Senate Legislation Would Reform Rulemaking Process for SEC and Other Federal Regulators and SROs

Senator Richatd Shelby (R-ALA) has introduced legislation to improve the transparency and accountability of the federal regulatory process and reduce the burdens of existing regulations. The Financial Regulatory Responsibility Act of 2013 holds the SEC and other financial regulators accountable for rigorous, consistent economic analysis of every new regulation they propose.  It requires them to provide clear justification for the rules, and to determine the economic impacts of proposed rulemakings, including their effects on growth and net job creation.  If the costs of a rule outweigh its benefits, regulators will be prohibited from adopting the rule.  Importantly, the legislation would require the SEC and CFTC to develop a plan for requiring SROs under their jurisdictions to apply the reforms in the bill to their rulemaking process.

For every proposed rulemaking, the bill would require agencies to conduct an economic analysis that includes, at a minimum, twelve elements. The elements are to identify the need for the regulation and the regulatory objective, including identification of the nature and significance of the market, to explain why the private market or State, local, or tribal authorities cannot adequately address the identified market failure or other problem; and to analyze the magnitude of adverse impact to regulated entities and other market participants. The elements also require the SEC and other regulators to do a quantitative and qualitative assessment of all anticipated direct and indirect costs and benefits of the regulation as compared to a benchmark that assumes the absence of the regulation, including compliance costs; effects on economic activity, net job creation, efficiency, competition, and capital formation; as well as regulatory administrative costs and the costs imposed by the regulation on State, local, or tribal governments.

The SEC and other agencies would also have to identify and assess all available alternatives to the regulation, including modification of an existing regulation or statute, together with an explanation of why the regulation meets the objectives more effectively than the alternatives, and if the agency is proposing multiple alternatives, an explanation of why a notice of proposed rulemaking, rather than an advanced notice of proposed rulemaking, is appropriate; and if the regulation is not a pilot program, an explanation of why a pilot program is not appropriate.

Other required elements would include an assessment of the extent to which the regulation is inconsistent, incompatible, or duplicative with the existing regulations of the agency or

those of other domestic and international regulatory authorities with overlapping jurisdiction; and a description of any studies, surveys, or other data relied upon in preparing the analysis; as well as an assessment of the degree to which the key assumptions underlying the analysis are subject to uncertainty; and an explanation of predicted changes in market structure and infrastructure and in behavior by market participants, including consumers and investors.