Carta Policy: Weekly Brief for May 27

Carta Policy: Weekly Brief for May 27

Author: The Carta Policy Team
Read time:  7 minutes
Published date:  May 26, 2022
Gensler signals enforcement against unregistered crypto platforms. Plus, Congress considers nominees for the SEC & Federal Reserve.


  • SEC proposes ESG disclosure framework for funds and investment advisers

  • Carta’s State of Private Markets Report, a quarterly data analysis, shows dropoff in venture deals

  • Fed weighing central bank digital currency under Congressional pressure to not move forward without its support

  • Roundtable discusses future of market regulation while considering crypto exchange FTX’s proposal on margin trading for digital assets in 24/7 environment

Macro matters

Congressional agenda

Congress is in recess next week, but policymakers continue to work on the Bipartisan Innovation Act (legislation to invest in U.S. competitiveness), a slimmed-down version of Build Back Better, and SECURE 2.0, a bipartisan retirement security bill. The tragic events in Texas may push policymakers to explore gun control measures, though it’s too early to gauge the prospects of such a measure. 

Carta’s private markets report shows dropoff in venture deals

Venture capital deals dropped by 38% and cash raised decreased by 46% in the first quarter of 2022, according to Carta’s State of Private Markets Report. The report also covers employment trends noting  that involuntary departures spiked from 20% in February to 34% in March. The data also suggests that the rise in M&A may continue in Q2. Read more about which industries, stages, and geographic regions were hit the hardest and what can be expected later this year here.

Capital markets

SEC proposes ESG disclosures to target “greenwashing” for funds and advisers

The SEC approved an ESG disclosure proposal along party lines. It would standardize disclosures for investment funds and advisers that include ESG (environmental, social, and governance) factors in their investment strategies. The proposed rule would apply to registered investment companies, business development companies, and investment advisers—including private fund advisers. The proposal outlines three categories of ESG fund strategies, with corresponding disclosure frameworks:

  • “Integration” funds, which consider one or more ESG factors alongside non-ESG factors, would be required to describe how they incorporate ESG into the investment process.

  • “ESG-focused” funds, where one or more ESG factors are a significant or main consideration in selecting investments or engaging with portfolio companies, would need  to provide detailed disclosure, including a standardized ESG strategy table. 

  • “ESG-impact” funds, which seek to achieve a specific ESG impact, would have to disclose how they measure progress toward that goal. 

ESG-focused funds that consider environmental factors in their investment strategies would have to disclose additional information about greenhouse gas (GHG) emissions associated with the companies or issuers in their portfolios, which could include private funds and private companies. To help provide more comparability across advisers, the proposal would also require private fund advisers to report information publicly to the Commission (on Form ADV) about the specific factors they consider in their advisory business, the types of ESG strategies they employ, and potential conflicts of interest.

SEC expands Fund Names rule to include ESG

The Commission also proposed to update the Fund Names rule, which requires funds whose names suggest a focus in a particular type of investment to invest 80% of their assets in investments suggested by that name. The proposal would expand this requirement to apply to ESG factors. A fund that considers ESG factors alongside but not more centrally than non-ESG factors in its investment decisions would not be permitted to use “ESG” (or similar terminology) in its name.

Asset manager fined by SEC for misrepresenting ESG investment strategy

The SEC fined BNY Mellon $1.5 million for misstatements and omissions about ESG for certain mutual funds it managed. The order found that BNY Mellon represented or implied that all fund investments had been subject to an ESG quality review, though numerous investments didn’t have a quality review score as of the time of investment. The agency’s examination priorities signaled a focus on ESG-related advisory services and investment products, and this action is a result. It is also evidence that the SEC doesn’t need new authority to pursue these actions. We can expect more investigations and enforcement activity in this space even as rulemakings are pending.

Crypto & digital assets

Brainard sees CBDC and stablecoins coexisting

Federal Reserve Vice Chair Lael Brainard testified before Congress on the development of a central bank digital currency (CBDC), a digital version of the U.S. dollar. Policymakers pressed the Fed not to move forward unilaterally. While the Fed has said that it has no intentions of issuing a CBDC without clear support from Congress, President Biden’s March executive order tasked the Attorney General and Treasury Secretary to determine what legislation, if any, would be necessary. Brainard testified that the Fed is weighing the pros and cons of issuing a digital dollar, emphasizing that it could keep the U.S. competitive with other countries, like China, that are considering (or have already launched) digital currencies. Republicans and other skeptics continue to push on what problem a CBDC would solve and whether it could undermine private market innovation around digital currencies.

