SEC Put on Notice in Omnibus Report

As Congress negotiates final passage on the more than 4,000-page omnibus package, the House Committee on Appropriations’ report (House Report 117-393) on the bill contains language that should put Gary Gensler, the chair of the Securities and Exchange Commission, on notice. 

The House report language applies to the omnibus because the joint explanatory statement for financial services and general government (FSGG) appropriations clearly states its applicability: 

Unless otherwise noted, the language set forth in House Report 117-393 carries the same weight as language included in this joint explanatory statement and should be complied with unless specifically addressed to the contrary in this joint explanatory statement.

The committee explicitly states their disapproval of the SEC’s rushed rulemaking process, which will likely increase compliance costs and lower returns to investors (many of which are retirees with pension plans). Republicans had introduced amendments to the appropriations bill that would have repealed the SEC’s burdensome regulations on private fund advisers and climate-related disclosures, but Democrats blocked those efforts. 

Fortunately, the committee agreed to include language in the report that targets the SEC for promulgating rules too quickly and without proper notice and comment for stakeholders:

Other amendments rejected by the Majority would have addressed Securities and Exchange Commission (SEC) overreach by stopping rules on climate-related disclosures and private fund advisors. We are concerned with the volume of rules being proposed by the SEC and that they are doing too much too fast and are not focused on their core mission. We believe many of the SEC’s proposals will increase compliance costs and hinder capital formation. 

In April, forty-seven House Republicans and Democrats submitted a comment letter to the SEC expressing concerns that the SEC’s comment period for the private fund advisers’ rule was too short and “may hamper the ability for the public to provide effective and meaningful input.”

The report specifically addresses the private fund advisers’ rule. Congress makes clear that the SEC must open comment periods for a length of time that is commensurate with the rule’s complexity and economic significance. Additionally, the report urges the SEC to “reconduct the economic analysis” and consider the negative impact the rule would have on minority and women-owned businesses:

The Committee firmly believes that robust economic analysis and stakeholder engagement in the rulemaking process are not only required by law, but also essential for effective SEC rulemaking, as they help ensure that decisions to propose and adopt rules are informed by the best available information about a rule’s likely economic and other consequences. The Committee appreciates the SEC’s decision to reopen rulemaking comment periods that were previously closed after only 30 days, including the rule titled, “Private Fund Advisers; Documentation of Registered Investment Compliance Reviews,” and encourages the SEC to extend comment periods to a length that is appropriate for the complexity and potential impact of the rule. However, the Committee also strongly encourages the SEC to reconduct the economic analysis for the Private Fund Advisers proposal to ensure the analysis adequately considers the disparate impact on emerging minority and women-owned asset management firms, minority and women-owned businesses, and historically underinvested communities. Doing so will not only improve the quality of proposed rules, but also help to increase public confidence in the SEC’s regulatory process.

Americans for Tax Reform organized a coalition letter asking Congress to conduct SEC oversight hearings because the agency issued rules that “(1) provide inadequate time for public comment and (2) supersede its statutory authority by pursuing binding rules that lack any Congressional authorization.” ATR also submitted comments in opposition to the private fund advisers’ rule and the climate disclosure rule. 

Although the gargantuan omnibus is largely an amalgamation of superfluous government spending, one silver lining is Congress’s staunch opposition to how the SEC is conducting business. 

Chair Gensler should be wary of any praise from Congress going into 2023. If anything, Chair Gensler will face bipartisan condemnation for his unyielding assault on private industry without any consideration of the collateral damage hitting individual investors and consumers.