Regulatory Oversight Essentials, Part II: Monitoring and Shaping the Debate


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At this event, scholar Hester Peirce discusses regulatory policy.

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Regulatory Oversight Essentials, Part II: Monitoring and Shaping the Debate

  1. 1. Regulatory  Oversight  Essen3als    Part  II:  Monitoring  and  Shaping  the   Debate   Hester  Peirce   Senior  Research  Fellow   Mercatus  Center   March  12,  2013    
  2. 2. Course  Topics  q Why  do  regula3ons  maJer?  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  aPer  the  rulemaking  process?  q How  are  rules  made?  
  3. 3. BoJom  Line:  What  You  Need  to  Be   Thinking  About  As  We  Go  Through  Specifics  •  DraP  statutes  with  oversight  in  mind   v  Repor3ng/tes3mony  requirements   v  Specific  analysis  requirements   v  Sunsets,  retrospec3ve  review  requirements  •  Express  an  interest  early   v  Invite  regulators  in  for  briefings  about  topics  of  importance  to  your  member   v  Ask  regulators  to  keep  you  updated  on  their  progress  •  Ask  regulators  lots  of  ques3ons     v  What  are  their  priori3es  and  why?   v  What  assump3ons  are  they  making  and  data  are  they  using  in  rulemakings?   v  How  have  they  sought  input  from  the  public  and  relevant  experts?   v  Have  they  considered  par3cular  comments  and  how?   v  How  do  they  plan  to  measure  success?  •   Bring  in  reinforcements—GAO,  IGs  
  4. 4. The  Landscape  Encourage  agency  to  think  outside  of  the  statutory  box,  but  watch  out  for  agency    aDempts  to  regulate  without  coming  to  Congress  for  more  statutory  authority.   Statutory  Authority   Agency’s  Chosen   Regulatory  Approach.     Don’t  let  this  define  the   universe.   You  might  want  the  agency  to  consider  an  op>on  that  is  within  the     agency’s  statutory  authority,  but  the  agency  has  not  considered.   Another  agency  or  another  level  of   government  may  have  jurisdic>on   that  makes  it  the  best  source  of  a   solu>on.  
  5. 5. Rulemaking  Process  in  Brief  F  Pre-­‐rule   ANPRM   NPRM   CComm-­‐ Stage—the   Advanced   No3ce  of   ent  Period   Final  Rule   agency  is   No3ce  of   Proposed   and  OMB   thinking   Proposed   Rule-­‐ Review   about  what   Rule-­‐ making   Period   to  do   making   Retrospec3ve  Review  
  6. 6. How  Long  Does  the  Whole  Process  Take?   • SEC  approves  MSRB  Rule  G37   restric3ng  pay  to  play  in  municipal   It  can  take  many   securi3es  markets   years  for  an  idea  in   April  1994   • SEC  proposes  a  rule  to    restrict  pay   the  minds  of  staffers   to  play  by  investment  advisers   at  a  regulatory   August    1999   • SEC  reproposes  rule  to  restrict  pay   to  play    by  investment  advisers   agency  to  become  a   • SEC  withdraws  1999  proposal  August  2009   final  rule.    If  you   • SEC  adopts  rule  to  restrict  pay  to   care  about  a  rule,   play  by  investment  advisers   July  2010   keep  asking  about  it.    
