On March 25, Hester Peirce, the Republican commissioner of the U.S. Securities and Exchange Commission, spoke with Andrew Karolyi, the dean of S.C. Johnson College of Business, to exchange their opposing views about regulations on finance industries in the 36th annual Lewis H. Durland Memorial Lecture.
Appointed by former U.S. President Donald Trump in 2017, Peirce has been aggressively advocating for fewer financial regulations and fighting against SEC’s current chair Gary Gensler. Reading Peirce’s feature, Karolyi was motivated to invite her by her “uncompromising” attitude against disagreements, according to an email from S.C. Johnson College. The event changed from its traditional single-speaker lecture format into a two-person panel in accordance with the University’s Freedom of Expression theme year.
In her introduction of the speakers, President Martha Pollack explained that the lecture aimed to create a discourse between disagreements.
“We’re having a conversation between two experts who, as they share their expertise with us, will also engage with one another over points on which they disagree,” Pollack said. “I was just in the back with them, and I know there are points on which they disagree.”
Cryptocurrency, the first topic introduced, has sparked public concern about trade frauds since FTX’s $8 billion-loss bankruptcy in November 2022. There are no federal regulations exclusively for cryptocurrency, and few effective cryptocurrency regulations are in place. In January, the SEC unanimously approved the listing and trading of spot bitcoin exchange-traded products, which is seen as the SEC’s move to encourage investments in bitcoins.
Peirce voted in favor of the approval, which she sees as the SEC’s first step to regulating cryptocurrency, as managing crypto trades on exchanges is easier with their knowledge of regulating stock and other exchanges. She suggested that regulators and people in general should be cautious about the wide variety of crypto products.
“It’s difficult to talk about crypto in [a whole] bucket because it means a lot of different things to a lot of different people,” Peirce said. “My core message is when people are taking their money and buying anything with it, they need to ask some questions and be skeptical about the promises that are being made to them.”
Karolyi held a more optimistic view on crypto’s reliability, arguing that, based on his recent research results, cryptocurrencies generate safer returns and that loose regulations might be feasible. Still, Peirce refuted that regulations are necessary to guide the market amid uncertainties.
“Thinking of somewhere like the [European Union] and [Bermuda] that has a pretty comprehensive regulatory framework, do you think if we don’t do anything in the US, the market will figure out how to regulate itself when it comes to those changes?” Peirce questioned.
“I have less confidence,” Karolyi replied. “I feel like the U.S. should be at the forefront of defining [the gold standard of regulations]. The other research that I know suggests this.”
Both speakers ultimately agreed that the general public should receive more education about cryptocurrencies.
The second topic — environmental, social and government disclosure — is contextualized in the SEC’s recent adoption of rules requiring public companies to disclose their climate-related risks, such as greenhouse emissions and carbon offsets.
While regulators are embracing mandatory climate disclosure, the third-party environmental rating systems commonly adopted by regulators are very inconsistent, as Karolyi pointed out. His research showed that investors and companies are unsatisfied with the existing criteria and have been advocating to develop their own criteria, which Peirce also confirmed.
However, Peirce and Karolyi disagreed over whether companies should have more power in their climate disclosure instead of simply abiding by independent metrics. While Karolyi insisted that universal standards would be more effective, Peirce thinks companies should have more say in defining their own terms, given the unique difficulty of calculating climate data.
“But climate data is not very rigorous, and it’s actually much more difficult,” Pierce said. “Even around certain major accounting concepts, there are still disagreements on how to calculate those.”
To address the discussion, Karolyi admitted part of Peirce’s concerns about how the disclosure fails to prevent greenwashing.
“We’re not supposed to agree, and we don’t have to agree,” Karolyi said. “But I do appreciate the perspective you’re worrying that there are some [companies] that are in the checkbox mode.”
Peirce argued that the original goal of climate disclosure is to direct investment into good businesses. She worried that stakeholders with valuable ideas who don’t fit into the current ESG criteria could be easily ignored and lose the investment they should have.
“You’ll actually end up not knowing that there are some women sitting in a garage in the middle of a small village in India, who have this brilliant idea for solving a water crisis or something like that,” Peirce said. “She’s not going to get the money, because she didn’t fit into that taxonomy.”
The last topic of the talk focused on the role of financial regulations and introduced the SEC’s Public Company Accounting Oversight Board, which serves as the independent auditor entity to supervise auditing firms to avoid fraud.
Karolyi was surprised at the fast-growing PCAOB budget — estimated to increase from $300 million in 2023 to $385 million this year — and questioned Peirce if the funding was worth it. Peirce replied that, after 20 years of supervision, the board still reported flaws in 40 percent of the audits they reviewed in 2022. She thinks PCAOB needs to develop a detailed understanding of the problems auditing firms face.
“The question that I’m asking is, why are we in the place we are?” Peirce said in a Q&A session following the debate. “I think part of it is that we do have to go and look at what actual findings are there, because one departure from audit standards is not equivalent to another, and one might be much worse than the other. ”
At the end of the discussion, Karolyi and Peirce both expressed their appreciation for how the talk built conversations across different stakeholders.
“It is always encouraging to see people [in academia] provide us [with their work],” Peirce said. “The work they’re doing is informing the work that I’m doing.”
Karolyi said the event was organized to show students how to listen to perspectives they do not agree with.
“As many students may not expect, our colleagues, the faculty members, also disagree with each other,” Karolyi said. “I hope I can present the [panel] to our students.”