SEC Rulemaking – Are Costs Effecting Progression?

On April 17, 2012, in testimony before the House Oversight and Government Reform subcommittee, Mary Schapiro advised  the SEC to consider rules issued by congressional mandates, as well as rules the SEC develops through its own authority.  Schapiro acknowledged the rulemaking burden placed on the agency by the passage of the Dodd-Frank Act and their efforts to continually enhance their economic analysis efforts.

The SEC’s change to focus on cost comes in response to an SEC Office of Inspector General (OIG) report issued by the Office of Audits in January 2012 (the “Report”). In the Report the OIG highlights that while the SEC “is not subject to an express statutory requirement to conduct cost-benefit analyses for its rulemakings, it is subject to statutory requirements to consider factors such as the effects on competition and the needs of small entities.”[1] The Report provided general suggestions that the SEC and the SEC’s Office of General Counsel should consider, among others:

  • Ways for economists to provide additional cost-benefit analyses;
  • The use of a single baseline in the cost-benefit analyses, by the SEC rulemaking teams,  which should also be specified at the beginning of the cost-benefit section;
  • Providing a more integrated discussion between cost-benefit analysis and efficiency, competition, and capital formation in rule releases rather than having separate sections;
  • Providing an explanation of the reason behind a proposal; and
  • Including internal costs and benefits in the cost benefit analyses of rulemakings.

Currently, the pace of rulemaking has slowed. For now, several rules are in limbo, such as the Volcker rule, which bans banks from engaging in proprietary trading that is not at the behest of their clients.[2] Coupled with the fact that this is an election year, the rulemaking process will likely continue to be delayed in the near future. Positively, now proposed rules, due to the anticipated economic impact to companies, have another layer of analysis to pass through before enactment. The outcome should be a more efficient rule that addresses the purpose the SEC intended without an overly excessive cost to achieve compliance.

For additional information regarding the OIG report, Ms. Schapiro’s testimony or any other topic, please contact andrew.deddeh@corecls.com or by phone at (619) 278-0020.