Despite the SEC’s groundbreaking defeat at the DC Circuit over the proxy access rules, on the grounds that it failed to adequately weigh the costs and benefits of the rule proposal, the SEC Chairman has decided that the Commission will not conduct a full cost-benefit analysis of rules mandated by the Dodd-Frank Act. In a rule release issued this week, Commissioner Casey comments about that decision:
Lastly, I want to comment, as I have in prior releases, on the decision not to include a full cost-benefit analysis in the release. The prevailing position is that we need not conduct a cost-benefit analysis on those items mandated by Dodd-Frank itself, but instead that we may confine our cost-benefit analysis only to those provisions that we are proposing at our discretion. I should note that this approach is even more limited than it seems, because we do not even conduct cost-benefit analysis of the discretionary choices we make within mandatory rulemaking items.
I believe the general decision to avoid serious analysis of the total costs of the rulemaking is shortsighted and actually impairs the Commission’s ability to assess the merits of the rules we may propose and ultimately adopt. It is imperative that we get a more complete understanding of the total costs, and total benefits, of the entire regulatory regime we are creating. Only if we understand the total burden, whether that burden is statutorily imposed or not, can we make sound decisions on the marginal costs and benefits of rules as we consider them.
For this reason, regardless of the position we have taken in putting together our cost-benefit analysis for this and other rules we have proposed, I would strongly encourage commenters to provide data and analysis about the total costs of the regulatory regime we are designing, so that we may be better informed as we consider and adopt rules going forward.
Here here. I’m not sure the SEC is on strong ground. It seems to me that even the exercise of mandatory rule-making authority can be challenged in part on the grounds of failure to adequately consider the efficiency and capital formation requirement under the Securities Exchange Act. Even if it is required by DFA to promulgate a rule, it isn’t required to promulgate the specific rule in question, and it seems to me that any discretion exercised by the SEC in crafting the rule would remain open to challenge.