Patrick McHenryChairman

Washington, September 13, 2011 - With a growing regulatory burden weighing our economy down, President Obama’s executive order #13563 issued in January was welcomed news.   That executive order requires government agencies to conduct cost-benefit analyses to ensure that the benefits of any rulemaking outweigh the costs.  It also requires that both new and existing regulations be accessible, consistent, written in plain language and easy to understand.

Unfortunately, this executive order does not apply to agencies like the Securities and Exchange Commission (SEC).  And according to the SEC, the Dodd-Frank Act alone contains more than 90 provisions that require SEC rulemaking and dozens of other provisions that give the SEC discretionary rulemaking authority.

Legislation to require the SEC to abide by President Obama’s executive order was introduced by Congressman Scott Garrett and will be discussed by the Financial Services Committee during a hearing on SEC reform on Thursday, Sept. 15.

Congressman Garrett’s “SEC Regulatory Accountability Act” (H.R. 2308) requires the SEC to clearly identify the nature of the problem that a proposed regulation is designed to address and assess the significance of that problem before issuing a new regulation.  Additionally, the bill requires the SEC to utilize the Office of the Chief Economist to conduct the cost-benefit analysis of potential rules.  This will ensure that the regulatory consequences on economic growth and job creation are accounted for properly.

In a testament to how badly H.R. 2308 is needed, the U.S. Court of Appeals for the D.C. Circuit recently struck down the SEC’s proxy access rule.  In the court’s unanimous opinion, the SEC “inconsistently and opportunistically framed the costs and benefits of the [proxy access] rule, failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments, contracted itself; and failed to respond to substantial problems raised by commenters.”  The D.C. Circuit also noted that the SEC “relied upon insufficient empirical data” when it determined that the rule would “improve board performance and increase shareholder value by facilitating the election of dissident shareholder nominees.”

Witnesses at the hearing will include SEC Chairman Mary Shapiro, former SEC Chairman Harvey Pitt and former SEC Commissioner Paul Atkins.