By a vote of 235 to 161 the House of Representatives passed the SEC Regulatory Accountability Act, H.R. 1062. Seventeen Democrats voted to pass the bill. Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets, introduced the SEC Regulatory Accountability Act, which would require the SEC to conduct robust cost-benefit analysis on each new rulemaking to ensure that its costs do not outweigh its benefits, and would make certain that all new and existing regulations are accessible, consistent, written in plain language, and easy to understand.
Executive Orders. The legislation is designed to essentially codify Executive Orders issued by President Obama reforming the regulatory process. Chairman Jeb Hensarling (R-TX) of the Financial Services Committee said that in many respects the Act carries out Executive Order 13563.
President Obama issued two Executive Orders during his first term on the reform of the federal regulatory process. Executive Order No. 13563 set out general requirements directed to executive agencies concerning public participation, integration and innovation, flexible approaches, and science. It also reaffirmed that executive agencies should conduct a cost-benefit analysis of regulations. Executive Order No.13579 states that independent regulatory agencies, such as the SEC, should follow EO No. 13563. To facilitate the periodic review of existing significant regulations, EO No. 13579 said that independent regulatory agencies should consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.
There is a debate over whether EO No. 13579 directed independent regulatory agencies to conduct a cost-benefit analysis of regulations. The use of the word “should’’ in the Executive Order has led some to conclude that it is not mandatory. According to Chairman Sessions, this fuels the need for federal legislation to codify that independent regulatory agencies, such as the SEC, must conduct a cost-benefit analysis of regulations as executive agencies must do.Thus, as an independent agency, the SEC is not clearly required to follow Executive Orders No. 13563 and 13579.
Cost-benefit analysis. Specifically, the SEC Regulatory
Accountability Act would direct the SEC before issuing a regulation under the
securities laws to identify the nature and source of the problem that the
proposed regulation is designed to address in order to assess whether any new
regulation is warranted and to use the SEC Chief Economist to assess the costs
and benefits of the intended regulation and adopt it only upon a reasoned
determination that its benefits justify the costs.
Alternatives. The SEC would also have to identify and assess
available alternatives that were considered and ensure that any regulation is
accessible, consistent, written in plain language, and easy to understand.
Under a modified comply-or-explain provision in the bill, the SEC would be
required to explain why the regulation meets the regulatory objectives more
effectively than the alternatives.
Other considerations. In addition, H.R. 1062 would require
the SEC to consider whether the rulemaking will promote efficiency,
competition, and capital formation and the impact of the regulation on investor
choice, market liquidity, and small business. The Commission must also evaluate
whether the regulation is consistent with, incompatible with, or duplicative of
other federal regulations.
Comments. The Commission must also explain in its final rule
the nature of comments received concerning the proposed rule or rule change and
respond to those comments, explaining any changes made in response, and the
reasons that it did not incorporate industry group concerns regarding potential
costs or benefits.
Review of existing regulations. Further, within one year of
enactment and every five years thereafter, the SEC must review its existing
regulations to determine if they are outmoded, ineffective, insufficient, or
excessively burdensome and must modify, streamline, expand, or repeal them in
accordance with such reviews.
Major rule. Whenever it adopts or amends a major rule, the
SEC must state in the adopting release the purposes and intended consequences
of the regulation, the post-implementation quantitative and qualitative metrics
to measure the economic impact of the regulation and the extent to which it has
accomplished the stated purposes, the assessment plan that will be used under
the supervision of the Chief Economist to assess whether the regulation has
achieved those purposes, and any foreseeable unintended or negative
consequences.
For purposes of the Act, Title 5, U.S. Code, Section 804(2) defines
three alternative ways a regulation can become a major rule under H.R. 1062: It
is likely to result in: (1) an annual effect on the economy of $100 million or
more; (2) a major increase in costs or prices for consumers, individual industries,
federal, state, or local government agencies, or geographic regions; or (3)
significant adverse effects on competition, employment, investment,
productivity, innovation, or the ability of U.S.-based enterprises to compete
with foreign-based enterprises.
Assessment plan. The assessment plan for a major rule must
consider the costs, benefits, and intended and unintended consequences of the
regulation and specify the data to be collected, the methods for its collection
and analysis, and an assessment completion date.
In any event, the SEC Chief Economist must submit the completed
assessment report to the Commission no later than two years after the
publication of the adopting release, unless the Commission, at the request of
the Chief Economist, has published at least 90 days before such date a notice
in the Federal Register extending the date and providing specific reasons why
an extension is necessary.
Within seven days after the final assessment report is submitted to
the Commission, it must be published in the Federal Register for notice and
comment. Any material modification of the plan, as necessary to assess
unforeseen aspects or consequences of the regulation, must be promptly
published in the Federal Register for notice and comment.
Within 180 days of publication of the assessment report in the
Federal Register, the SEC must issue for notice and comment a proposal to amend
or rescind the regulation, or publish a notice that the Commission has
determined that no action will be taken on the regulation. Such a notice will
be deemed a final agency action.