  7. 7. How  Long  Does  the  Whole  Process  Take?   • Dodd-­‐Frank  is  signed  into  law   • §  951  requires  shareholder  votes  on   But,  depending  on  the   July  2010   execu3ve  comp  &  golden  parachutes   circumstances  and  the   • SEC  proposes  a  rule  to    implement  §   pressure  the  agency  Oct.  28,  2010   951       faces,  the  process  can   also  move  a  lot  faster.    Nov.  18,2010   • Comment  deadline   If  you  don’t  act  fast,   you  won’t  get  a   • Final  rule  is  published  in  the  Federal   Register   chance  to  weigh  in.  Feb.    2,  2011    
  8. 8. Oversight  Op3on:  Ask  About  Very  Slow  or  Very  Fast  Rulemaking  
  9. 9. Sample  Advanced  No3ce  of  Proposed   Rulemaking   .  .  .  Without  a  mandate  from    Use  of  Deriva>ves  by  Investment  Companies  Under  the  Investment  Company  Act  of  1940    AGENCY:  Securi3es  and  Exchange     Congress,  the  S.E.C.  is  proceeding  Commission.  ACTION:  Concept  release;  request  for   with  cau3on.    comments.    SUMMARY:  The  Securi3es  and  Exchange  Commission  (the   Last  year,  the  agency  began  a  broad  ‘‘Commission’’)  and  its  staff  are  reviewing  the  use  of   study  into  the  mutual  fund  industry’s  deriva3ves  by  management  investment  companies  registered  under  the  Investment  Company  Act  of  1940  (the  ‘‘Investment   use  of  deriva3ves,  a  growing  Company  Act’’  or  ‘‘Act’’)  and  companies  that  have  elected  to  be  treated  as  business  development  companies  (‘‘BDCs’’)   phenomenon.  The  S.E.C.’s  concept  under  the  Act  (collec3vely,  ‘‘funds’’).  To  assist  in  this  review,   release  approved  on  Wednesday  will  the  Commission  is  issuing  this  concept  release  and  request  for  comments  on  a  wide  range  of  issues  relevant  to  the  use  of   take  the  review  a  step  further,  asking  deriva3ves  by  funds,  including  the  poten3al  implica3ons  for  fund  leverage,  diversifica3on,  exposure  to  certain  securi3es-­‐ the  public  to  weigh  in  on  funds’  use  related  issuers,  porlolio  concentra3on,  valua3on,  and  related   of  deriva3ves  and  the  current  maJers.  In  addi3on  to  the  specific  issues  highlighted  for  comment,  the  Commission  invites  members  of  the  public  to   regulatory  landscape.  .  .    address  any  other  maJers  that  they  believe  are  relevant  to  the  use  of  deriva3ves  by  funds.  The  Commission  intends  to   Ben  Protess,  S.E.C.  Examines  Mutual  consider  the  comments  to  help  determine  whether  regulatory  ini3a3ves  or  guidance  are  needed  to  improve  the  current   Funds’  Use  of  Deriva:ves,  DealBook,  regulatory  regime  for  funds  and,  if  so,  the  nature  of  any  such  ini3a3ves  or  guidance.     New  York  Times,  Aug.  31,  2011.    76  FR  55273  (Sept.  7,  2011).  
  10. 10. When  Should  I  Weigh  In?    q To  have  an  effect  late  in  the  process,  you  need   to   lay   the   groundwork   as   early   in   the   process   and  as  oPen  as  possible.  q Find   out   what   agencies’   priori3es   are   and   how   they  are  contempla3ng  achieving  them.  q It   is   easier   to   get   an   agency   to   think   outside   the   box  early  in  the  process,  before  it  is  commiJed   to  one  par3cular  course.      
  11. 11. Oversight  Op3on:  Encourage  Agency  to   Ask  Data  on  Costs  and  Benefits    SUMMARY:  The  Securi3es  and  Exchange   Commission  is  reques3ng  data  and  other   informa3on,  in  par3cular  quan3ta3ve  data   and  economic  analysis,  rela3ng  to  the   benefits  and  costs  that  could  result  from   various  alterna3ve  approaches  regarding   the  standards  of  conduct  and  other   obliga3ons  of  broker-­‐dealers  and   investment  advisers.  We  intend  to  use  the   comments  and  data  we  receive  to  inform   our  considera3on  of  alterna3ve  standards  of   conduct  for  broker-­‐dealers  and  investment   advisers  when  providing  personalized   investment  advice  about  securi3es  to  retail   customers.  We  also  will  use  this  informa3on   to  inform  our  considera3on  of  poten3al   harmoniza3on  of  certain  other  aspects  of   the  regula3on  of  broker-­‐dealers  and   investment  advisers.    
  12. 12. Oversight  Op3on:  Commen3ng  on  a   Rule    Washington Post14,479 letters supporting the Volcker RuleBy  Suzy  Khimm,  Published:  February  15,  2012    Wall  Street  flooded  the  government  with  cri3cism  of  the  Volcker  Rule  this  week,  as  the  period  for  public  feedback  on  the  regula3on-­‐in-­‐progress  came  to  a  close.  The  SEC  received  241  detailed,  unique  comment  leJers  on  the  regula3on,  mostly  from  financial  firms  that  have  cri3cized  the  law.  Industry  group  representa3ves  have  also  held  the  bulk  of  the  face-­‐to-­‐face  mee3ngs  that  lobbyists  and  other  stakeholders  have  had  with  federal  regulators.  But  they  aren’t  the  only  ones  who  have  weighed  in.  The  Securi3es  and  Exchange  Commission  also  received  14,479  generic  form  leJers  in  support  of  a  strong  version  of  the  Volcker  Rule,  which  prohibits  specula3ve  trading  by  banks  for  their  own  benefit.      By  my  rough  count,  as  of  last  week:   »  18,179  form  leJers   »  512  unique  comment  leJers    
  13. 13. Does  Commen3ng  Make  a  Difference?  Changes  in  Final  Rule   The  SECs  proposals  aJracted  much   aJen3on,  drawing  over  20,000  comments-­‐ among  the  most  comments  for  a  proposal   in  the  Commissions  history.    .  .  .  numerous   comments  spoke  specifically  to  the  Ka3e   Couric  Clause.  .  .  .  Instead  of  moving  for-­‐ ward  immediately  with  its  en3re  ini3al   proposal,  the  Commission  adopted  some   rules  and  issued  a  separate  release  request-­‐ ing  addi3onal  comments  on  disclosure  of   compensa3on  of  those  who  are  not  exec-­‐ u3ve  officers.    The  SEC  notably  recognized   that  commenters  perceived  problems  with   the  original  proposal  to  add  disclosure  for   highly  compensated  employees  who  did   not  serve  as  execu3ve  officers.    
