Gary Gensler’s Bad Performance Review

The number of rule-makings on the SEC agenda increased by nearly two-thirds between spring 2017 and 2022. In the first eight months of 2022, the SEC proposed 26 new rules, twice as many as in 2020 and 2021. Unlike predecessor

Jay Clayton’s

rules that focused on investor protection, Mr. Gensler is sprinting to impose new burdens on business in line with the progressive desire to achieve via regulation that Democrats can’t get through Congress. Investor protection is an afterthought.

“Some believed that the more aggressive agenda—particularly as it relates to high-profile rules that significantly impact external stakeholders—potentially (1) limits the time available for staff research and analysis, and (2) increases litigation risk,” the IG report says. Short timetables for soliciting public comment also make them more vulnerable to legal challenges.

Staff attrition rose to 6.4% in fiscal 2022 from 3.8% in 2020 and is the highest in a decade. Employers across the economy are struggling to hire and retain workers, but Mr. Gensler has rescinded the agency’s performance bonuses even as he has begged Congress to give him more money to increase hiring.

Also troubling, the SEC is hiring more temporary employees from other agencies who have “little or no experience in rulemaking,” the IG says. This could also make rules more legally vulnerable. Managers told the IG that the rule-making pace is taking staff from “mission-related work”—i.e., investor protection. The concern is that by assigning more employees to work on climate disclosure rules, fewer are available to catch the next

Bernie Madoff.

The IG also skewers the agency for failing to maintain a firewall between its agency enforcement arm, which brings legal actions, and its adjudication arm, which rules on the actions. The distinction is crucial to provide due process for defendants. The SEC “has not yet disclosed the full impact the internal control deficiency” has caused on cases, the IG writes. The agency would dun a public company guilty of a comparable lack of internal controls.

Democrats in Congress must be hearing from constituents about Mr. Gensler’s drive-by regulation. A dozen Democratic Senators sent a letter last month asking him to “provide a sufficient period for notice and comment” and “adequate time to evaluate each individual rule as well as how those rules interact with existing and other proposed rules.”

Mr. Gensler’s breakneck rule-making is no doubt intended to get ahead of GOP Congressional oversight in 2023, and especially from the risk of repeal under the Congressional Review Act if Republicans win the White House and Congress in 2024. But that’s no justification for slipshod management and rule-making that harms financial markets.