Risk & Compliance

Is the SEC Being “Set Up to Fail”?

A bill would raise the threshold for how the securities regulator sets rules.
Sarah JohnsonOctober 1, 2011

Mary Schapiro, chairperson of the Securities and Exchange Commission, is pushing back against a bill that would require the securities regulator to put more work into its rulemaking process.

“My fear about this legislation is that it layers so much analysis on top of what we already do that we’re set up to fail,” Schapiro said at a House Financial Services Committee hearing on September 15th. “There is no way this agency or any other agency could do all of these things, some of which conflict.”

For example, the legislation would require the SEC (the only agency targeted in the bill) to give consideration to “protecting market participants” when it devises a rule. The regulator doesn’t consider this factor since, Schapiro noted, its focus is supposed to be on investor protection. The bill would also require the SEC to take into account, among other things, the effect a pending rule would have on capital formation, and determine whether the regulation “is tailored to impose the least burden on society.”

The discussion came during a hearing called “Fixing the Watchdog: Legislative Proposals to Improve and Enhance the SEC.” The committee also discussed a bill that would reorganize the commission, which has been under intensified congressional scrutiny since Schapiro took over in 2010, soon after the Bernie Madoff Ponzi scheme came to light.

At last month’s hearing, Schapiro acknowledged that her agency could improve its cost-benefit analysis in the wake of a recent court ruling vacating the SEC’s new proxy-access rule. Longtime critics of the SEC would agree. The commission’s initial estimates for Sarbanes-Oxley compliance nearly a decade ago were pegged at an average of $91,000 per company, a calculation that was later ridiculed when companies saw their auditor bills rise into the millions.

The bill to improve the SEC’s processes was introduced in June by Rep. Scott Garrett (R–N.J.). It already has 15 co-sponsors, although Garrett’s fellow Republicans acknowledged that it needs some tweaks. As written, the bill would lead the SEC to do a cost-benefit analysis on both its rules and orders, which Schapiro says would slow down enforcement actions.