SEC REGULATORY ACCOUNTABILITY ACT
(Extensions of Remarks - May 23, 2013)

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[Extensions of Remarks]
[Pages E751-E752]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   SEC REGULATORY ACCOUNTABILITY ACT

                                 ______
                                 

                               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 http://bettermarkets.com/sites/default/files/
CBA%20Report.pdf.
  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.

                          ____________________