  14. 14. Oversight  Op3on:  Ask  for  a  Re-­‐proposal  if  Ini3al  Proposal  is   Inadequate  or  Agency  Is  Planning  to  Finalize  Something  Very   Different  from  Proposal  On  January  26,  2011,  the  Council  issued  a  no3ce  of  proposed  rulemaking  (the  ‘‘NPR’’)  (76  FR  4555)  through  which  it  sought  public  comment  regarding  the  specific  criteria  and  analy3c  framework  that  the  Council  intends  to  apply  in  the  Determina3on  Process.  The  comment  period  for  the  NPR  closed  on  February  25,  2011.  In  response  to  comments  that  the  Council  received  on  the  NPR,  the  Council  is  issuing  a  second  no3ce  of  proposed  rulemaking  (the  ‘‘Proposed  Rule’’)  and  proposed  interpre3ve  guidance  (the  ‘‘Proposed  Guidance’’)  to  provide  (i)  addi3onal  details  regarding  the  framework  that  the  Council  intends  to  use  in  the  process  of  assessing  whether  a  nonbank  financial  company  could  pose  a  threat  to  U.S.  financial  stability,  and  (ii)  further  opportunity  for  public  comment  on  the  Council’s  proposed  approach  to  the  Determina3on  Process.  FSOC,  Authority  to  Require  Supervision  and  Regula3on  of  Certain  Nonbank  Financial  Companies,  76  Fed.  Reg.  64,264  (Oct.  18,  2011).    
  15. 15. Oversight  Op3on:  Play  a  Role  in  Bringing  Important   Comments  to  Their  AJen3on  .  .  .  One  commenter  asserted  that  the  cost  of  compliance  will  exceed  10  to      20  3mes  the  amount  projected  by  the  Commission.  .  .  .  The  Commission  con3nues  to  believe  that  the  cost  to  develop  and  maintain  compliance  policies  and  procedures  will  not  be  significant  for  most  brokers-­‐dealers.    .  .  .  the  compliance  cost  is  a  weighted  average  that  skews  lower  because  most  brokers  and  dealers  who  already  maintain  compliance  policies  and  procedures  will  not  face  significantly  greater  costs.  Although  several  broker-­‐dealers  may  indeed  incur  a  cost  of  compliance  that  will  exceed  the  amount  es3mated  in  the  Proposing  Release,  the  Commission  an3cipates  that  these  broker-­‐dealers  will  be  significantly  outnumbered  by  brokers-­‐dealers  who  will  incur  minimal  addi3onal  costs.  .  .  .  SEC,  Risk  Management  Controls  for  Brokers  or  Dealers  With  Market  Access;  Final  Rule,  75  FR  69792  (Nov.  15,  2010).  
  16. 16. Finding  a  No3ce  of  Proposed  Rulemaking  You  can  search  by  Federal  Register  cite  or  by  keyword.  
  17. 17. If  you  click  here,  it  takes  you  to,  another  place  to  look  for  agency  no3ces.      It  is  also  a  place  where  you  can  make  comments.  
  18. 18. A  Note  on  Federal  Register  Publica3on   •  SEC  vote  on  Adviser  •  It  typically  takes  about  a   7/11/2007   An3fraud  Rule   week  for  the  Federal   Register  to  publish  a   •  Rule  published  on   no3ce  aPer  an  agency   SEC  website   8/3/2007   transmits  it.  •  Agencies  may  post   no3ces  on  their  own   •  Rule  published  in   8/9/2007   Federal  Register   websites  first,  but  even   this  can  take  some   3me.    
