SEC Failing to Provide Adequate Time for Public Feedback on Rulemaking

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Posted by Bryan Bashur on Thursday, January 13th, 2022, 1:03 PM PERMALINK

The Securities and Exchange Commission (SEC) is limiting timeframes for stakeholders to provide public comment on rulemaking. This is especially concerning because the SEC has been issuing complex and controversial draft rules for topics such as manipulation of security-based swaps, stock buybacks, insider trading, incentive-based compensation, and proxy voting. 

Failure to provide stakeholders with the opportunity to provide feedback on proposed regulations undermines the rulemaking process and ultimately harms individual investors, consumers, and businesses.

The Administrative Procedure Act of 1946 requires federal agencies to provide a comment period before finalizing regulations. Past Democrat administrations have recognized that the public comment period should be at least 60 days for complex proposals. For instance, the Clinton administration issued Executive Order 12866 which, states that “each agency should afford the public a meaningful opportunity to comment on any proposed regulation, which in most cases should include a comment period of not less than 60 days.” The Obama administration also expressed the belief that the comment period for rulemaking should be at least 60 days. 

However, the Biden administration is not following suit and is instead rushing proposals through. Since October 2021, the SEC has issued nine draft rules that have less than 60-day public comment periods. As a result, stakeholders have very little time to read and analyze hundreds of pages of rules and submit public comments. 

This practice of rushing through public comments has rightly drawn the ire of lawmakers. On January 10, House Financial Services Ranking Member Patrick McHenry (R-N.C.) and Senate Banking, Housing, and Urban Affairs Ranking Member Pat Toomey (R-Pa.) sent a letter admonishing the SEC for issuing rules with short comment periods. The SEC’s unreasonably short comment periods prevent rules from receiving adequate input from all types of stakeholders including companies, individuals, academics, think tanks, and advocacy groups.

Insufficient time for public comment increases the potential for future rulemakings to be drafted in a way that is harmful to consumers, businesses, and investors. SEC Chairman Gary Gensler has expressed his interest in introducing rulemakings related to cryptocurrencies, special purpose acquisition companies (SPACs), and private equity firms. This has the potential to significantly increase red tape. For instance, Gensler wants private equity firms to disclose more information, even though these investors have been forced to navigate a “complex regulatory framework” enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 

By refusing to allow enough time for input from the stakeholders that will be directly affected by his rules, Gensler will slug businesses and investors with additional compliance costs, which could ultimately limit the amount of capital available in financial markets. Instead, Gensler should reconsider current and future rulemakings by allowing at least 60-day public comment periods. This will ensure stakeholders are able to provide thoughtful feedback on the potential impact of new regulations.

Photo Credit: "U.S. Securities and Exchange Commission" by arsheffield is licensed under CC BY-NC 2.0

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