Regulatory Oversight Essentials, Part I: Finding Rules and Resources


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Hester Peirce presents at this Regulation University event.

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Regulatory Oversight Essentials, Part I: Finding Rules and Resources

  1. 1. Regulatory  Oversight  Essen3als    Part  I:  Finding  Rules  and  Resources   Hester  Peirce   Senior  Research  Fellow   Mercatus  Center    
  2. 2. Course  Topics  q Why  do  regula3ons  maCer?  q To  what  extent  can  oversight  make  a   difference?  q Where  is  informa3on  about  regula3ons   found?  q What  should  you  be  asking  regulators  before,   during,  and  aKer  the  rulemaking  process?  q How  are  rules  made?  
  3. 3. The  View  the  Agencies  Want  You  to  Have  of  the   Regulatory  Process   RULES  
  4. 4. The  View  You  Want  to  Have  of  What  Agencies   Are  Doing   •  Agency’s  Plans   •  Agency’s  Priori3es   •  Agency’s  Process   RULES   •  Agency’s  People   •  Agency’s  Problems   •  Agency’s  Pals  
  5. 5. Regulatory staffSource: Susan Dudley & Melinda Warren, The Regulators’ Budget (2012).
  6. 6. Federal Register pages100,000   90,000   80,000   70,000   60,000   50,000   40,000   30,000   20,000   10,000   0   1936   1948   1960   1972   1984   1996   2008  
  7. 7. Regulatory constraints and pages in the Code of Federal RegulationsSource: Omar Al-Ubaydli and Patrick A, McLaughlin, “The Industry-Specific Regulatory Constraint Database,” Working Paper, Mercatus Center, July 2012.
  8. 8. What  Is  a  Rule?  •  “the  whole  or  a  part  of  an  agency   statement  of  general  or  par3cular   applicability  and  future  effect  designed   to  implement,  interpret,  or  prescribe  law   or  policy  or  describing  the  organiza3on,   procedure,  or  prac3ce  requirements  of   an  agency  .  .  .  “      
  9. 9.   What  Is  a  Rulemaking   Agency  process  for  formula3ng,  amending,  or   repealing  a  rule  
  10. 10. Rulemaking  Process  in  Brief   Pre-­‐rule   ANPRM   CCom-­‐ Stage— NPRM   Advanced   ment   the   No3ce  of   No3ce  of   Period   FINAL   agency  is   Proposed   Proposed   and  OMB   RULE   thinking   Rule-­‐ Rule-­‐ Review   about   making   making   Period  what  to  do  
  11. 11. Gefng  and  Staying  Involved   Mee3ngs   Weigh  in   Con-­‐ with   File   File   with  OMB   gress-­‐regulators;   comment   Comment   (reviews   ional   leCers;   leCer  in   LeCer  in   draK     Review   ques3ons   response   Response   proposed   Act;   about   to  ANPR   to  NPR   and  final   Law-­‐ priori3es   rules)   suits  
  12. 12. When  Should  I  Weigh  In?   EARLY  &  OFTEN— LOOK  WHAT’S   COMING  DOWN   THE  ROAD    
  13. 13. Administra3ve  Procedure  Act  q Federal  rulemaking  is  governed  by  the   Administra3ve  Procedure  Act  of  1946.   v Agencies  are  bound  by  the  statute,  which  means   they  can’t  regulate  anybody  or  anything  they   want   v Agencies  have  to  follow  established  procedures   for  wri3ng  rules   v Agencies  must  solicit  &  consider  public  comment   v Magic  word  is  PROCEDURE    
  14. 14. Types  of  Rulemaking  q Formal  Rulemaking   v On-­‐the-­‐record  aKer  hearing   v Not  used  very  oKen  q No3ce  and  Comment  Rulemaking   v No3ce  published  in  Federal  Register   v Opportunity  for  public  to  comment  by  leCer   v Most  common  form  of  rulemaking  
