Despite Gridlock in Congress, a Full Plate Awaits

This week, President Barack Obama convened a meeting of regulators to discuss their progress, or lack thereof, in implementing provisions of the Dodd-Frank Act.

Rulemaking associated with the sweeping slate of financial reforms, enacted three years ago, has been a slow slog. Obama's meeting with heads of the Securities and Exchange Commission, Commodity Futures Trading Commission, Consumer Financial Protection Bureau, and Treasury Department, was a push for progress.

The rules of the Dodd-Frank Act, however, aren't the only lingering regulatory changes waiting in the wings. There are also several key pieces of the JOBS Act that remain to be realized, including much-anticipated changes to how businesses can raise money through “crowdsourcing.” And, when Congress returns from its summer recess on Sept. 9, numerous pieces of proposed legislation will re-emerge.

Streamlining Regulation

While members of Congress will undoubtedly propose several pieces of legislation to eliminate or reform Dodd-Frank and other existing law, there are also efforts underway to reform the regulatory process itself. U.S. Senators Angus King (I-Maine) and Roy Blunt (R-Mo.), for example, have introduced the Regulatory Improvement Act of 2013, which would create an independent Regulatory Improvement Commission tasked with “modifying, consolidating, or repealing regulations to reduce compliance costs.”

“The single greatest obstacle to economic growth continues to be overly burdensome regulations, but as thousands of more rules are promulgated every year, Congress isn't taking any serious steps to address the mountain of regulations that already exist,” King said in a statement.

Members of the proposed commission would be appointed by Congressional leadership and the President. It would submit to Congress a report detailing regulations considered for streamlining, consolidation, or repeal. Congressional committees would have an opportunity to review the Commission's report, but not to amend the recommendations. A straight up-or-down vote would be held in both chambers of Congress to execute recommendations.

King and Blunt say their approach improves upon other reviews “which tend to look at individual regulations in isolation, rather than considering the cumulative impact of regulations both within and across agencies.”

Critics of the plan, however, say it could weaken existing protections for consumers and other groups. “In the wake of a series of contaminated food outbreaks, the BP oil spill, and out-of-control big banks nearly sinking the economy, we need more public protections, not fewer,” says Amit Narang, regulatory policy advocate for Public Citizen, a critic of the legislation.

Some efforts to reform the regulatory process target specific agencies. The SEC Regulatory Accountability Act, for example, would expand the scope of analysis performed by the SEC when its crafts or amends regulations. It would direct the Commission to assess the significance of a problem a regulation is designed to address, determine whether the estimated costs of a regulation justify its estimated benefits, and identify alternatives.

The SEC would be required to comprehensively review its regulations every five years to determine whether they are “outmoded, ineffective, or excessively burdensome,” the proposed bill states.

For rules expected to have an economic impact greater than $100 million annually, the bill would require the SEC to assess whether they have met their stated purpose. No later than two years after a rule is enacted, it would need to publish a report assessing the costs, benefits, and consequences.

“The costs of new rulemaking should not outweigh the benefits,” says Rep. Scott Garrett (R-N.J.), who co-sponsored the bill with nine others. “We can all agree that certain regulation is necessary. We should also all agree that unnecessary and ill-conceived regulations that stunt economic growth and job creation should be eliminated.”

Heath Abshure, president of the North American Securities Administrators Association, however, says the new requirements could “substantially impede the ability of the SEC to conduct rulemaking” and “create standards that could conflict with the SEC's investor protection mission.”

“ … as thousands of more rules are promulgated every year, Congress isn't taking any serious steps to address the mountain of regulations that already exist.”

—Angus King,

U.S. Senator

“It would require the SEC to conduct new and unreasonably extensive analyses prior to issuing a regulation,” he says.

A bipartisan Senate bill, the Regulatory Accountability Act, would build upon the Administrative Procedure Act and demand improved cost-benefit analysis for all federal regulatory agencies. It, and a companion bill, H.R. 2122, would require federal agencies, including the SEC and the CFTC, to analyze the costs and benefits of new regulations and adopt the least costly, most cost-effective approach. The bill would provide for judicial reviews on the cost-benefit analysis of regulations with an estimated economic impact of $1 billion or more.

The House has also passed, by a vote of 223-183, the Regulations from the Executive in Need of Scrutiny Act (H.R. 367). It would require Congress to take an up-or-down vote on all new regulations adopted by the SEC or CFTC that have an annual economic impact of $100 million or more, with an exception if the President issues an executive order saying a rule is needed because of “an imminent threat to health or safety.” The Obama Administration has opposed the legislation, which awaits a Senate vote, and promised a veto.

Squashing Mandatory Rotation

Other legislation awaiting action targets individual reforms for elimination, including some that aren't even in the works. The Audit Integrity and Job Protection Act, for example, would amend the Sarbanes-Oxley Act and prohibit the forced rotation of outside audit firms, even though no such action is currently on the table.

The bipartisan legislation challenges an August 2011 concept release by the Public Company Accounting Oversight Board that initiated consideration of mandatory rotation for public companies. House members approved the bill in July by a vote of 321-62.

