Rulemaking Delays at the SEC

By Cydney Posner

This article from CFO.com reports on today's testimony from SEC Chair Mary Schapiro explaining why the SEC is so late in some of its rulemaking. In some cases, the rules are a year or more overdue. One of those rules is the Dodd-Frank provision regarding conflict minerals. In today's hearing, Schapiro "acknowledged the missed deadline but said that putting together a rule addressing human rights issues goes beyond the agency's wheelhouse. ‘This one is harder, there is no question about it,' she said."

Compounding the burden of crafting the volume of rules required by Dodd-Frank is the "mounting scrutiny over the SEC's ability to accurately estimate the costs and benefits" of its proposals, particularly after its proxy access rules were vacated last year by the U.S. Court of Appeals in Washington, D.C. The article notes, for example, that, while the SEC estimated that its conflict mineral proposal would affect upwards of 5,000 companies and cost them more than $71 million in compliance costs, the National Association of Manufacturers estimated that public companies and their suppliers will incur a total of $9 billion to $16 billion in compliance costs.

During her testimony, Schapiro "acknowledged that it's hard to measure the benefits side of rulemaking and difficult to anticipate the reaction of the SEC's constituents. ‘Predicting how people and entities will respond to regulatory changes involves difficult judgments,' she said.

"The SEC's rulemaking process, she added, involves considering the direct and indirect costs of a rule and its effects on investor protection and companies' ability to raise capital. Although the commission collects feedback during its comment-letter process, many of the cost estimates vary by respondents, their biases, and their unique situations.

"However, the Commission is trying to improve its economic analysis. The SEC has recently changed its internal guidance for how its rule-writing staff comes up with rules. All pending rules, including the conflict-minerals provision, will be subject to this new practice.

"The agency now expects its internal economists to be involved throughout the rulemaking process. And new rules will explain the reason behind a proposal as well as an explanation over why costs and benefits can't be quantified, if that's the case. The SEC also wants to more than double the number of economists that are involved in rulemaking. It's bringing in 20 new economists to add to its current group of 24, and plans to ask for an additional 20 economist positions for its fiscal year 2013 budget."

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