CFTC roundtable on crypto derivatives

The Commodity Futures Trading Commission (CFTC) hosted a roundtable with crypto executives and representatives from commodity trading platforms. They discussed the future role that brokerages and digital asset exchanges will play in financial derivatives markets. Much of the conversation focused on crypto exchange FTX’s application to modify its derivatives clearing license. This would enable it to clear margined products for retail participants using a non-intermediated model—meaning that customer funds wouldn’t be held by an intermediary. FTX also proposes operating on a 24/7 model supported by an automated liquidation process when a position falls below a margin threshold. Roundtable participants raised concerns that automated liquidation—at any time, day or night—could trigger sudden losses, especially for retail investors, and have contagion effects beyond a specific position. Panelists also contemplated whether such an operational platform would be extended to more traditional commodities, such as wheat or soybeans. FTX’s CEO said he had no plans to extend beyond digital assets, but under the CFTC regime, an exchange can often self-certify to offer new types of products. 

Crypto gathers in DC for a blockchain summit

The Chamber of Digital Commerce convened its Blockchain Summit, where policymakers and stakeholders discussed the future of regulation. The unifying theme was displeasure with the SEC’s approach of regulating through enforcement rather than proactively drafting modernized rules on cryptocurrency. The industry also noted that if the U.S. doesn’t cultivate blockchain technologies, it may drive business to other jurisdictions. This comes as Senators Cynthia Lummis and Kirsten Gillibrand prepare to unveil a bipartisan proposal to regulate digital assets, which is expected to split the oversight duties between the CFTC and the SEC, in addition to setting out some key points of framework to increase the stability of digital assets. This legislation will not be signed into law, but likely set a foundation for the next Congress. 


Retirement bill negotiations hit a snag on refundable saver’s credit and a small business mandate

As Senate Finance Committee members continue negotiations on the large SECURE 2.0 retirement bill, two controversial provisions are at the center of discussion: a refundable saver’s credit and a mandatory auto-enrollment proposal. The saver’s credit, an incentive targeted at low-income workers, is being pulled between raising the income threshold for eligibility and making the credit refundable. The other unresolved proposal is a requirement for businesses with 10 or more employees to offer a workplace retirement plan—with mandatory auto-enrollment. Republicans oppose this small business mandate and believe it could be replaced with provisions that make it easier for small companies to offer retirement plans without a mandate. Despite these two sticking points, Finance Committee ranking memberMike Crapo expects the committee to pass the legislation in June, with Congress likely passing the bill at the end of the year. A separate Senate committee plans to consider bipartisan legislation that would expand access to employer-provided plans and boost employee ownership; the bipartisan Senate sponsors will likely try to combine this bill with SECURE 2.0. 

Inflation reaches fastest pace in four decades, boosting federal tax revenues

A Congressional Budget Office (CBO) report shows that federal tax revenues this year are expected to increase by $800 billion, a 19% increase and the highest in over 40 years. The growth in revenue is due to the rapid rate of inflation combined with the nation’s pandemic recovery. The tax code is only partially indexed for inflation, which means that certain incentives offered to reduce taxes aren’t adjusted for the recent rapid rate of inflation. Therefore, the combination of inflation and rising wages is expected to drive a 28% increase in tax revenue. The report also predicts an expected revenue increase from capital gains of 11.5% and a corporate tax revenue increase of 6%.

Banking & financial products

CFPB launches competition office

The Consumer Financial Protection Bureau revamped and relaunched the Office of Competition and Innovation, which will be tasked with supporting competition and new market entrants. The new office will convene events to examine barriers to entry and other obstacles in the markets, research advantages available to large companies, and identify ways to foster competition. The CFPB reiterated calls for stakeholders to file rulemaking petitions on any rules that would benefit from more regulatory clarity.

Antitrust, Privacy, and Technology

Federal privacy legislation

Senate Commerce Chair Maria Cantwell recently said that she’s willing to support federal preemption in a federal privacy bill, which would create a federal standard rather than rely on the patchwork of state laws. The remaining sticking point is  around some form of a private right of action. Cantwell feels strongly that consumers need a private action if there is “substantial harm” and discussions on this point are ongoing. On timing, Cantwell said she’s hopeful that the committee will mark up the backlog of tech bills sometime in June, though this may slip.

Notable SEC proposed rules and comment deadlines

SPAC reform


*Re-opened comment period

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The Carta Policy Team
Carta’s Policy Team aims to connect the policymaking community and venture ecosystem to build an ownership economy and advance policies that support private companies, their employees, and their investors.