SEC’s Gensler Sees Need for Investor Protections in SPACs

Digital currency is not the only issue on Gary Gensler’s plate.

The U.S. Securities and Exchange Commission (SEC) Chairman has raised concerns about protecting investors of special purpose acquisition companies (SPACs), BusinessInsurance reported.

Also called a “blank check company,” a SPAC is a shell corporation listed on a stock exchange to acquire a private company, making it public without going through the traditional initial public offering (IPO) process.

While the SEC has undertaken just two SPAC enforcement actions, Gensler has expressed apprehension over investor protections. As a result, liability insurance insurers and policyholders are waiting to see what the agency will do.

Last spring, the SEC issued a guidance saying SPAC warrants should be classified as liabilities, instead of equity instruments. It led to a dramatic drop in the number of SPACs.

“They haven’t intervened in any material way,” James Rizzo, New York-based Beazley PLC, an underwriter for executive risk, told the news outlet.

He described the two enforcement events as outliers.

Kevin LaCroix, executive vice president of RT ProExec, the Ohio-based wholesale distributor of specialty insurance products and services, said the SEC has been a wild card. If it becomes more aggressive in this area, as Gensler has signaled it intends, it could impact underwriters’ willingness to participate in the market, he added.

Leo Daley, vice president for Allied World Assurance Company Holdings Ltd. in Boston, said the SEC’s position on SPACs is likely to result in more stringent rules and guidelines.

Last summer, the Financial Conduct Authority, the U.K.’s  financial regulatory body, implemented new rules that lowered the minimum amount a SPAC would need to raise at initial listing to 100 million pounds ($136 million), down from 200 million pounds ($271) million.

Learn more: UK Strengthens SPAC Investor Protections

“The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of our markets,” according to the FCA announcement.