SEC Will Enforce Reg BI to the Letter: Gensler

Gensler noted that while there’s “no settled definition of gamification, … broadly, it refers to the use of game-like features — such as points, rewards, leaderboards, bonuses, and competitions — to increase customer engagement.”

He’s asked SEC staff “to prepare a request for public input for consideration” on these gamification issues.

“We need to ensure investors using apps with these types of features continue to be appropriately protected and consider how all of our rules apply in these situations, including Regulation Best Interest,” Gensler said.

Since “many of our regulations were largely written before these recent technologies and communication practices became prevalent,” Gensler continued, “I think we need to evaluate our rules, and we may find that we need to freshen up our rule set. If we don’t address this now, the investing public — those saving for their futures, retirements and education — may shoulder a burden later.”

Gensler also said that shortening the standard settlement cycle from the current T+2 “could reduce costs and risks in our markets,” and that he’s directed the SEC staff “to put together a draft proposal for the commission’s review on this topic.”

As to the failure in late March of the family office Archegos Capital Management “and the significant losses incurred by several global financial institutions that provided prime brokerage services to Archegos,” Gensler said he’s asked SEC staff to consider recommendations for the commission “about whether to include total return swaps and other security-based swaps under new disclosure requirements, and if so how.”

Said Gensler: “At the core of that story was Archegos’ use of total return swaps based on underlying stocks, and significant exposure that the prime brokers had to the family office. Under Dodd-Frank, Congress gave the SEC rulemaking authority to extend beneficial ownership reporting requirements to total return swaps and other security-based swaps.”

On Crypto Regulation

As to bringing clarity to cryptocurrency regulations, Gensler said that working with Congress, “it would be good to consider … whether to bring greater investor protection to the crypto exchanges. If that were to be the case, because right now the exchanges, trading in these crypto assets do not have a regulatory framework either at the SEC or our sister agency the Commodity Futures Trading Commission — that could instill greater confidence. Right now there’s not a market regulator around these crypto exchanges and thus there’s really not protection against fraud or manipulation.”