With its passage of the SEC Regulatory Accountability Act last week, the U.S. House of Representatives has taken action to place additional constraints on future rulemaking by the Securities and Exchange Commission; however, many of the requirements of the legislation appear duplicative of pre-existing requirements to assess costs and benefits of proposed regulation.
The House’s Regulatory Accountability Act is expressly aimed at “ensuring that the benefits of proposed SEC regulations justify the potential impact on jobs, economic growth, and capital formation.”
In particular, under the House’s new legislation, the SEC will be required to:
- identify the nature and source of the problem its proposed regulation is meant to address;
- utilize the SEC’s Chief Economist to assess the costs and benefits of a proposed regulation to ensure the benefits justify the costs;
- identify and assess available alternatives;
- ensure that any regulations are consistent and written in plain language, and
- conduct a comprehensive review of its regulation every five year assessing the impact of major rules.
Drafters of the proposed rulemaking are already tasked with complying with numerous pre-existing requirements (typically found in the “back end” of proposed rulemaking) which appear to substantially overlap with the Regulatory Accountability Act, such as the following:
- the Regulatory Flexibility Act, which requires discussion of:
- Reasons for, and Objectives of, the Proposed Action
- Legal Basis
- Small Entities Subject to the Proposed Rules
- Projected Reporting, Recordkeeping and Other Compliance Requirements
- Duplicative, Overlapping or Conflicting Federal Rules and
- Significant Alternatives
- the Small Business Regulatory Enforcement Fairness Act of 1996, which requires information as to how a “major” rule could impact:
- the broader economy;
- individual consumers and industries and
- competition, investment or innovation, and
- the Paperwork Reduction Act of 1995, which focuses on burdens associated with information collection.
In addition, the SEC’s Division of Economic and Risk Analysis (DERA), created in 2009 with the goal, in part, to integrate financial economics and rigorous data analytics into rulemaking, collaborates on a cost/benefit analysis of each proposed rulemaking. See here for the SEC’s current guidance on the inclusion of economic analysis in rulemaking efforts. This cost/benefit analysis is then evaluated and signed-off on by the SEC’s Chief Economist. Since it is already part of the SEC’s pre-existing rulemaking protocol, the Regulatory Accountability Act’s required reliance on the SEC’s Chief Economist to assess such costs and benefits of proposed regulation would seem to be unnecessary.
In light of the redundancies highlighted above, the House’s new legislation appears intended to serve as another obstacle to the SEC’s rulemaking agenda; further limiting the Commission’s ability to independently develop and implement rules and regulation absent a specific mandate from Congress.