Friday, March 11, 2011

Chairman Bachus Asks SEC and CFTC to Explain Pace of Dodd-Frank Rulemaking and How Comments are Analyzed

In a letter to the SEC and CFTC, House Financial Services Chair Spencer Bachus (R-AL) said that the Committee is troubled by the volume and pace of rulemakings under the Dodd-Frank Act and asked the Commissions to explain what steps they are taking to ensure that proposed Dodd-Frank rulemakings provide comment periods sufficient to address the number of proposed rules and the breadth of issues addressed by the rules, as well as ensure consistency across agencies, and provide regulatory flexibility for small entities. The Chair asked the SEC and CFTC to respond to these and a series of related questions by March 25.

The Committee also asked the SEC and CFTC to describe the significance of the Notice and Comment period provided by the agencies and how they analyze and then incorporate the comments from businesses and consumers likely to be impacted by a proposed rule to shape the final rule. More broadly, the Committee wants to know if the Commissions are concerned that the volume and breadth of Dodd-Frank rulemakings could compromise the rulemaking process.

The letter asks the Commissions to explain how they determine the length of the comment period for a proposed Dodd-Frank rule, specifically asking if the complexity or length of the proposed rule is taken into account when making this determination. The Committee wants to know if the SEC and CFTC anticipate that statutory deadlines will require them to truncate the customary 60-day comment period and why comment periods were cut short in earlier Dodd-Frank rulemakings.

The Commissions are asked if they intend to abide by Executive Order 13,563 that provides that a comment period should generally be at least 60 days, even though they are independent agencies and not legally bound by the Order. Similarly, they must tell if they intend to abide by President Obama’s charge in Executive Order 13,563 to promote interagency coordination.

The SEC and CFTC are also asked if they or their Inspectors General have identified the Dodd-Frank rulemaking process and/or Dodd-Frank implementation as a management challenge. Also, they should list the rules they intend to propose in 2011 that will require a Regulatory Impact Analysis as required for all major rules issued by Executive Branch agencies or a Regulatory Flexibility Act analysis.

The Commissions must also describe their procedures for addressing statutory rulemaking deadlines that they do not anticipate meeting and inform the Committee if they have missed any Dodd-Frank rulemaking deadlines. Similarly, they must list pending Dodd-Frank rulemaking deadlines that they do not anticipate meeting. And, in a broader version of a question Chairman Bachus earlier asked about the derivatives rulemaking, the SEC and CFTC are asked if allowing additional time for implementation would help ensure that the final rules accomplish the purpose of the rulemaking process.

In the view of Chairman Bachus, businesses and consumers wishing to provide thoughtful input on proposed regulations are stymied by the sheer number of proposed rules in the pipeline, the diverse array of issues addressed by the rules, and the truncated comment periods. Further, be believes that the consistency of rules across agencies is likely to be compromised when rules are issued hastily, creating opportunities for regulatory arbitrage. The Committee is also concerned that the pace of the rulemaking may lead to failures to properly assess how small businesses will be affected. The current Dodd-Frank rulemaking process also creates difficulties for the regulators themselves. The volume and pace of Dodd-Frank rulemakings increase the likelihood of conflicting rulemakings.

The avalanche of new rulemakings will affect businesses and consumers in profound ways, he noted, which makes the need to provide sufficient comment periods for those impacted all the more compelling. The new rules will also be wide in scope and address a number of issue areas. For example, the SEC identified 29 separate areas requiring rulemakings under Dodd-Frank this year and the CFTC identified 30. The number and breadth of new rules make it harder for affected entities to provide thoughtful comments to issuing agencies. However, their input is essential to the rulemaking process. The quality of final rules suffers when insight from entities which will be most impacted by those rules is not available.

Chairman Bachus pointed out that the Administrative Procedure Act (APA) requires a formal notice and comment period. An analysis conducted by the Committee on Capital Markets Regulation revealed that comment periods for rulemakings from the independent financial regulators (SEC, CFTC, FDIC and Federal Reserve) lasted more than 60 days on average between 2005 and 2006. Usual and recommended regulatory practice is at least 60 days for all but insubstantial rules.

Moreover, though not binding on independent agencies, Executive Order 13,563 provides that a comment period should generally be at least 60 days. In contrast, the average comment period for Dodd-Frank rules issued within the first three months of enactment was just over 30 days. Currently, the comment period for rules from these agencies ranges from 30 to 45 days.

Finally,the Chair emphasized that it is crucial that any rules issued under Dodd-Frank ensure regulatory flexibility with regard to small businesses. The Regulatory Flexibility Act requires federal agencies to determine whether their rules will have an impact on a significant number of small entities, and to assess and mitigate the disproportionate cost of regulation on small business.

Small businesses are also protected by provisions contained in section 1100 G of Dodd-Frank requiring the Consumer Financial Protection Bureau to convene small business review panels for rules affecting a large number of small businesses and to consider the impact rules will have on the cost of credit for small businesses. Chairman Bachus cautioned that the pace and volume of rulemakings must not prevent agencies from carrying out analyses required by the Regulatory Flexibility Act. In addition, when full authority is transferred to the CFPB, the Bureau should also abide by provisions intended to protect small business from costly regulation.