Wednesday, June 29, 2011

House Legislation Would Codify and Apply to SEC Presidential Executive Order on Agency Rulemaking

Legislation introduced in the House would codify and apply to the SEC the Executive Order on agency rulemaking issued recently by President Obama. Sponsored by Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets, H.R. 2308, the SEC Regulatory Accountability Act, with 15 original cosponsors, would require the SEC to abide by President Obama’s executive order that government agencies conduct robust cost-benefit analysis to ensure that the benefits of any rulemaking outweigh the costs, and that both new and existing regulations are accessible, consistent, written in plain language, and easy to understand.

As an independent agency, the SEC is not currently required to follow the Executive Order. While SEC Chairman Mary Schapiro has indicated that she intends for the SEC to abide by the order, noted Chairman Garrett, the legislation would codify that Executive Order and require her and future SEC Chairs to abide by it.

Specifically, the SEC Regulatory Accountability Act requires the SEC to clearly identify the nature of the problem that a proposed regulation is designed to address, as well as assess the significance of that problem, before issuing a new rule. Additionally, the bill requires the SEC to utilize the Office of the Chief Economist to conduct the cost-benefit analysis of potential rules to ensure that the regulatory consequences on economic growth and job-creation are properly accounted for.

Chairman Garrett said that, in the wake of the financial crisis, Congress reexamined how Wall Street operates and is regulated, which resulted in the unprecedented Dodd-Frank Act and its 300 new rules. While certain regulation is necessary, he conceded, it is… important to ensure that the cumulative amount of this rulemaking does not turn into a massive and unnecessary drag on economic growth.

The legislation would require the SEC to abide by President Obama’s executive order that government agencies conduct a thorough analysis of the economic effects of both new and existing regulations to avoid creating unnecessary, burdensome rules that affect economic growth and job-creation. It is based on the principle that sound data and economic analysis should underpin regulations. The legislation requires that the SEC utilize the Office of the Chief Economist to identify the nature and significance of the problem that the proposed rule seeks to address.