Last year, Liz shared the annual report of the SEC’s Office of Inspector General addressing the agency’s top management and performance challenges. One of the concerns expressed was the SEC’s consideration of potential judicial scrutiny in its rulemaking process. The report noted that the OIG was also auditing the agency’s rulemaking process and internal controls — specifically the processes for giving interested persons an opportunity to participate in rulemaking and assessing and documenting the impact of proposed rules on efficiency, competition, and capital formation.

Just last week, the OIG issued its 25-page report of findings from its review of 24 rulemaking activities from January 2018 through December 2022. Here are the top takeaways from the summary:

– The SEC defined processes to give interested persons an opportunity to participate in rulemaking. The Agency provided a comment period ranging from 30 to 92 days.

– While the rulemaking divisions consistently collaborated with DERA and OGC in accordance with internal guidance, they did not always involve other divisions and offices in rulemakings within their subject matter expertise.

– The SEC also defined processes to assess and document the impact(s) of proposed rules on efficiency, competition, and capital formation. Yet, some SEC staff expressed concerns about limited data and time to perform economic analyses.

– The SEC further established processes to ensure staff with sufficient and appropriate skills, experience, and expertise are involved in formulating and reviewing proposed rules. However, an Agencywide assessment of the knowledge, skills, and competencies of rulemaking staff was not available until December 2024, and non-federal personnel who worked at the SEC under Intergovernmental Personnel Act (IPA) agreements and who were involved in rulemaking performed unauthorized supervisory functions.

– Technological errors impacted the SEC’s receipt of public comments, and SEC personnel released embargoed rulemaking information without authorization from the Commission.

The report notes that the OIG is not currently making formal recommendations because the SEC took actions during the audit to address these concerns and is continuing to assess its rulemaking process. Comment periods and the rulemaking process more generally have been cited in a number of Commissioner dissents on both sides of the aisle in recent years. In March, Commissioner Uyeda, then Acting SEC Chair, suggested some best practices — for example, a 60- or even 90-day minimum for comment periods depending on a rule’s complexity and more frequent use of reproposals or reopening a comment file to address rule changes in response to comments or the passage of time.

Did you know we have a Checklist on “How to Write SEC Rulemaking Comment Letters”? If you do not have access to our Handbooks, Checklists, and all of the other practical guidance that is available here on TheCorporateCounsel.net, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.

– Meredith Ervine