Congress Looks to Reign in SECrecy

Yesterday, both the Senate and House addressed Section 929I of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which granted the Security Exchange Commission (SEC) a very broad exemption to the Freedom of Information Act (FOIA). The Senate Judiciary Committee approved legislation that would limit the exemption. Almost simultaneously, the House Financial Services Committee held a hearing to explore the issue of the need for such a broad exemption.

Public access advocates and government accountability groups have expressed concern that the provision grants SEC too much authority to withhold critical oversight and accountability information related to our financial system and thereby potentially reduce our ability to prevent future financial crises.

Sen. Patrick Leahy (D-VT), who introduced the Senate legislation (S. 3717) to restrict the provision, agreed with the raised concerns and said the provision "could be interpreted and implemented in a way that undermines the important goal of restoring transparency and accountability in our financial system."

Leahy’s efforts received strong bipartisan support. Sens. John Cornyn (R-TX), Charles Grassley (R-IA) and Edward Kaufman (D-DE) joined Leahy in co-sponsoring S.3717. And the Judiciary Committee unanimously approved the bill without amendment.

During the House Financial Services Committee hearing, SEC Chairman Mary Schapiro sought to sponsoring clarify the perceived need for the original provision to improve the cooperation of financial institutions with SEC examinations. Schapiro explained: “Section 929I enhances the Commission’s ability to examine regulated entities by making clear that the Commission may protect, in appropriate circumstances, information gathered in the examination process from the many entities it regulates, supervises or examines.” Shapiro also asserted that the agency’s intention to narrowly interpret the provision.

However, both Rep. Edolphus Towns (D-NY) and Darrell Issa (R-CA) testified in opposition to the FOIA provision. Towns claimed that despite the SEC promises of narrow interpretation, “the SEC has already indicated its willingness to exploit this loophole. In an action the SEC brought against a broker-dealer, the Commission tried to use section 929I to avoid an Administrative Law Judge's order to comply with a subpoena.” Towns has introduced H.R. 6086, to limit the agency’s authority to withhold information.

Angela Canterbury of the Project on Government Oversight, a government accountability public interest group, noted the SEC’s “history of wielding these exemptions to withhold more than it discloses” and urged the committee to repeal the provision by passing the Towns legislation. Canterbury went further and recommended Congress request SEC’s Inspector General conduct regular audits of the agency’s FOIA implementation as a means to bring the agency’s actions into better compliance with policies that direct agencies to favor disclosure.

The House Financial Services Committee has not yet scheduled a time to consider H.R. 6086 but given the attention on the issue, may move quickly to do so. The Senate Judiciary Committee’s approval of S. 3717 means the legislation could receive a floor vote at any time.

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