The SEC’s obligation to review its proposed rules through a cost-benefit analysis has been under fire for quite some time. More recently, the SEC has been especially criticized in failing to apply this approach in a meaningful way when it came to its review of a potential uniform fiduciary duty standard for those who provide investment advice. This criticism has resulted in the repeated delays of any rule-making on the uniform fiduciary duty.
To address this issue, Representative Garrett (R-N.J.) has advanced a bill that would reinforce the cost-benefit analysis. Although the timing of this legislation may result in it being delayed until after the election, the goal is for the SEC to “clearly identify” the issue that the proposed rule intends to address; include the SEC’s chief economist in the costs-benefit analysis; and assess potential regulatory alternatives to rule-making.
The proposed legislation is not that far off from the SEC’s internal guidance, directing staff to enhance economic analysis as part of the rulemaking process for both congressionally mandated and discretionary rulemaking. Representative Garrett does not believe that the SEC internal mandate goes far enough to ensure the adequate application of the cost benefit analysis, which is why he wants it defined by statute.
Wherever you fall on this debate, the one thing that the fiduciary duty debate has demonstrated is that the SEC is taking a more measured cost-benefit approach to its rule-making. Doing so can be seen as a bit of self-preservation on the part of the SEC, but it will also likely lead to better rule-making and, in turn, rules that will withstand scrutiny.