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Companies and their advisors aren’t the only ones struggling to keep pace with SEC Chair Gary Gensler’s “front-loaded” rulemaking agenda – the Staff is also feeling the pressure, according to a recent report from the SEC’s inspector general and a related WSJ article.

This is not very surprising news given everything that is going on, but the report does provide some insight on “how the sausage is made.” And it shows that the Commission is facing challenges that are common across many organizations – for example, collaboration across departments, which is one of the most difficult things anywhere. Here’s an excerpt:

Despite management’s commitment to cross-functional collaboration and communication, personnel we met with (including those from the Division of Economic and Risk Analysis, the Division of Enforcement, and the Office of the General Counsel, among others) identified coordination and communication as a persistent challenge in the rulemaking process, particularly given potential overlaps in jurisdiction and differences in opinion.

We reported on such challenges in a management letter issued in September 2022. Specifically, we reported that, around December 2021, the Office of the Chair modified the process for coordinating internal reviews of draft agency rules, resulting in the Office of the Advocate for Small Business Capital Formation (OASB) and the Office of the Investor Advocate (OIAD) receiving only fatal flaw drafts of proposed rules for a brief period of time. This change was not formally documented or communicated, and the then-directors of OASB and OIAD were not aware of the change until after it took effect.

The report goes on to say that the OASB and OIAD were still able to carry out their responsibilities, but that these types of uncommunicated practices could hinder effective collaboration. You can certainly imagine people getting grumpy over this type of thing! The Staff is also worried that attrition and workload may lead to less time for research & analysis on rulemaking and may increase litigation risks, which are already circulating.

As a “consumer” of SEC rules, it is concerning that the Staff is experiencing these issues. A possible silver lining, as the Staff finalizes rules and thinks about the processes that will be necessary to comply, is that maybe these challenges will create even more empathy amongst the Staff for what companies are going through. I certainly hope that all of the hard-working folks at the SEC get the resources they need – and some appreciation for their efforts.

– Liz Dunshee