On Sept. 6, 2011, the SEC issued a “request for information” about its process for reviewing existing regulations to determine if those regulations continue to be useful and effective.1. While one may question the SEC’s ability, in the midst of so much new Dodd-Frank rule making, to conduct a sweeping review of its existing regulations, we urge clients to take seriously the regulatory review effort.
The SEC request comes in response to Executive Order 13579 (July 11, 2011), which directed the independent regulatory agencies, within 120 days, to develop plans for the review of existing significant regulations to determine whether they should be modified, streamlined, expanded or repealed so as to make the agencies’ regulatory programs more effective or less burdensome.
To adopt a new rule or amend an existing rule, the SEC must follow an elaborate process of notice and comment required by the Administrative Procedure Act, as well as comply with the related requirements of the Paperwork Reduction Act, the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act. In addition, it must specifically consider the effect of its proposals on efficiency, competition and capital formation as required by the National Securities Markets Improvement Act (NSMIA). The result of these multiple requirements is that SEC proposing and adopting releases, once relatively short and to the point, now are rarely under 100 pages long.
There is no comparable formal administrative procedure requiring the SEC to review and justify its existing rules. Because of this, over time many SEC rules have become outdated, ineffective or unnecessary. In this “request for information,” however, the SEC is not seeking comment on any of its existing rules, but rather only on “the development of a plan for retrospective review of existing significant regulations.” The SEC asks what the scope of such a plan should be, how it should prioritize rules for review, how often rules should be reviewed, what data the SEC should use for the review process and how best to involve the public in the review process.
One may question what will come of this incipient step toward what would be the significant chore of reviewing the agency’s existing rules to determine which are “outmoded, ineffective, insufficient, or excessively burdensome,” in the language of the Executive Order. (Indeed, even were such a comprehensive review to be completed — including the “supporting data and evaluations” required by the Executive Order — there would still be the need for follow-on rule makings in each case to streamline or repeal the faulty rules identified during the review.) The SEC request for information takes pains to emphasize the Commission’s “limits on resources and competing priorities.”
That being said, the SEC is under considerable pressure from Capitol Hill and the courts to expand the economic analysis in its rulemaking process. The D.C. Circuit’s repeated rejection of SEC rulemaking initiatives on the grounds of insufficient economic analysis, most recently in the proxy ballot access case, have increased the pressure on the SEC.2.
In short, although the SEC may be only tentatively taking the first step of what would be a long journey, the agency may well decide upon a robust plan for inventorying rules in need of repair or repeal, motivated perhaps in part by a desire to forestall new legislative requirements for review of old rules. For this reason, we encourage our clients to take the SEC’s notice seriously, and consider submitting comments about how the SEC should go about reviewing its existing rules.3. The comment period for the SEC’s request for information closes on October 6, and the deadline in Executive Order 13579 for establishing a review process passes in early November.
For additional information concerning this alert, please contact the following lawyers:
1. See Retrospective Review of Existing Regulations, Securities Act Rel. No. 9257 (Sept. 6, 2011) (available at http://www.sec.gov/rules/other/2011/33-9257.pdf).
3. We recommend that clients consider submitting comments by using this website: http://sec.gov/cgi-bin/ruling-comments?ruling=s7-36-11&rule_path=/comments/s7-36-11&file_num=S7-36-11&action=Show_Form&title=Retrospective%20Review%20of%20Existing%20Regulations.
This article was originally published by Bingham McCutchen LLP.