The U.S. Securities and Exchange Commission is developing a new method for calculating the cost of rule-making in response to challenges from courts and lawmakers, Chairman Mary Schapiro told a House panel today.
Schapiro has instructed SEC staff to consider the cost of both congressional mandates and rules the agency is developing through its own authority, she said in testimony before the House Oversight and Government Reform subcommittee hearing in Washington. The move is in response to an SEC inspector general report that suggested the agency doesn’t consider the economic effects of rules mandated by the Dodd-Frank Act.
The report released in January recommended that the SEC use a pre-Dodd-Frank baseline whenever possible to determine the cost of imposing a new rule on financial markets.
The guidance “states that as a policy matter, where a statute directs rule making, rule writing staff should consider the overall economic impacts, including both those attributable to congressional mandates and those that result from an exercise of the Commission’s discretion,” Schapiro said. “This approach should allow for a more comprehensive evaluation of alternative means of meeting a statutory mandate and give the most complete picture of a rule’s economic effects.”
Schapiro is facing questions about what House Republicans call the SEC’s “aversion” to studying the cost for companies to comply with the agency’s rules. Representative Patrick McHenry, a North Carolina Republican and the subcommittee chairman, said the SEC’s “record on cost-benefit analysis is deeply troubling.”
“These needless regulations lead to higher costs, reduced wages and diminished hiring that harm our economy more than benefit it,” McHenry said.
Schapiro’s testimony highlights the difficulties the agency has faced in implementing the many rules required by the 2010 regulatory overhaul while determining a reasonable estimate of their cost.
“The unprecedented rule making burden generated by passage of the Dodd-Frank Act has tested the resources and analytical capabilities of the agency,” Schapiro said in her testimony.
The role of cost-benefit studies have gained prominence inside the agency after a July 2011 ruling from the U.S. Court of Appeals rejecting an SEC rule that would have made it easier for shareholders to insert board candidates onto public-company ballots. The court said the agency failed to adequately assess the costs of the rule.
The rejection made all future SEC rules vulnerable to a similar challenge, forcing Schapiro to redouble efforts to study cost-benefit effects. Since then, the pace of SEC rule-making has slowed by about half.
Among the rules in limbo are the so-called Volcker rule to ban banks’ proprietary trading, restrictions on asset-backed securities deals and forcing firms to disclose whether manufacturing metals were mined in war-ravaged parts of Africa.
The SEC announced late yesterday that it will hold a meeting tomorrow on whether to adopt a joint rule with the U.S. Commodity Futures Trading Commission that would strengthen oversight of the $708 trillion global swaps market.