Tag: SEC rulemaking process
What happens when amplified SEC litigation challenges meet budget constraints?
Annually, the SEC’s Office of Inspector General offers its “independent perspective” on the “top management and performance challenges” facing the SEC. What stands out in the 2024 Inspector General’s Statement on the SEC’s Management and Performance Challenges? It’s that the SEC is confronting several serious challenges—particularly significant litigation challenges to its rulemaking—but, at the same time, is facing serious budget constraints. Not only have many of the recent rulemakings been challenged in court, but, in light of SCOTUS’s decision last term in Loper Bright, which put the kibosh on Chevron deference, the OIG expects that “SEC rulemaking will continue to face searching judicial scrutiny.” In addition, the OIG predicts that the “current regulatory environment may lead to increased forum shopping by petitioners and extended periods of uncertainty about the permissible scope of agency action.” In light of this heightened judicial scrutiny, the OIG advises, the SEC “must continue to develop a thorough administrative record, including meaningful opportunity for public participation and reasoned responses to public submissions. The SEC already invests considerable resources toward these ends, but should be prepared for additional litigation, as industry and public interest groups may take opportunities to challenge regulations.” At the same time, the OIG cautions, the dearth of resources under the current budget environment “may hinder the Agency’s ability to meet these challenges, mitigate its risks, and pursue its vital mission.” In particular, as a result of flat funding for fiscal 2024, the SEC was required to freeze hiring and eliminate certain employee benefits, while increased “personnel costs limit the resources available to update and improve legacy information systems, including information security.” Yet, “the changing regulatory environment will likely increase operational demands on the Agency and its staff,” rendering the financial constraints all the more problematic.
You can probably tell that this post was written prior to the vote count last night. The election results and coming change in
Administration will certainly affect the SEC’s rulemaking agenda and probably its litigation posture; however, to the extent that Democrats adopt a litigation strategy with regard to rulemaking by the new Administration that follows the current Republican playbook, many of the challenges identified by the OIG could well remain.
Commissioner Uyeda has some suggestions about the rulemaking process
In remarks this week before PLI’s 55th Annual Institute on Securities Regulation, SEC Commissioner Mark Uyeda shared his views about the disclosure rulemaking process. He observed that, since becoming a commissioner 16 months ago, the SEC has adopted five major disclosure rules—pay versus performance, clawbacks, amendments to rule 10b5-1, share repurchases and cybersecurity—and has identified four more that are in the works. He focused on four key issues: determining purpose, the need for re-proposals, scaling disclosure and considering rulemaking costs and burdens on a cumulative basis. As you might guess, Uyeda had some thoughtful criticisms of the rulemaking process and offered some potential remedies.
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