March 2, 2024

Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC), speaks during a Senate Banking Committee hearing in Washington, DC, the United States, on Tuesday, July 30, 2013.

Andrew Harrer | Bloomberg | Getty Images

Audit negotiations on President Joe Biden’s decision to lead the Securities and Exchange Commission and the Consumer Financial Protection Bureau – Gary Gensler and Rohit Chopra, respectively – are due to begin Tuesday.

They will be the first Biden financial regulators to be in the spotlight in the Senate. According to analysts, the nominees pose a risk to certain areas of the financial sector.

The two “are likely to steer both agencies in a new direction that will impact capital markets,” said Brian Gardner, Stifel’s chief policy strategist in Washington. The SEC and CFPB hold the keys to financial issues such as new cryptocurrency regulations and SPV consumer loans.

Student lenders and servicers, Sallie Mae, Navient, and NelNet, will likely be scrutinized under the Biden administration, as will fintech companies like LendingClub and Funding Circle.

Gensler has a background as a reformer after overseeing the unbundling of the derivatives market following the 2008 financial crisis as head of the Commodity Futures Trading Commission. Gensler will certainly be asked about the recent volatility towards GameStop and the regulation of cryptocurrencies.

Gensler joined the faculty at MIT Sloan in 2018. A November working paper co-authored by Gensler warns that certain types of artificial intelligence “can lead to financial system fragility and macroeconomic risks”.

The paper also advocates new regulation: “Regulators may want to explore more technical risk management methods, such as stress testing for adversarial models or outcome-based metrics that focus less on how the model gets to its prediction, rather than once provided on the model behavior. “

After meeting with Gensler last week, Sherrod Brown, chairman of the Senate Banking Committee, D-Ohio, put climate change on the agenda. In a post-meeting reading, the Liberal Senator said, “The SEC’s next chairman must focus on enforcing and improving accountability and transparency, including by improving corporate climate risk disclosure.”

The von Biden government has made the fight against climate change a top priority. Gensler will be responsible for the agency, whose job it is to require companies to disclose risks related to environmental, social and governance issues.

Rohit Chopra testifies during a confirmation hearing by the Senate Committee on Commerce, Science and Transport on February 14, 2018.

Tom Williams | CQ Appeal, Inc. | Getty Images

Chopra’s job will be to bring teeth to the Bureau of Consumer Financial Protection, which was amalgamated under the administration of President Donald Trump. Under Trump, there have been fewer enforcement actions and fines imposed on companies. At one point, the Trump White House attempted to change the agency’s name from CFPB to BCFP, but it didn’t work out.

As a commissioner with the Federal Trade Commission, Chopra gained a reputation as a strict regulator who turned away from the majority in high-profile cases like Zoom and Facebook.

In a dissenting statement on the FTC’s $ 5 billion deal with Facebook in 2019, sparked by the Cambridge Analytica scandal in 2018, Chopra wrote: “I think it’s appropriate to attribute officers and directors personally incriminate if there is reason to believe that they have usefully engaged in unlawful conduct or negligently kept an eye on their subordinates who are doing the same. “

Chopra also criticized student lenders for predatory lending practices. Biden has pledged to crack down on abusive practices on Wall Street and provide relief to student borrowers.

The CFPB’s mission is to eradicate dangerous, misleading and unfair financial practices, educate consumers and enforce the law against the predatory companies.

Democrats are also interested in the agency strengthening its commitment to racial justice through the enforcement of anti-discrimination laws, including the Fair Housing Act and Equal Opportunities Act.

Chopra has also urged the government to tackle abusive collection and lending practices. He worked closely with Senator Elizabeth Warren, D-Mass., To establish the CFPB after the 2008 crisis and served as Assistant Secretary and Student Loans Ombudsman.

Critics are concerned that the Biden candidate will take an arbitrary approach to enforcement and fail to treat companies fairly in the regulatory process.

“Rohit Chopra’s drive with the FTC to extend penalties against for-profit schools, franchises, Facebook and gig economy companies was the wrong move,” said Devin Watkins, attorney for the Competitive Enterprise Institute.