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A group of business trade associations that include the Business Roundtable, the US Chamber of Commerce & the Investment Company Institute recently published a report titled “Investors and the Markets First: Reforms to Restore Confidence in the SEC,” which offers a series of proposed reforms to the SEC’s rulemaking process. The report contends that, over the past three years, the SEC has “undertaken an unprecedented and often unlawful rulemaking agenda that, without sound justification, will radically redesign the foundation of our capital markets. The majority of the proposed changes are non-investment–, non-investor–, and non-market–oriented changes that limit choice and flexibility.”

The report then identifies six specific sins that it claims that the SEC has committed when it comes to rulemaking, including ignoring its obligations under the Administrative Procedure Act, adopting final rules that differ drastically from proposals, and exceeding its statutory authority. The report recommends a variety of reforms to the rulemaking process, which are summarized in this excerpt from a Mayer Brown blog:

– Require the SEC to affirmatively conduct an analysis of all interrelated and interconnected rules for each proposed rule and then amend or repeal rules as necessary to account for such interconnectedness;
– Require the SEC to provide comment periods for proposals with a minimum of 60 days, calculated from the Federal Register publication date, unless there is an emergency;
– Require a third party to perform and publish for public comment no later than 90 days from the date of enactment a post-adoption cost impact assessment for each major rule the SEC has adopted in the past three years;
– Integrate and expand on the mission of several offices of the SEC, including, for example, the Office of the Advocate for Small Business Capital Formation; and
– Require the SEC to publish an annual report on the number of exemptions granted or exemptive rules adopted to promote capital formation and innovation and the actions the SEC has taken to promote financial security and review and adjudicate exemptive applications under the Investment Company Act of 1940 for relief in no more than 180 days.

Several of these reform proposals sound like they’re the equivalent of the “Paperwork Production Act of 2024,” and appear designed to simply throw sand in the gears of the rulemaking process. For their proponents, that may be more of a feature than a bug, but the proposals also ignore the problem of legislative gridlock, which I think is the real issue.

The simple truth is that Congress can’t get its act together to pass legislation, so whatever party controls the White House is going to use federal agency rulemaking to accomplish its legislative objectives. Until that’s addressed, rulemaking is going to be a highly partisan and sometimes ugly process, no matter what “reforms” are on the table.

– John Jenkins