FSI Backs Bill Requiring SEC Cost-Benefit Analysis

Subtitled the SEC Regulatory Accountability Act , Garrett’s bill would amend the Securities Exchange Act of 1934 by directing the SEC, before issuing a regulation under the securities laws, to: (1) identify the nature and source of the problem that the proposed regulation is designed to address in order to assess whether any new regulation is warranted; (2) use the SEC Chief Economist to assess the costs and benefits of the intended regulation and adopt it only upon a reasoned determination that its benefits justify the costs; (3) identify and assess available alternatives that were considered; and (4) ensure that any regulation is accessible, consistent, written in plain language, and easy to understand.

The bill would also require the SEC to “consider the impact of the regulation upon investor choice,” and explain in its final rule  “the nature of comments received concerning the proposed rule or rule change; and respond to those comments, explaining any changes made in response and the reasons that it did not incorporate industry group concerns regarding potential costs or benefits.” In its review of the bill, the nonpartisan Congressional Budget Office said passage of the legislation would “expand the amount of analysis performed” by the SEC, and that the agency would be required to “review its regulations every five years to determine whether they are outmoded, ineffective or excessively burdensome.” Moreover, the bill would require that SEC “develop and publish a plan to assess” whether any “major rule (that is, rules expected to have an economic impact greater than $100 million annually) . . . has achieved its stated purposes.”

As for the costs related to H.R. 1062, CBO estimated that the SEC would need to hire an additional 20 staff members to comply with the bill, and that personnel and overhead would cost the agency $23 million over the 2013-2018 period. However, CBO also estimates that “the net budgetary effect of the SEC’s activities to implement H.R. 1062 would not be significant, assuming appropriation actions consistent with the commission’s authorities.”

Referencing the CBO estimates in its letter under CEO Dale Brown’s signature, FSI argued that despite the $23 million in extra costs to the SEC, the bill “has the potential to save Main Street investors and financial services providers significantly more. Unclear and inefficient regulations drive up compliance costs and increase litigation expenses for those serving the financial and securities industry, and this in turn raises the cost of investment and retirement planning for investors.”

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Read House Bill to Require SEC, DOL Fiduciary Collaboration on AdvisorOne.