November 17, 2016

Financial Choice Act: One Provision Could Destroy the SEC’s Rulemaking Abilities

The “Financial Choice Act” is much more than merely repealing big chunks of Dodd-Frank. There are a handful of provisions that would render the SEC’s ability to conduct rulemaking much more difficult. But this provision in particular – infamous “Section 631” – just blows me away:

SEC. 631. CONGRESSIONAL REVIEW. If the agency classified a rule as “major,” according to specified criteria, the rule would require a joint resolution of Congress to go into effect, unless the President finds that an emergency requires that it be effective (for 90 days). Congress would also have the right to disapprove certain non-major rules.

Read that provision again. A joint Congressional resolution to adopt a “major” rule – and even some non-major ones! It’s goal appears to be neutering the so-called “independent” federal agencies that govern our financial institutions & markets. Talk about putting partisan politics into “independent” agencies. And here I was worried that having Congress involved in the SEC’s budget process was too much meddling with a federal agency!

Remember that federal agencies are part of the executive branch of government. Not to mention that members of Congress don’t have the expertise, resources or time to understand what the various rules of an agency are. This would be a major windfall for lobbyists who would be able to effectively pay Congress to stop an agency from doing anything. Either the Senate or the House could stop a rulemaking – by simply sitting on their hands. The polar opposite of needing an “Act of Congress” to change something. It’s brazen & breathtaking – and a whole lot of other things that I can’t mention in this family-oriented blog.

The ironic thing is that many of those rules that you despise are the product of Congress. Since SOX was enacted 15 years ago, the vast majority of the SEC’s rulemakings have been mandated by one piece of Congressional legislation or another. Not many initiated by the agency itself…and here’s a nugget from this blog by Steve Quinlivan:

President-Elect Trump’s “Contract with the American Voter” contains a pledge to implement a requirement that for every new federal regulation, two existing regulations must be eliminated. So it would place many in a conundrum. If you want to implement a universal proxy card, what two SEC regulations do you want to jettison? Maybe SEC Rule 14a-8? What else?

As for what the regulatory environment might look like going forward, check out this Skadden memo, Sullivan & Cromwell memo, Gibson Dunn memo and a different Gibson Dunn memo…and this Steve Quinlivan blog summarizing a recent House hearing about the SEC…

What is a “Joint Congressional Resolution”?

Here’s another reason why I can’t comprehend Section 631. As I understand it from Wikipedia, a joint Congressional resolution is essentially the equivalent of a bill being enacted into law – which includes the slew of procedural rules that would make it fairly easy for someone in Congress to throw up roadblocks to anything that they didn’t like. Both the Senate & the House have to approve it by a majority of their members – and then it’s presented to the President for signature. If so, it really would take legislation – an “Act of Congress” – to get a rule adopted by the SEC. Wow…

Here’s a WSJ profile of former SEC Commissioner Paul Atkins, who is serving as the point man for President-Elect Trump’s transition team on issues related to the markets & regulation…

Poll: What’s a “Major” Rule?

Please participate in this anonymous poll about what you think a “major” rule might mean in the context of Section 631 of the “Financial Choice Act”:

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Broc Romanek