Saturday, September 17, 2011

Former Commissioner Atkins Cautions that Legislative Reorganization of the SEC Should Avoid Prescriptive Measures

While applauding the SEC Reorganization Act introduced by Financial Services Committee Chair Spencer Bachus (R-Ala), former SEC Commissioner Paul Atkins cautioned that parts of the draft legislation may be too prescriptive. In testimony before the Committee, he said that the draft correctly perceives that the SEC desperately needs organizational change to increase efficiency and to improve its regulation of the markets that it is tasked with regulating. That said, the former Commissioner cautions against being too prescriptive regarding the internal organization of the SEC. Times and circumstances change, he noted, and general guidelines may be sufficient. Much depends on good managerial experience to lead the agency, which of course cannot be legislated. Congress should be careful in prescribing a detailed statutory reorganization of the Commission. Congress’s role should be to provide guidance to the SEC without binding it by statute. Because statutes are inflexible and difficult to change, reasoned the former Commissioner, a statutory reorganization of the SEC would prevent the SEC from evolving with the marketplace in the future

The draft bill contains many good ideas, he averred, perhaps most importantl the draft recognizes that economists have been second-class citizens too long at the SEC. The SEC historically has been a lawyer-driven agency. In his view, the endemic problem is that economic analysis at the SEC has been performed as a post hoc exercise. The policy for rulemaking is mostly determined first by the lawyers and only near the end of the process are the economists brought in to justify the actions on a cost-benefit basis. The draft bill envisions the restoration of economists to their proper role as advisors to the Commission.

However, in his view, the draft bill suffers in part from the same prescriptive tendencies of Dodd-Frank. The draftl does not go far enough with respect to Dodd-Frank-mandated direct reports to the SEC Chairman, saikd the former SEC official, they should be eliminated, because each function already can be performed in existing units at the SEC. In particular, with respect to the Investor Advocate, the SEC itself is the investor’s advocate. If Congress does not like the work of the agency, or think
that it is lacking, it can influence that work and priorities through hearings and other communications with the chairman. An anomalous staff position that seeds the agency with potential conflicts only makes management more difficult and will distract from the business of the SEC.

In other respects, the draft bill would retain some dated aspects of the SEC’s organization. For example, former SEC Chairman Richard Breeden established the Office of International Affairs as a central point of contact for international matters when the Iron Curtain fell and the SEC began to establish relationships and negotiate memoranda of understanding with many nations forming new capital markets. Twenty years later, international matters are integral to almost every aspect of policy in the various offices and divisions. Rather than Congress mandating this particular structure, said Mr. Atkins, perhaps the SEC chairman may wish to reallocate responsibilities among the various divisions and offices.