Delays in Adoption of Rules Regarding "Specialized Disclosures" Trigger Legislators' Displeasure

News Brief

An article in Securities Regulation and Law Report indicates that several legislators have expressed concerns over delays in SEC rulemaking with regard to so-called "specialized disclosures" related to conflict minerals, resource extraction and mine safety.  According to the SEC's most recent schedule of Dodd-Frank activity, adoption of rules in those areas has been delayed to the August-to-December timeframe. Under Dodd-Frank, the rules were required to be in place by April (other than the mining disclosure, which became effective without SEC action).

The delay has led lawmakers involved in crafting the legislation to turn up the heat on the SEC. In particular, an April 15 letter to SEC Chair Mary Schapiro from Senators Benjamin Cardin (D-Md.) and Richard Lugar (R-Ind.) requested an explanation of the delay in adopting rules regarding disclosure of payments to governments related to resource extraction. Cardin and Lugar argued that timely implementation was critical: " ‘As we have seen recently with the events in the Middle East, the transparency and corruption that this legislation sought to address are necessary to the stability of economies—a major impetus for our drafting the language.' " They also noted that " ‘several of our global partners, particularly in the European Union, are eager to move forward with a similar disclosure law….Yet, to be as collaborative as possible, they are waiting for the final rule issuance in the U.S., recognizing that many multinational companies are listed in several markets around the world, warranting similar rules for all markets.'"

The article also quotes House member Jim McDermott (D-Wash.) as saying that " he would be ‘very concerned' if the SEC did not finalize—by ‘mid-summer, or August at the latest'—a rule to require disclosures from companies that use conflict minerals," legislation aimed at reducing armed conflict in the region. The conflict minerals disclosure has been one of the most controversial provisions because of its widespread application and difficulty of implementation. Some have questioned how the SEC will administer the requirements, while others have complained that the proposed rules were not sufficiently rigorous. The Washington Legal Foundation, a public interest law group, has even suggested that the SEC could be exposed to litigation on First Amendment grounds as result of the possible regulations in the area and that proposed rules would be "arbitrary and capricious" unless the SEC conducted an adequate economic analysis of their impact. Meanwhile, the State Department urged the SEC to require companies to perform "meaningful due diligence" in determining the source and chain of custody of their conflict minerals and, while supporting the SEC's proposal to use a "reasonable country of origin" standard, suggested that the SEC should provide guidance on satisfying that standard.  McDermott apparently recognized that the complexity of the legislation could cause a delay but was unhappy with that result: " 'The conflict minerals black market is fueling a war and huge violence against women….After 15 years of lip service, it's time to act.' "

The SEC delays in rulemaking are not unique to specialized disclosure. In addition to the specialized disclosure rules, the SEC has also postponed Dodd-Frank rulemaking for compensation committee and consultants, pay-for-performance disclosure and pay-ratio disclosure, all of which have been moved to the August-to-December time period.

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