Friday, February 17, 2012

House Panel Approves Legislation Managing SEC Rulemaking Process and Directing Regulatory Review

The House Financial Services Committee approved legislation directing the SEC to conduct thorough cost-benefit analyses of its regulations and proposed regulations. Under the SEC Regulatory Accountability Act, HR 2038, the SEC must ensure the benefits of its regulations outweigh the costs. The legislation was introduced by Rep. Scott Garrett (R-NJ), Chair of the Subcommittee on Capital Markets and Government-Sponsored Enterprises, with 15 original cosponsors.

The SEC Regulatory Accountability Act 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 required to follow the executive order. While Chairman Mary Schapiro has indicated that she intends for the SEC to abide by the order, the legislation is designed to codify that executive order and require her and future SEC Chairmen 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. The legislation also directs the SEC to review its regulations and orders periodically to determine their efficacy and whether to modify or repeal them.

An amendment offered by Rep. Gary Miller (R-CA), and approved by the Committee, would require the SEC to explain in its final rule the nature of comments received, including those from industry or consumer groups on the potential costs or benefits of the proposed rule and provide a response to those comments and the reasons that the SEC did not incorporate those industry or group concerns on costs or benefits into the final rule.

An amendment offered by Chairman Garrett and Rep. David Schweikert (R-AZ), and approved by the Committee, would require an assessment of any unintended or negative consequences the SEC foresees may result from the regulation.