[Extensions of Remarks]
[Pages E751-E752]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SEC REGULATORY ACCOUNTABILITY ACT
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speech of
HON. ALAN GRAYSON
of florida
in the house of representatives
Friday, May 17, 2013
The House in Committee of the Whole House on the State of
the Union had under consideration the bill (H.R. 1062) to
improve the consideration by the Securities and Exchange
Commission of the costs and benefits of its regulations and
order:
Mr. GRAYSON. Mr. Chair, the U.S. House of Representative has passed a
bill called the SEC Regulatory Accountability Act (H.R. 1062). Congress
intended with this legislation to ensure that the Securities and
Exchange Commission consider the costs and benefits of its regulatory
apparatus, and further intended for this legislation to protect
investors and improve capital formation.
INTRODUCTION
The Securities Exchange Act of 1934 states that there is a compelling
national public interest in the regulation and control of securities
transactions occurring either on exchanges or over-the-counter to
``protect interstate commerce, the national credit, the Federal taxing
power, to protect and make more effective the national banking system
and Federal Reserve System, and to insure the maintenance of fair and
honest markets in such transactions.'' Nothing in the HR 1062 is meant
to undermine the implied statutory authority of the SEC to protect the
national interest.
In this bill, Congress did not intend to change the well-established
rule, set forth in Supreme Court precedent, that any court reviewing an
agency rule under the Administrative Procedure Act must be deferential
to the agency's judgment and must not substitute the court's judgment
for that of the agency.
In this bill, Congress did not intend the SEC to determine whether
regulation is warranted if Congress has required the SEC to promulgate
a rule. In other words, Congress did not intend to grant the SEC any
right or power to ignore Congress's rulemaking mandates. Similarly, in
this bill, Congress did not intend to condition any SEC rulemaking on
any type of cost-benefit analysis if Congress has required the SEC to
promulgate a rule on a matter.
In this bill, Congress did not intend to overturn the SEC's
longstanding duty, above all other responsibilities, to protect
investors and ensure the integrity of our financial markets. Thus,
Congress's intent here is that the SEC, when engaged in rulemaking, do
what is necessary to maximize the protection of investors and the
integrity of our markets, and only attempt to minimize burdens once the
attainment of those goals has been assured.
The Securities Exchange Act of 1934 determines that a significant
cost of a lack of regulation are as follows: ``National emergencies,
which produce widespread unemployment and the dislocation of trade,
transportation, and industry, and which burden interstate commerce and
adversely affect the general welfare, are precipitated, intensified,
and prolonged by manipulation and sudden and unreasonable fluctuations
of security prices and by excessive speculation on such exchanges and
markets, and to meet such emergencies the Federal Government is put to
such great expense as to burden the national credit.''
The most recent National Emergency was the financial crisis of 2007-
2009. According to the Government Accountability Office, this crisis
reduced economic activity and aggregate wealth of the United States by
$22 trillion. Congress, in passing this law, construed that this $22
trillion number is the implied ``benefit'' of the SEC's regulatory
apparatus. Congress intends the SEC to construe $22 trillion as the
benefit of its aggregate regulatory apparatus in any cost/benefit
analysis, and to apply at least part of this $22 trillion ``benefit''
as the benefit of any specific regulation. In any regulation in which
the benefit of a specific rule or regulation is unclear, Congress
intends for the SEC to consider the possibility of an averted National
Emergency as a clear benefit.
The specific section of the Act amended by this bill grants to the
Securities and Exchange Commission, the Federal Reserve Board of
Governors, and other agencies the power ``to make such rules and
regulations as may be necessary or appropriate to implement the
provisions of this chapter for which they are responsible or for the
execution of the functions vested in them by this chapter.'' Nothing in
this bill shall be construed to limit the authority of these agencies
to regulate the securities markets.
[[Page E752]]
CONGRESSIONAL INTENT IN SPECIFIC PROVISIONS
In (e)(1)(A) of this bill, Congress mandated that the SEC consider
the ``nature and source of the problem that the proposed regulation is
designed to address, as well as assess the significance of that
problem'' before issuing a regulation. Congress believes, consistent
with systemic risk exceptions for open bank assistance, that the SEC
may issue regulations to reduce systemic risk, and that such a
rationale for a regulation is sufficient for a consideration of the
nature and source of a problem, as well as determining its
significance. Congress, consistent with the 1934 Act's reasoning around
the prevention of National Emergencies, intended for the SEC to
consider the maximum possible loss to investors and maximum possible
decline in capital formation should a regulation not be promulgated.
This maximum cost should include considering the possibility of another
systemically risky event similar to the financial crisis of 2008, with
its implied cost of $22 trillion (according to the Government
Accountability Office).
See also, e.g., Better Markets, the cost of the Wall Street Collapse
and Ongoing Economic Crisis Is More Than $12.8 Trillion (Sept. 15,
2012), available at http://better
markets.com/sitesidefault/files/Cost%200f%20
The%20Crisis.pdf. It is Congress's intent that when promulgating rules,
the SEC must consider whether a rule will help prevent such an economic
catastrophe from happening again.
