The SEC staff has made public a potentially significant March 2012 memorandum providing internal guidance to SEC rule-writers about the economic analysis required in SEC rulemakings.
The requirements and standards for economic analysis have increasingly impacted the rulemaking process. For example, the SEC’s very prominent recent failure to propose additional money-market fund reforms resulted in part from two commissioners’ stated view that further risk-benefit study was necessary. Also, the SEC has deferred any action on the much-debated question whether to “harmonize” the legal duties of broker-dealers with those of investment advisers, pending an ongoing staff study of the type contemplated by the internal memorandum.
On its face, the 17-page memorandum defines “good economic analysis” as a process that: (1) clearly identifies the justification for the proposed rule; (2) defines the baseline against which to measure the proposed rule’s economic impact; (3) identifies and discusses reasonable alternatives to the proposed rule; and (4) analyzes the economic consequences of the proposed rule and the principal regulatory alternatives—including quantification of costs, benefits, and attending uncertainties.
The memo in part responds to criticism leveled at the SEC’s rulemaking proposals by recent court decisions, reports of the U.S. Government Accountability Office, the SEC’s Office of Inspector General, and Congressional inquiries. Indeed, the memo acknowledges that “[m]uch of the guidance” and “practices” “have already been incorporated into our rulemaking.”
Nevertheless, individual SEC commissioners can be expected to continue to dissent, at least in part, from rule proposals that are on the SEC’s agenda. Based on past experience, the Chamber of Commerce, Business Roundtable and other industry groups will also likely challenge some of the SEC’s economic analyses in court. Although the memo aims to better position the SEC in the face of such challenges, its actual impact will equire some time to assess.