  19. 19. Oversight  Op3on:  Talk  with  Office  of   Management  and  Budget  q In  addi3on  to  the  public  comment  process,  for   execu3ve  agencies,  there  is  a  parallel  process  q The  White  House  Office  of  Management  and  Budget   has  an  office—the  Office  of  Informa3on  and   Regulatory  Affairs  (OIRA)—that  reviews  rules  q Series  of  Execu3ve  Orders  governs  this  process  q These  Execu3ve  Orders  require  agencies  to  perform   regulatory  impact  analysis,  which  OIRA  reviews    q Public  can  direct  comments  to  OIRA  
  20. 20. Execu3ve  Orders  • President  Clinton  (1993)   • E.O.  12866  focused  OIRA  oversight   on  “significant”  rules   • Benefits  must  “jus3fy”  costs   • Qualita3ve  factors  can  be  considered   • Agencies  must  develop  plans  for   retrospec3ve  analysis  • President  Obama:  Reaffirmed  and  added  to  E.O.  12866  in  E.O.  13563    
  21. 21. "Are you achievingthis regulatoryobjective in thesmartest, mosteffective, mostefficient waypossible?”OIRA Staffer Michael Fitzpatrick, quoted at
  22. 22. Major  Elements  of  Regulatory  Impact   Analysis  1.  Define  the  desired  outcome.    2.  Define  and  iden3fy  the  root  cause  of  the  systemic  problem   that  must  be  solved  to  achieve  the  desired  outcome.  3.    Develop  a  wide  variety  of  alterna3ves  and  assess  their   effec3veness.  4.  Assess  costs,  benefits,  cost-­‐effec3veness,  and  net  benefits   of  alterna3ves.  
  23. 23. An  Everyday  Example  of  Economic  Analysis    
  24. 24. Requirements  Vary  With  Importance  of   Regula3on  •  3000-­‐4000  final  regula3ons  issued  annually  •  200-­‐400  “significant”  final  rules  include  basic  cost/benefit  analysis  and   are  reviewed  by  OIRA  •  60-­‐100  “major”  or  “economically  significant”  final  rules  (>  $100  million   annual  impact)  require  a  full  Regulatory  Impact  Analysis  •  Regula3ons  with  impact  exceeding  $1  billion  must  have  a  formal   quan3ta3ve  uncertainty  analysis  
  25. 25. Oversight  Op3on:  Check  to  See  if  All  Major  Rules  Are  Being  Flagged  
  26. 26. Sample  Regulatory  Impact  Analysis   REGULATORY  IMPACT   We  have  examined  the  impact  of  the   ANALYSIS   joint  interagency  Rule  being  issued   to  interpret  and  implement  the   For   Secure  and  Fair  Enforcement  for  Registra>on  of  Mortgage  Loan   Mortgage  Licensing  Act  of  2008,  Title   Originators  Final  Rulemaking   V  of  the  Housing  and  Economic   January  8,  2010   Recovery  Act  of  2008  (P.L.  110-­‐289,   122  Stat.  2654,  12  U.S.C.  5101  et   (Revised  July  1,  2010)   seq.)  (.  .  .  The  joint  interagency  Rule   Office  of  the  Comptroller  of   requires  loan  originators  to  register   the  Currency   and  disclose  their  registra3on  hJp://! numbers  to  consumers.  documentDetail;D=OCC-­‐2010-­‐ 0007-­‐0002  
  27. 27. Regulatory  Impact  Analysis   This  is  the     es3mate   used     for  com-­‐   parison.  
  28. 28. Regulatory  Impact  Analysis   This  is  the   lowest  cost     op3on.  
  29. 29. Regulatory  Impact  Analysis  IX.  Conclusion  Because  of  the  constraints  described  above,  the  Agencies  are  precluded  from  implemen3ng  the  Act  using  the  less  costly  performance  standard  described  in  this  RIA  that  reduces  the  burden  imposed  on  banks  through  automa3on.  Accordingly,  given  the  constraints  imposed  on  OCC  by  the  Act,  and  based  on  the  es3mated  mean  cost,  the  joint  interagency  Rule  is  the  least  cost  op3on  available  to  the  OCC.  
  30. 30. Regulatory  Impact  Analysis  The  Act,  therefore,  sets  forth  an  atypical  principal/vendor  rela3onship  in  which  the  Agencies  are  required  to  proceed  by  developing  modifica3ons  to  an  exis3ng  state  licensing  system  and  are  not  free  to  use  a  compe33ve  process  to  select  a  vendor  or  create  a  new  registry  designed  solely  for  federal  registrants.  This  limita3on  on  the  Agencies’  choice  of  registry  plalorm  creates  a  monopoly  for  its  operator,  SRR  (a  wholly  owned  subsidiary  of  the  CSBS).  This  situa3on  severely  limited  the  ability  of  the  Agencies  to  nego3ate  the  range  and  type  of  implementa3on  op3ons  that  could  have  increased  efficiency  and  reduced  the  regulatory  burden  (i.e.,  the  cost)  of  the  joint  interagency  Rule.  
