SEC Commissioner takes aim at SEC’s (lack of) engagement

SEC Commissioner takes aim at SEC’s (lack of) engagement

Author: The Carta Policy Team
Read time:  8 minutes
Published date:  5 April 2024
With the tax bill stalled on the Hill, the outlook for a restored R&D expense provision looks bleak.


  • Fate of R&D tax bill looks bleak

  • Commissioner Peirce calls out declining SEC culture

  • California Board waffles on climate disclosures; SEC rules continue to draw heat

  • How the Corporate Transparency Act impacts private funds

  • Progress on AI spans all levels of government

Fate of R&D tax bill looks bleak

Continued tax negotiations over the congressional recess failed to yield any progress. Senate Republicans are entrenched against moving the current bill, with no clear path to compromise. Majority Leader Chuck Schumer has started the procedural process necessary to bring the bill to the floor before, but the earliest that will  happen—if it ever does—is the week of April 15, though it is unlikely to garner necessary Republican support to get the 60 votes needed to pass. Furthermore, the tax bill remains up against an ever-growing list of Senate priorities (confirming judges, cannabis banking, the farm bill, TikTok, and the impeachment trial of the secretary of Homeland Security) that will eat away at members’ attention and floor time.

What’s next: Given the uphill battle, engagement remains key. Carta and others in the innovation community continue to push for the R&D expense provision included in the tax package; the provision has remained bipartisan even as other aspects of the deal became divisive. We have contacted a large swath of Senate offices to emphasize the importance of the R&D provision and push passage of the bill.  Join the effort by contacting your U.S. senators to let them know that R&D matters to the innovation community. 

Download the email template here.

Commissioner Peirce calls out declining SEC culture

This week, SEC Commissioner Hester Peirce provided a stark view into the shift in SEC culture, which has led to the “dwindling of genuine Commission and staff engagement with the public.” While the SEC staff has traditionally engaged with industry on complex regulatory issues, Peirce contends the agency is now “closed for business.” This is the result of a number of factors, including a lack of bandwidth due to a “punishing” rulemaking agenda, lack of collaboration in a remote working environment, and direction from the top. In Peirce’s view, the limited engagements that do occur often result in unproductive discussion, inconsistent feedback, and lack of transparency, while others avoid SEC engagement given the enforcement-heavy posture to regulation. 

While Peirce’s comments painted a bleak picture, she offered suggestions for process improvements, including the creation of an advisory committee of compliance officers, more transparency around the registration or application process, and the use of more roundtables and concept releases to identify problems and solutions that will lead to more “realistic rules without clickbait provisions.” Peirce also offered tips for the industry to constructively engage with staff. 

Why it matters: Peirce’s harsh critique echoes criticisms from Republicans (and a growing number of Democrats) of how the agency has operated under Chair Gary Gensler. House Republicans have been focused on SEC oversight and reforms, and these efforts will only intensify. Regardless of the outcomes in the upcoming elections, rebuilding industry engagement with the SEC will be critical to shape an effective and efficient capital market regulatory framework.  

California Board waffles on climate disclosures; SEC rules continue to draw heat

California promulgated a climate rule that requires companies to disclose their emissions footprint, including Scope 3 emissions, which will require companies to report supply-chain and end-user emissions. This could have indirect impacts on private companies in the supply chain by forcing them to account for and provide emissions reporting to inform reporting company disclosures. But documents percolating this week revealed that the California Air Resources Board (CARB) recommended removing Scope 3 requirements from the state’s now-enacted climate disclosure framework. CARB’s recommendation adds another thread to the ongoing legal challenges at both a state and federal level to that prong of the rule and could hamper future efforts to expand climate reporting mandates. The California rules are more extensive than the rule finalized by the SEC that nixed Scope 3 disclosures.

What next: Legal challenges on California’s proposal and the SEC’s will determine the final outcome of these rules. CARB’s recommendation may help push for constraining the final rule. And at the federal level, the SEC voluntarily paused implementation of its climate rule to avoid potential regulatory uncertainty and facilitate orderly judicial review, though the agency remains committed to vigorously defending the rules. Congressional scrutiny also continues to increase, including a full committee hearing next week and expected action in the House to roll back the SEC rules through the Congressional Review Act. While there is no path to enactment, Republicans are aiming to bolster the challenge that the SEC lacked authority to promulgate the rules.        