  15. 15. Unified  Regulatory  Agenda  q Supposed  to  be  published  twice  a  year  q Lets  people  know  which  regulatory  ac3ons   government  agencies  are  working  on  or   considering  q Gives  3meframe  within  which  ac3ons  are   an3cipated  to  be  taken  q Basis  for  asking  ques3ons  q hCp:// eAgendaMain  
  16. 16. Before  a  Rule  Is  Born  An  agency  might  begin  a  rulemaking  for  several  reasons:   v It  discovers  a  problem  that  needs  to  be  fixed     v It  receives  a  statutory  direc3ve  from  Congress     v It  receives  a  pe33on  for  rulemaking—something  a   member  of  the  public  (or  of  Congress)  could  do   v Members  of  Congress  can  weigh  in  through  leCers,   hearings,  phone  calls,  etc.  before  a  rulemaking  process   starts  
  17. 17. Exploring  Op3ons  With  the  Public  q Advanced  No3ce  of  Proposed  Rulemaking/ Concept  Release:  Doesn’t  set  out  a  par3cular   proposal,  but  lays  out  some  different  op3ons  and   issues  that  the  agency  is  considering.  q Roundtables:  Agency  brings  in  people  with   different  perspec3ves  to  discuss  whether  and   how  to  tackle  a  par3cular  issue.  q Pre-­‐proposal  comment  solicita3ons:  Agency  asks   for  comments  before  issuing  proposal.  
  18. 18. This  commenter  is  asking  for  rulemaking  on  an  issue  that  has  been  controversial  in  the  securi3es  field,  the  line  between  brokers  and  investment  advisers.  
  19. 19. The  SEC  held  a  roundtable   on  decimaliza3on  on   February  5,  2013.  A  prior  no3ce  explained  the  reason  for  the  roundtable:  .  .  .  the  SEC  staff  recommended  that  the  Commission  solicit  the  views  of  investors,  companies,  market  professionals,  academics,  and  other  interested  par3es  on  decimaliza3on  generally,  its  effects  on  IPOs  and  on  trading  and  liquidity  for  small  and  mid-­‐cap  companies,  and  what,  if  any,  changes  should  be  considered.  The  roundtable  will  provide  a  forum  to  discuss  these  issues  and  explore  specific  recommenda3ons  on  structuring  pilot  programs  to  gather  addi3onal  data  and  analysis  on  these  issues.  .  .  .  
  20. 20. Public  Comments  on  SEC  Regulatory  Ini7a7ves  Under  the  Dodd-­‐Frank  Act  The  Dodd-­‐Frank  Wall  Street  Reform  and  Consumer  Protec3on  Act  includes  provisions  that  require  the  SEC  to  undertake  various  ini3a3ves,  including  rulemaking  and  studies  touching  on  many  areas  of  financial  regula3on.  Members  of  the  public  interested  in  making  their  views  known  on  these  maCers,  even  before  official  comment  periods  may  be  opened,  are  invited  to  submit  those  views  via  the  email  addresses  below.    BUT  agencies  may  argue  they  are  not  legally  obligated  to  consider  pre-­‐comment  period  comments,  so  resubmit  during  official  comment  period.  
  21. 21. Proposing  a  Rule  q Agency  prepares  a  proposed  rule,  which  is   published  as  a  No3ce  of  Proposed  Rulemaking   in  the  Federal  Register  q The  public  typically  has  30-­‐120  days  to   comment  on  the  rule.    President  Obama  has   directed  agencies  to  provide  60  days,  when   feasible.  q Agency  reviews  the  comments  
  22. 22. Agencies  publish    ANPRs,  NPRs,    and  Final  Rules  in  the    Federal  Register  This  final  CFPB  rule    consists  of  37  pages    of  rule  text  and  176    pages  of  preamble.    
