Vote Explanation for H.R. 78 — SEC Regulatory Accountability Act

The Securities and Exchange Commission (SEC) is an independent government agency tasked with protecting investors and facilitating capital formation in the financial marketplace. In the wake of the 2008 financial crisis, this agency has worked closely with federal and state law enforcement to protect our financial system from illegal activity.

I voted against H.R. 78, the SEC Regulatory Accountability Act, which would require the SEC’s Chief Economist to conduct a cost-benefit analysis of proposed regulations and explain how their expected benefits justify their costs to a wide range of actors, including: market participants, individuals, businesses, and other bodies. In addition the SEC would need to identify every “available alternative” — an impossible standard to meet — and to then explain why each of those alternatives was insufficient, before issuing any future regulation.

Additionally, H.R. 78 sets a precedent whereby large banks and other industry stakeholders would only have to assert that the SEC hadn’t considered some alleged “available alternative” for any rule to be thrown out. This is coupled with the bill’s directive to have the SEC review current regulations and revise or repeal those that are outdated or “excessively burdensome” going back to 1934.

Current law requires the SEC to conduct the same economic analyses required of all agencies under the Congressional Review Act, the Paperwork Reduction Act, and the Regulatory Flexibility Act. However, unlike other financial regulators, the SEC has additional statutory requirements to study how rules affect market efficiency, competition, and capital formation.

This legislation is unnecessary and burdensome to an important federal agency, given the already significant amount of analysis that goes into the SEC’s rulemaking process. According the SEC’s own Inspector General:

All of the rules that we [the IG] evaluated specified the justification for the rule, considered alternatives, and integrated the economic analysis into the rulemaking process. We determined that the SEC’s use of the Current Guidance has been effective in incorporating economic analysis into the rulemaking process.”

Enacting this legislation would cost the SEC roughly $23 billion over a five-year period, cost $27 million in workload alone, and would require the agency to hire an additional 20 staffers in order to meet the legislation’s requirements. The bill provides no additional funding for the SEC to address these new analytical and litigation responsibilities, and it is unlikely that a Republican-controlled Congress would provide more funding to the agency in the future.