  31. 31. Comparing  Alterna3ves   Some3mes  None  of  the  Op3ons  is  Good  hJp://­‐econ-­‐20081114.pdf  
  32. 32. Oversight  Op3on:  Ask  for  RIA  Results  •  Ask  regulators  to  let  you  know  when  an   RIA  shows  nega3ve  net  benefits  •  Ask  regulators  to  let  you  know  when  the   statute  prevents  them  from  pursuing  an   alterna3ve  that  would  be  more  cost-­‐ effec3ve    
  33. 33. Grading  the  Regulators  
  34. 34. Oversight  Op3on:  Ask  Ques3ons  about  the  Regulatory  Impact  Analysis  Based  on  Report  Card   Regulatory Scoring Agency: Treasury et. al. Rule title: Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Standardized Risk-Based Capital Rules (Basel II: Standardized Option) RIN 1557-AD07 RIA Yes Stage Publication Date Proposed Rule 7/29/2008 Rule summary: The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS) (collectively, the agencies) propose a new risk-based capital framework (standardized framework) based on the standardized approach for credit risk and the basic indicator approach for operational risk described in the capital adequacy framework titled ‘‘International Convergence of Capital Measurement and Capital Standards: A Revised Framework’’ (New Accord) released by the Basel Committee on Banking Supervision. The standardized framework generally would be available, on an optional basis, to banks, bank holding companies, and savings associations (banking organizations) that apply the general risk- based capital rules. Openness Score Comments 1. How easily were the RIA, the proposed rule, and any supplementary materials found online? 3 See Topic 1 Tab 2. How verifiable are the data used in the analysis? 1 See Topic 1 Tab 3. How verifiable are the models and assumptions used in the analysis? 2 See Topic 1 Tab 4. Was the Regulatory Impact Analysis comprehensible to an informed layperson? 3 See Topic 1 Tab Total Openness (Sum of 1-4) 9 Analysis Score Comments 5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them? 1 See Topic 2 Tab 6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve? 3 See Topic 2 Tab 7. How well does the analysis assess the effectiveness of alternative approaches? 3 See Topic 2 Tab 8. How well does the analysis assess costs and benefits? 2 See Topic 2 Tab
  35. 35. Independent  Regulatory  Agencies  •  Not  subject  to  execu3ve  orders  on   economic  analysis  •  Some3mes  their  own  organic  statutes   require  them  to  do  analysis  •  Tend  not  to  do  economic  analysis  absent   a  statutory/judicial  prompt    
  36. 36. Oversight  Op3on:  Ask  the  Independent   Regulators  to  Do  Regulatory  Impact  Analysis  •  Regulatory  impact  analysis  is  a  tool  that   regulators  should  use  regardless  of  whether   they  are  told  by  statute  or  execu3ve  order  to   do  so  •  One  could  argue  that  the  principles  of  good   rulemaking  derived  from  the  Administra3ve   Procedure  Act  requires  economic  analysis  
  37. 37. Sample  Statutory  Requirement:  SEC  Whenever  pursuant  to  this  subchapter  the  Commission  is  engaged  in  rulemaking  and  is  required  to  consider  or  determine  whether  an  ac3on  is  necessary  or  appropriate  in  the  public  interest,  the  Commission  shall  also  consider,  in  addi3on  to  the  protec3on  of  investors,  whether  the  ac3on  will  promote  efficiency,  compe33on,  and  capital  forma3on.  15  U.S.C.  §  77b(a)  
  38. 38. Judicial  Assessment  of  SEC’s  Economic  Analysis  .  .  .  Here  the  Commission  inconsistently  and  opportunis3cally  framed  the  costs  and  benefits  of  the  rule;  failed  adequately  to  quan3fy  the  certain  costs  or  to  explain  why  those  costs  could  not  be  quan3fied;  neglected  to  support  its  predic3ve  judgments;  contradicted  itself;  and  failed  to  respond  to  substan3al  problems  raised  by  commenters.  .  .  .  Business  Roundtable  v.  SEC,  647  F.3d  1144  (D.C.  Cir.  2011).    