  23. 23. Commen3ng  on  a  Rule    q Members  of  the  public  comment  to  help  to  guide   the  agency  in  an  appropriate  direc3on    q Reviewing  incoming  comment  leCers  is  a  useful   way  to  iden3fy  the  big  issues  on  which  you  need   to  follow  up  q OKen,  even  comments  that  come  in  aKer  a   comment  period  closes  will  be  considered  q Every  communica3on  the  agency  has  with   outsiders  should  be  memorialized  in  the   comment  file  
  24. 24. Members  of  Congress   A  54  page  can  and  do  weigh  in   comment  during  the  comment   leCer  from   Senators  period.   Merkley   and  Levin  The  purpose  of  this  leDer  is  to  offer  our  views  regarding  the  proposed  rule  to  implement  the  prohibi7ons  and  restric7ons  on  proprietary  trading  and  certain  interests  in,  and  rela7onships  with,  hedge  funds  and  private  equity  funds.  .  .  .  
  25. 25. Final  Rule  q AKer  considering  the  comments,  an   agency  draKs  a  final  rule  and  publishes   a  No3ce  of  Final  Rulemaking  in  the   Federal  Register    q No3ce  includes  implementa3on  dates  q Agency  can  alterna3vely  issue  a  revised   no3ce  of  proposed  rulemaking  q OMB  has  a  role  to  play,  but  we’ll  save   that  for  next  3me  
  26. 26. The  Code  of    Federal    Regula3ons:  Where  Rules    Go  Once  They  Are  Final  
  27. 27. Excep3ons  to  Standard  Rulemaking  q The  APA  some3mes  allows  agencies  not  to   comply  with  the  standard  rulemaking   procedures   v Certain  types  of  rules,  e.g.,  rules  that  deal  with   agency  management   v Certain  circumstances—good  cause  not  to  comply   with  the  procedures    
  28. 28. Excep3onal  Rules  q Direct  Final  Rule   v Supposed  to  be  used  for  non-­‐controversial  rules   v Rule  is  published  in  Federal  Register  and  takes   effect  unless  a  nega3ve  comment  comes  in  q Interim  Final  Rule   v Rule  takes  effect  when  it  is  published  in  the   Federal  Register   v The  public  has  an  aKer-­‐the-­‐fact  opportunity  to   comment  
  29. 29. .  .  .  The  SEC  implemented  the  registra3on  provision  on  an  interim  basis  in  order    for  municipal    advisors  to  meet  the  new  laws  October  1    registra3on  deadline.  The  SEC  expects  to  propose  a  permanent  rule  later  this  year.  .  .  .  
  30. 30. Congressional  Review  Act  q Final  rules  don’t  become  effec3ve  un3l  they   are  filed  with  Congress  and  GAO  q Major  rules  must  be  delayed  by  60  days  q Resolu3on  of  disapproval   v Any  member  of  Congress  can  introduce   v If  both  Senate  and  House  adopt,  rule  is  eliminated   v President  can  veto→2/3  vote  in  Senate  and  House   required  
  31. 31. Backdoor  Rulemaking  q A  lot  of  de  facto  rulemaking  happens  in  non-­‐ rule  rules  q Examples  are  frequently  asked  ques3ons,   forms,  leCers,  other  subregulatory   documents,  and  enforcement  ac3ons  that   further  clarify  and  refine  the  rules  issued  q Keep  an  eye  on  these  to  ensure  that   regulators  are  not  skir3ng  the  APA  
  32. 32. Where  to  Look?  •  Agency  Websites   hCp://  •   hCp://!home;tab=search    •  Federal  Register  hCps://  •  hCp://  •  OMB’s  OIRA  Website   hCp://    •  GAO’s  CRA  website  
  33. 33. This  7  page   leCer  from  the   CFTC  includes   some  things   that  look  a  lot   like  rules.  .  .  .  Staff  believes  that  for  cleared  swap  repor3ng  to  SDRs,  DCOs  should  include  a  link  between  the  original  swap  (and  any  applicable  USI  from  the  original  swap)  to  the  resul3ng  or  new  swap  between  the  DCO  and  each  original  counterparty  (and  any  applicable  USIs  from  the  new  swaps).    .    .    .  
  34. 34.     There’s  More  .  .  .       Regula3on  University  Regulatory  Oversight  Essen3als   Part  II   March  12,  2013