Citizen Health & Safety
Anti-Regulatory Bill Would Limit the SEC's Ability to Protect Investors
A pending anti-regulatory bill that targets independent regulatory agencies would significantly curtail the Securities and Exchange Commission's (SEC) ability to protect investors from financial fraud and other economic hazards. The Independent Agency Regulatory Analysis Act of 2012 (S. 3468) would require independent agencies to conduct formal cost-benefit analyses for all significant rules and would allow the Office of Information and Regulatory Affairs (OIRA) to review those analyses. This would cause lengthy delays in implementing the financial oversight contained in the Dodd-Frank law. The Senate Committee on Homeland Security and Governmental Affairs (HSGAC), chaired by Sen. Joe Lieberman (I-CT), may mark up this bill during Congress’ upcoming lame-duck session, even though no hearings have been held on the bill.
Evidence is mounting that the legislation would have a detrimental effect on key independent agencies charged with oversight of the banking and financial industry, including the SEC, the Federal Deposit Insurance Corporation, and the Commodity Futures Trading Commission. These agencies protect the public from financial fraud and other irresponsible practices, some of which contributed to the financial crisis of 2008.
Financial regulators from six independent agencies sent a letter to HSGAC last week urging it to delay consideration of S. 3468 because the bill "would interfere with our ability to promulgate rules critical to our missions in a timely manner and would likely result in unnecessary and unwarranted litigation in connection with our rules." Two experts on financial regulation, Bruce Kraus and Connor Raso, agree, particularly when it comes to the SEC. In a new article, they strongly argue that requiring the SEC to conduct cost-benefit analyses that are subject to OIRA review would limit the agency’s ability to protect investors.
The SEC currently experiments with different methods of quantifying the costs and benefits of its standards. S. 3468 would stifle the dialogue about how to best define costs and benefits by imposing a one-size-fits-all approach dictated by OIRA. Mandating an OIRA-enforced, rigid approach to cost-benefit analysis would delay publication of SEC rules and waste limited agency resources.
Kraus and Raso argue that inflexible cost-benefit analyses that require monetization of all costs and benefits will make it impossible to issue new rules in areas that deal with catastrophic systemic risks – like the financial meltdown of 2008. In such a situation, attempts to quantify costs and benefits would be too speculative to generate a rulemaking decision capable of withstanding judicial review. Thus, agencies subject to these requirements would be unable to move forward with issuing safeguards to protect consumers and our economy from another financial crisis.
The authors also point out that the legislation's cost-benefit requirements are unnecessary, noting that although it is not required to do so, the SEC has voluntarily looked at the costs and benefits of its rules for decades. In addition, they assert that independent agencies structured as bipartisan, multimember commissions, like the SEC, should not have to meet the same strict economic analysis standards as executive branch agencies. The bipartisan nature of these commissions and the need for majority support on rulemaking decisions means that compromise is inherent in a commission’s decisions. Further, unlike executive branch agencies, a commission’s final decision on a proposed rule may involve making changes at the last minute. Thus, any economic analysis sent to OIRA with an initial proposed rule could look very different than the commission’s formal proposed rule at the end of its decision making process.
The SEC and other independent agencies should be allowed to continue to experiment with different approaches to measuring the costs and benefits of their standards and should not be locked into the rigid approach proposed in S. 3468.
The Independent Agency Regulatory Analysis Act would undermine the independence of many agencies and limit the ability of the variety of agencies responsible for implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009 from carrying out the law's requirements. Dodd-Frank authorizes independent financial agencies like the SEC and the newly established Consumer Financial Protection Bureau to issue new rules intended to protect consumers and investors from fraud and mismanagement by big banks and investment firms. Many deadlines embedded in the legislation have already passed because the agencies have limited staff and resources. Passage of S. 3468 would make it harder for these agencies to complete the reforms.
If you want to see the Dodd-Frank Wall Street Reform and Consumer Protection Act (financial reform) fully implemented, call the Senate Homeland Security and Governmental Affairs Committee at 202-224-2627 and tell the committee not to move forward with a mark up during the lame-duck session of Congress.