  39. 39. Sample  Statutory  Requirement:  CFTC  Costs  and  benefits  (1)  In  general  Before  promulga3ng  a  regula3on  under  this  chapter  or  issuing  an  order  (except  as  provided  in  paragraph  (3)),  the  Commission  shall  consider  the  costs  and  benefits  of  the  ac3on  of  the  Commission.  (2)  Considera>ons  The  costs  and  benefits  of  the  proposed  Commission  ac3on  shall  be  evaluated  in  light  of—  (A)  considera3ons  of  protec3on  of  market  par3cipants  and  the  public;    (B)  considera3ons  of  the  efficiency,  compe33veness,  and  financial  integrity  of  futures  markets;    (C)  considera3ons  of  price  discovery;    (D)  considera3ons  of  sound  risk  management  prac3ces;  and    (E)  other  public  interest  considera3ons.    7  U.S.C.  §  19(a).    
  40. 40. Judicial  Assessment  of  CFTC’s  Economic  Analysis  .  .  .  whether  the  benefits  of  the  Final  Rule  outweigh  its  costs  is  within  the  sound  discre3on  of  the  agency.  The  agency  must  only  show  the  Court  that  it  considered  and  evaluated  the  costs  and  benefits  as  it  was  required  to  do  by  statute.  .  .  .  The  CFTC  fulfilled  its  obliga3on  under  the  CEA  to  consider  the  costs  and  benefits  of  its  proposed  rule.    ICI  v.  CFTC,  (D.D.C.  2012).  
  41. 41. Inspector  General’s  Assessment  of  CFTC’s   Economic  Analysis  We  recognize  that  cost-­‐benefit  analysis  does  not  possess  anywhere  near  the  exac3tude  of,  say,  calculus,  but  it  does  provide  structure  for  evalua3on.  A  more  robust  process  is  clearly  permiJed  under  the  cost-­‐benefit  guidance  issued  by  the  Office  of  General  Counsel  and  the  Office  of  Chief  Economist,  and  we  believe  a  more  robust  approach  would  be  desirable,  with  greater  input  from  the  Office  of  Chief  Economist.        Office  of  Inspector  General,  CFTC,  An  Inves3ga3on  Regarding  Cost-­‐Benefit  Analyses  Performed  by  the  Commodity  Futures  Trading  Commission  in  Connec3on  with  Rulemakings  Undertaken  Pursuant  to  the  Dodd-­‐Frank  Act    (Apr.  15,  2011)          
  42. 42. Sample  Statutory  Requirement:  CFPB    STANDARDS  FOR  RULEMAKING.—In  prescribing  a  rule  under  the  Federal  consumer  financial  laws—  (A)  the  Bureau  shall  consider—  (i)  the  poten3al  benefits  and  costs  to  consumers  and  covered   persons,  including  the  poten3al  reduc3on  of  access  by   consumers  to  consumer  financial  products  or  services   resul3ng  from  such  rule;  and  (ii)  the  impact  of  proposed  rules  on  covered  persons,  as   described  in  sec3on  1026,  and  the  impact  on  consumers  in   rural  areas;  Dodd-­‐Frank  §  1022(b)(2)  [12  U.S.C.  §  5512  (b)(2)].  
  43. 43.   GAO’s  Assessment  of  Federal  Financial  Regulators’  Economic   Analysis  By  taking  steps  to  more  fully  incorporate  OMB’s    guidelines  in  their  rulemaking  policies  and  procedures,  federal  financial  regulators  could  enhance  the  rigor  and  transparency  of  their  regulatory  analyses.  By  taking  such  ac3on,  regulators  could  demonstrate  the  ra3onale  behind  their  regulatory  decisions  and  ensure  that  the  alterna3ves  they  have  chosen  are  in  fact  the  most  cost-­‐beneficial  op3ons.    Government  Accountability  Office,  Dodd-­‐Frank  Act  Regula3ons:  Implementa3on  Could  Benefit  from  Addi3onal  Analyses  and  Coordina3on    (Nov.  2011),  at  37.    