“In Europe, there is a misimpression that the continued consideration of the PCAOB's concept release means that the United States is headed toward adoption of a mandatory firm rotation requirement,” says Barry Melancon, CEO of the American Institute of CPAs. “[The vote] will go a long way toward alleviating confusion and uncertainty for policymakers and stakeholders on both sides of the Atlantic.”

The Burdensome Data Collection Relief Act, sponsored by Rep. Bill Huizenga (R-Mich.) and Scott Garrett (R-N.J.), would repeal a Dodd-Frank Act requirement that public companies disclose executive pay comparisons.

Barring the legislation, companies would need to calculate the median annual total compensation of all employees and disclose that finding as a ratio to the CEO's annual total compensation. SEC Chairman Mary Jo White has signaled, in public statements, that rulemaking to realize the mandate will be coming in the near future.

Two bills, S. 1391 and H.R. 2852, would amend the Age Discrimination in Employment Act of 1967, responding to a Supreme Court decision, Gross v. FBL Financial, that proponents say makes it harder for workers to prevail in age discrimination claims.

THE REINS ACT

The following is from a Republican summary of H.R. 367, the Regulations from the Executive in Need of Scrutiny Act of 2013 (REINS Act).

H.R. 367 requires Congress to pass and the President to sign a joint resolution of approval before a new major regulation issued by a federal agency may take effect. For non-major rules, H.R. 367 continues the current process of allowing the rule to take effect unless Congress passes and the President signs a resolution of disapproval.

For all new regulations—both major and non-major—the promulgating agency must submit to Congress and the Comptroller General a report generally containing the regulation, its classification as major or non-major, other related regulatory actions and their individual and aggregate economic impact, and the proposed effective date of the rule. Copies of the report must be provided to all congressional committees of jurisdiction. On the same day, the promulgating agency also must provide other relevant material, including a cost-benefit analysis of the rule.

For major rules, the Comptroller General must, within 15 days of receiving the initial report, provide to the congressional committees of jurisdiction a report assessing the agency's compliance with procedural steps required by H.R. 367 and an assessment of whether the major rule imposes any new limits or mandates on private-sector activity.

Generally, H.R. 367 prevents major regulations from taking effect unless Congress passes and the President signs a joint resolution of approval within 70 legislative days of the initial report received by Congress. H.R. 367 limits the permissible contents in a joint resolution of approval for a major regulation.

H.R. 367 provides a presidential exception, allowing a major rule to take effect for a 90-day period if the President issues an executive order saying the rule is needed because of an imminent threat to health or safety; to enforce a criminal law; for national security; or for international trade. The President must provide written notice to Congress if he uses the exception.

When a non-major rule is promulgated, each congressional body has 60 legislative days to introduce a joint resolution of disapproval. Non-major rules take effect after the report is submitted to Congress, unless a joint resolution of disapproval is passed by each house and signed by the President.

Source: REINS Act.

The court held that plaintiffs alleging age discrimination must prove that age was the deciding factor in an employment decision. Plaintiffs alleging discrimination based on race, sex, national origin, and religion need only prove that discrimination was a “motivating factor.”

The Protecting Older Workers Against Discrimination Act would establish that when a victim shows discrimination was a “motivating factor” behind a decision, the burden is on the employer to show it complied with the law.

Fostering Innovation

In July, Rep. Mike Fitzpatrick re-introduced the Fostering Innovation Act (H.R. 2629), which seeks to reduce regulatory burdens on small public companies.

Currently, small public businesses, characterized as non-accelerated filers capped with a public float of no more than $75 million, enjoy regulatory exemptions, notably the Sarbanes-Oxley Act's requirement that a registered public accounting firm attest to, and report on, the assessment made by management of the effectiveness of their internal controls.

The proposed bill would amend the SEC's filing status classifications to allow companies with public floats below $250 million or revenues below $100 million to qualify as non-accelerated filers.

“Every dollar that they must spend on compliance, is money taken away from research and development,” Fitzpatrick said at a July 10 meeting of the Financial Services Committee. “The problem isn't necessarily that they are opposed to regulation, it is that they are unfairly being treated as large companies despite the fact that they are small and emerging growth companies.”

The Protection from Rogue Oil Traders Engaging in Computerized Trading (PROTECT) Act (H.R. 2292), crafted by Ed Markey, a Massachusetts Democrat who has since joined the Senate, would expand the CFTC's ability to police high-speed trading.

The CFTC “does not currently have explicit authorization to regulate high-frequency trading in futures,” Markey explained during a June speech.

The bill would require futures traders using high-frequency trading to register with the CFTC and prohibits simultaneous purchase and sell orders for the same commodity contract in significant quantities, so-called ``wash trades'' that can be used to manipulate markets.

Gridlock Prevails

Congress may be brimming with ideas, but even those bills with bipartisan support may languish if the 113th Congress remains true to form. Thus far, this year, it has managed to pass a mere 15 laws.

In fact, it took until the final days leading up to the recess, for Democrats and Republicans to momentarily escape gridlock and confirm key nominees to the SEC, Consumer Financial Protection Bureau, and Environmental Protection Agency.

That cease-fire, however, didn't last long, and the sniping quickly resumed, with both parties, as they headed back to their districts for the break, blaming the other for why they are on pace to be the least productive session of Congress in more than 70 years.