“Significant weaknesses” existed in the Securities and Exchange Commission’s economic analysis of several rules it made prior to the SEC’s 2012 updated guidance on ways the agency could beef up its analysis, a working paper released Monday by the Mercatus Center at George Mason University has found.
Using the Mercatus Regulatory Report Card methodology, senior research fellows Hester Peirce and Jerry Ellig found that “the quality and use of regulatory analysis at the SEC prior to 2012 was significantly inferior to the quality and use of regulatory analysis by executive branch agencies.”
In their working paper, “SEC Regulatory Analysis: A Long Way to Go and a Short Time to Get There,” Peirce and Ellig cite recent requests by Congress that the SEC conduct a more robust economic analysis when it determines whether new rules are in the public interest, as well as federal appeals courts recently vacating several SEC rules due to “inadequate” economic analysis.
The SEC published staff economic analysis guidance in March 2012 similar to the requirements for impact analyses that executive branch agencies are expected to conduct when making major rules.
SEC economists and the agency’s general counsel jointly issued the 2012 economic analysis guidance after the agency “kept losing in court because of its poor economic analysis,” Peirce told ThinkAdvisor in an email.
“The SEC’s decision to publish new economic analysis guidance was a necessary and appropriate response to the significant flaws” that existed in rulemaking prior to 2012, Ellig and Peirce say.
Peirce and Ellig used the Mercatus Scorecard — a standardized scoring system for executive agency rulemaking that measures openness, analysis and use of economic analysis — to analyze seven rules issued from each SEC division. They intended “to ensure that we captured a broad view of rulemaking issues within the SEC’s regulatory jurisdiction” and to offer “a useful cross section of significant SEC rulemaking.”
The rules the senior Mercatus fellows assessed included the creation of the SEC’s Office of the Whistleblower, the requirement that private fund advisors file form PF with the agency, the switching of advisors under Dodd-Frank from federal to state registration, and the net worth standard for accredited investors.
Peirce and Ellig concluded that the SEC’s rulemakings “read more like justifications of the final rule than careful analyses of the underlying problems and the various ways that those problems could be addressed.”