  44. 44. Oversight  Op3on:  Bring  in  Reinforcements  •  An  agency’s  inspector  general  can  take  a  look   at  how  the  agency  is  making  its  rules,  se€ng   its  priori3es,  etc.  •  The  GAO  can  look  at  how  well  agencies  are   conduc3ng  and  coordina3ng  analysis,   par3cularly  when  a  statute  mandates   mul3ple,  simultaneous  rulemakings  •  You  can  encourage  an  independent  regulatory   agency  to  bring  in  the  OMB  for  consulta3on  
  45. 45. Regulatory  Flexibility  Act  •  Requires  agencies  to  analyze  the  effects  of  their  rules  on  small  en33es  and   look  for  ways  to  minimize  the  burden  on  small  en33es    •  Doesn’t  apply  to  rules  that  are  issued  as  final  without  a  proposal  •  Agency  either  has  to:   v   cer3fy,  aPer  a  threshold  analysis,  that  a  rule  will  not  have  a  significant   economic  impact  on  a  substan3al  number  of  small  en33es,  or   v   complete  and  publish  in  the  Federal  Register  an  Ini3al  Regulatory  Flexibility   Analysis  (IRFA)  and—if  it  s3ll  can’t  cer3fy—a  Final  Regulatory  Flexibility   Analysis  (FRFA)  •  Chief  Counsel  for  Advocacy  at  the  Small  Business  Administra3on  receives   a  copy  of  these  analyses  and  monitors  compliance  with  the  Act  •  Public  has  opportunity  to  comment  •  OSHA,  EPA  and  CFPB  have  to  form  SBREFA  panels,  which  formalize   outreach  to  small  en33es  •  Requires  agencies  to  review  rules  with  significant  impact  within  10  years  •  Allows  for  judicial  review  
  46. 46. Sample  Reg  Flex  Cer3fica3on  V.  Regulatory  Flexibility  Act    The  Council  cer3fies  that  this  final  rule  will  not  have  a  significant  economic  impact  on  a  substan3al  number  of  small  en33es.  The  economic  impact  of  this  rule  is  not  expected  to  be  significant.  The  final  rule  would  apply  only  to  nonbank  financial  companies  that  could  pose  a  threat  to  the  financial  stability  of  the  United  States.  Size  is  an  important  factor,  although  not  the  exclusive  factor,  in  assessing  whether  a  nonbank  financial  company  could  pose  a  threat  to  financial  stability.  The  Council  expects  that  few,  if  any,  small  companies  (as  defined  for  purposes  of  the  Small  Business  Act)  could  pose  a  threat  to  financial  stability.  Therefore,  the  Council  does  not  expect  the  rule  to  directly  affect  a  substan3al  number  of  small  en33es.  Accordingly,  a  regulatory  flexibility  analysis  under  the  Regulatory  Flexibility  Act  (5  U.S.C.  601-­‐612)  is  not  required.    FSOC,    Authority  to  Require  Supervision  and  Regula3on  of  Certain  Nonbank  Financial  Companies,  77  FR  21637  (Apr.  11,  2012).      
  47. 47. Oversight  Op3on:  Work  with  the  SBA  •  The  SBA’s  Office  of   Example:  Advocacy  weighed  in  on   CFPB’s  mortgage  rules:   Advocacy  works  on     ensuring  that  small   “The  CFPB  asserted  that  loan   en33es  are  taken  into   performance,  as  measured  by  the   delinquency  rate,  was  an  appropriate   account  in  the   metric  to  evaluate  whether  a   rulemaking  process   consumer  had  the  ability  to  repay   those  loans  at  the  3me  the  loan  was  •  The  Office  also  assists   made.  Advocacy  ques3oned  that   in  the  review  of   asser3on  because  a  consumer’s   exis3ng  regula3ons  to   circumstances  may  have  changed   aPer  a  loan  was  made.”   minimize  regulatory   -­‐Office  of  Advocacy,  SBA,  Report  on  the   burdens   Regulatory  Flexibility  Act,  FY  2012,  at  23.  
  48. 48. Oversight  Op3on:  Ask  Ques3ons  about   Paperwork  Reduc3on  Act  Analysis  •  Agencies  have  to  es3mate  burdens  of  and   jus3fy  collec3ons  of  informa3on.  •  Agencies  are  supposed  jus3fy  their   informa3on  collec3ons.  •  OIRA  reviews  and  approves  collec3ons  before   they  take  effect  and  every  3  years  thereaPer.  •  No  obliga3on  to  comply  with  unapproved   collec3on  of  informa3on.    
