop, surrounded by McDonald’s bags. He was touting Meta’s new partnership with the fast food giant, but his people apparently wanted to avoid boosting a different company they’ve been fighting with for years: Someone seems to have altered the photo to remove the Apple logo from the back of Zuck’s computer.


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Thanks for reading — see you Monday!

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