In (e)(1)(B) of this bill, Congress intended the Chief Economist to
make a determination of the implied cost to society of not issuing a
regulation, and the burden to society implied by current business
practices. In requiring the Chief Economist to assess ``both
qualitative and quantitative'' costs and benefits, Congress intended
the Chief Economist to take into account costs and benefits that are
not easily quantified, and to give such unquantifiable benefits of
financial regulation the same consideration as the quantifiable
benefits. These unquantifiable benefits include, but are not limited
to, the avoidance of investor losses, heightened transparency, greater
systemic stability, the benefits of increased investor confidence in
the integrity of the financial system and the overall economic system,
and, above all, any risk of a collapse of the global financial system
and prevention of another crippling financial crisis. As some
commentators have observed, it is imperative that rulemaking be
conducted in a holistic way, one that accounts for the huge benefits
that accrue when a collection of rules helps prevent financial crises
or other widespread abuses. See Better Markets, Setting the Record
Straight on Cost-Benefit Analysis and Financial Reform at the SEC (July
30, 2012), available at <a href='http://bettermarkets.com/sites/default/files/
CBA%20Report.pdf'>http://bettermarkets.com/sites/default/files/
CBA%20Report.pdf</a>.
In Sections (e)(1)(B) and (e)(2)(A) of this bill, Congress recognized
that when members of the regulated industry do not provide data on the
costs of regulation to the SEC, and when cost data is not otherwise
available, the SEC has no obligation to develop its own studies or
generate its own data. 6Congress agrees with the assessment of the
courts, which have long held that no agency has to go to such lengths
when assessing costs, and this bill does not alter this important limit
on an agency's duty.
In (e)(1)(C) of this bill, Congress intended that a determination
that a regulation is intended to reduce systemic risk is a sufficient
``explanation of why the regulation meets the regulatory objectives
more effectively than the alternatives.'' In this subsection, Congress
intended the SEC to report on alternatives that it considered so as to
provide a complete picture of the justification for the regulation;
Congress did not intend to create a requirement that the SEC consider
any minimum number of alternatives, or any alternatives at all.
In subsection (e)(1)(D) of the text added by this bill, Congress
intended that any regulation should be easy to understand to the extent
allowed by the subject matter of the regulation; Congress did not
intend that regulations should be substantively simplified solely for
ease of communication, or that a regulation might be invalid because of
its complexity.
In (e)(2)(A) of this bill, Congress noted that, ``in deciding whether
and how to regulate, the Commission shall assess the costs and benefits
of available regulatory alternatives, including the alternative of not
regulating, and choose the approach that maximizes net benefits.''
Congress believes that the avoidance of systemic risk and the attendant
$22 trillion cost of National Emergencies needs to be considered for
any proposed regulation that the SEC determines is intended to reduce
systemic risk.
In subsection (e)(2)(A)(ii) of the text added by this bill, Congress
intended that the SEC, in identifying the regulation that imposes the
``least burden on society,'' should consider both the costs and
benefits of the regulation itself, and should evaluate those burdens on
society created by the regulation and those burdens on society that
exist in the absence of regulation and would be mitigated by the
proposed regulation. Congress intended the SEC to take into account not
only the ``cumulative costs of regulation,'' but also the cumulative
benefits of regulation.
Further, in subsection (e)(2)(A)(iii) of this bill, Congress intended
that to ``evaluate whether the regulation is consistent, incompatible,
or duplicative of other Federal regulations'' means to publish the
regulation for comment in the Federal Register.
In (e)(3) of this bill, Congress intended that that phrase ``industry
group concerns'' referenced in the second part of the paragraph also
apply to the ``consumer groups'' referenced earlier in the same
paragraph. Congress intended that Commission explain any changes
resulting from comments by industry or consumer groups, and similarly
requires them to give specific reasons if changes suggested by industry
or consumer groups were not implemented. Congress intended ``consumer
groups'' to mean groups that act in the public interest and provide a
perspective that is generally a counterweight to industry financial
interests and facilitating an appropriately diverse marketplace of
ideas within the process of making and evaluating regulations. In
addition, the SEC may explain a decision not to incorporate an industry
group concern by citing an opposing concern raised by another commenter
or by the SEC itself.
In (e)(4) of this bill, Congress intended for the Commission not only
to take into account the ``large burden of such regulation when
compared to the benefit of such regulation,'' but to also consider
whether a regulation imposes only a relatively small burden when
compared with its benefit, which could possibly warrant expansion, as
is further indicated by references in same subsection that the
Commission should determine whether regulations are ``ineffective [or]
insufficient'' and should be ``expand[ed].'' In other words, Congress's
intent for Section (e)(4) of this bill was that when the SEC is
reviewing its regulations, it will devote the same attention to
strengthening and expanding rules that have become weak over time as it
does to streamlining or repealing ineffective rules.
In the same paragraph, in determining whether any regulations are
``outmoded, ineffective, insufficient, or excessively burdensome,''
Congress intended that the Commission should be particularly attentive
to the rapid pace of change in the financial industry and the
securities markets and the new risks that are created in those markets,
including risks to the financial system as a whole, to corporations
that rely on those markets, and to investors in those markets. Congress
intends that the Commission, in using this periodic review process to
``modify, streamline, expand, or repeal'' regulations, should
proactively protect against new threats to the financial system and
close loopholes that are opened up by financial innovation aimed
primarily at evading regulation.
In (e)(5)(A)(ii) of this bill, Congress intends that the
``quantitative and qualitative metrics'' should include, where
relevant, the prevention of financial crises and severe recessions
caused by those crises, as well as the maintenance of individual
investor confidence in the securities markets.
In (e)(5)(B) of this bill, Congress intends that the mandated
assessment plan may be in whatever form the Commission deems
appropriate for the regulation at issue, subject to the requirements of
subsection (e)(5)(B)(i). In particular, some or all of the costs or
benefits of the regulation may be qualitative and not reducible to
quantitative figures, and the Commission may determine that no action
will be taken on the regulation on the basis of qualitative factors
included in the assessment.
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