  49. 49. Oversight  Op3on:  Ask  Ques3ons  About   Unfunded  Mandates  Reform  Act  Analysis  •  Requires  analysis  of  “major”  regula3ons   (mandate  exceeding  $100  million  annually)  •  Focus  is  on  costs  imposed  on  non-­‐federal   governmental  bodies  and  private  sector  •  Required  analysis  includes  qualita3ve  and   quan3ta3ve  analysis  of  costs  and  benefits   and  considera3on  of  alterna3ves  •  Requirement  to  choose  or  explain  why  not   choosing  least  burdensome  alterna3ve    
  50. 50. Oversight  Op3on:  Congressional  Review  Act  •  Members  can  introduce  a  resolu3on  to   disapprove  a  final  rule  within  60  days  of   receiving  it.  •  If  President  vetoes  the  resolu3on,  2/3   majority  is  needed  in  both  houses.  •  Has  only  been  used  successfully  once:  2001   disapproval  of  an  OSHA  rule  
  51. 51. Judicial  Review  q Legal  challenge  can  be  based  on  failure  to  follow  APA   process     v Agency  ac3ons  must  have  sufficient  factual  support  in  the   record   v Agency  ac3ons  must  not  be  arbitrary  or  capricious   v Agency  must  have  no3fied  the  public  and  considered  public   comments  q If  an  agency  used  the  good  cause  excep3on  not  to   comply  with  standard  APA  procedures,  this  decision   can  be  challenged  in  court  q The  quality  of  the  agency’s  analysis  can  be  challenged   (although  EO  12866  is  not  judicially  enforceable)  q Courts  employ  a  deferen3al  review  standard  
  52. 52. Oversight  Op3on:  File  An  Amicus  Brief  STATEMENT  OF  INTEREST    As  the  United  States  Senators  who  were  the  authors  and  sponsors  of  Sec3on  1504  (hereinaPer  “the  Cardin-­‐Lugar  Amendment”)  of  the  Dodd-­‐Frank  Wall  Street  Reform  and  Consumer  Protec3on  Act  (P.L.  111-­‐203,  July  21,  2010  (hereinaPer  the  “Dodd-­‐Frank  Act”),  amici  curiae  have  direct  knowledge  of  the  development  and  draPing  of  the  text  and  the  Congressional  intent  behind  the  substance  of  the  bill,  including  the  consistency  of  the  Securi3es  and  Exchange  Commission  (“S.E.C.”  or  “Commission”)  final  rule  (“Final  Rule”)  with  the  substance  and  intent  of  the  Cardin-­‐Lugar  Amendment.  2    Brief  of  Senators  Benjamin  Cardin  and  Carl  Levin  and  Former  Senator  Richard  Lugar  as  Amici  Curiae  in  Support  of  Respondent,  American  Petroleum  Ins3tute  v.  SEC,  D.C.  Cir.,  No.  12-­‐1398  (Jan.  16,  2013).    
  53. 53. Oversight  Op3on:  Make  Regulators  Look  Back  •  Ask  regulators  to  tell  you  how  a  rule  is   working  •  This  works  best  when  you  have  goJen  them   to  build  success  metrics  into  the  regula3on.     Otherwise,  they  will  be  tempted  to  select   metrics  that  show  success.  •  President  Obama  issued  an  execu3ve  order   calling  on  regulators  to  look  back.  
  54. 54. An  Example  of  a  Built-­‐In  Look  Back  And  in  most  respects  this  rule  is  consistent  with  the  desire  to  be  careful,  thoughlul  and  data  driven.  Most  importantly,  we  build  into  the  rulemaking,  aPer  the  regulatory  structure  for  security-­‐based  swaps  is  in  place  for  two  years,  a  comprehensive  staff  study  of  some  of  the  choices  we  are  making  today,  to  determine  whether  those  choices  are  correct  or  need  to  be  modified.  At  that  3me,  we  will  have  the  benefit  of  massive  amounts  of  addi3onal  data,  a  more  developed  regulatory  infrastructure,  and  several  years  of  agency  exper3se  in  regula3ng  and  overseeing  these  markets.  The  Commission  will  be  in  a  far  stronger  posi3on  to  determine  whether  the  lines  we  draw  today-­‐-­‐including  the  de  minimis  level  for  determining  whether  one  is  a  dealer,  and  the  factors  used  to  determine  whether  one  is  a  dealer  or  major  security-­‐based  swap  par3cipant—should  be  modified  in  light  of  a  more  comprehensive  understanding  of  the  market.  Importantly,  it  should  be  noted,  the  study  doesn’t  predetermine  the  ul3mate  outcome  of  these  choices,  but  merely  allows  that  more  comprehensive  data  and  analysis  will  guide  any  decisions  the  Commission  may  make  to  modify  or  refine  the  defini3ons  we  are  adop3ng  today.    Statement  at  SEC  Open  Mee3ng:  Defining  Swaps-­‐Related  Terms,  by  Commissioner  Daniel  M.  Gallagher,  on  April  18,  2012  
  55. 55. Where  to  Look?  •  Agency  Websites  (for  example,     hJp://  •   hJp://!home;tab=search    •  Federal  Register   hJps://  •  hJp://  •  OMB’s  OIRA  Website  hJp://    •  GAO’s  CRA  website   hJp://    
  56. 56. Oversight  Op3on:  General  Monitoring    q Direct  involvement  in  the  rulemaking  process   is  not  the  only  avenue  for  affec3ng  it.  q Other  op3ons  include  oversight  hearings,   briefing  requests,  leJers,  appropria3ons   riders.  q These  are  blunt  instruments,  but  can  be   effec3ve  in  le€ng  regulators  know  someone  is   paying  aJen3on.  
  57. 57.    More  Ques3ons?