Starting January 1, 2024, business entities operating in the United States are subject to new beneficial ownership information reporting requirements unless they qualify for an exemption. The CTA applies to all entities in a typical private fund structure—the management company, adviser or sponsor, investment funds, SPVs—unless an exemption applies.

Generally speaking, many private funds and private fund advisers will be covered by the CTA’s SEC-registered investment adviser, venture capital fund adviser, or pooled investment vehicle exemptions. But certain entities within a fund’s organizational structure—as well as certain emerging fund managers—are not presumptively exempt, including: private fund exempt reporting advisers (AUM < $150M), small venture capital fund advisers (AUM < $25M), state-registered investment advisers, and SPVs and below-the-fund holding vehicles, as well as upper-tier entities like holding companies.

Read this new blog from the Carta policy team to learn more about the impact of CTA on private funds.

Read more: How the Corporate Transparency Act impacts private funds

AI roundup: progress on AI spans all levels of government

While Congress was in recess this week, fragmented progress on trying to tackle the complexities of AI policy continued. 

  • Global cooperation: The United States and United Kingdom signed an agreement that they will work together to develop tests for the most advanced AI models used in both countries. The agreement requires sharing vital information about the capabilities and risks associated with AI models and systems. Notably, this agreement follows the EU passing the world’s first major law to regulate AI last month.

  • Federal agencies: The U.S. Department of Treasury released a report on managing AI-specific cybersecurity risks in the financial sector. The report identifies opportunities and challenges that AI presents to the security and resiliency of the financial services sector and outlines next steps to address immediate AI-related operational risk, cybersecurity, and fraud challenges. The report highlights the importance of addressing the growing AI capability gap and advocates for increased regulatory coordination and the need for a common AI lexicon. This report was mandated by the Biden administration executive order last October.

  • States wade into AI: The California Senate Judiciary Committee passed a legislation to rein in risks associated with AI. The proposal, SB 1047, would require the biggest AI models to undergo risk assessments and set up guardrails against potential misuse. The legislation would also create a state-funded research center to develop and deploy responsible models. Sen. Scott Weiner noted that the bill would “not apply to startups developing less potent models.” It passed out of committee with a vote of 9-0.

Why it matters: Similar to privacy legislation, we will likely see the AI regulatory landscape be composed of fragmented pieces of policy coming from different levels of government. While California is pushing forward on AI policy, states such as Virginia and Colorado have also established sophisticated AI regulatory regimes, and more states are beginning to propose and implement laws as well. While states have made headway on their AI legislative agenda, progress has been slow at the federal level where policymakers have expressed skepticism on legislation being passed anytime soon.

News to know

  • FDIC probes asset managers’ banking stakes. An order being drafted by FDIC Board Member Jonathan McKernan would require the agency to routinely examine large asset managers that hold a stake of more than 10% in FDIC-regulated banks. Firms can hold stakes above this threshold only if they remain passive and do not influence the bank’s activities. McKernan plans to bring the proposal up at the Board’s April meeting.

  • Markey proposal scrutinizes PE in health care.Sen. Ed Markey released a discussion draft of the Health over Wealth Act, which would impose new reporting requirements on health care entities owned by private equity firms. It would also establish a task force focused on PE in health care and empower the Department of Health and Human Services to block PE from purchasing voting securities in health care entities. 

  • SEC approves rules governing online investment advisors. Under the modified internet adviser exemption, covered entities must constantly maintain an operational interactive website and  provide advice to all clients exclusively through the site. This eliminates the previous de minimis exception for non-internet clients.

  • SBF sentenced for crypto crimes. FTX founder Sam Bankman-Fried will serve 25 years and forfeit roughly $11 billion in assets after being convicted of fraud, conspiracy, and money laundering. The sentencing concludes a lengthy saga that rattled the crypto industry and accelerated scrutiny into the sector.

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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.