Independent Agency Regulatory Analysis Act of 2012: S 3468 (Part 2)

The Independent Agency Regulatory Analysis Act raises some significant concerns and reflects an effort to make even more difficult the rulemaking process for independent agencies like the SEC. 

The additional procedures that can be imposed on independent agencies under the legislation are triggered by executive orders issued by the President.  In other words, every time the presidency changes, a new president can effectively impose additional rulemaking procedures on independent agencies.  Moreover, the OIRA can be given 90 days to conduct an assessment of the independent agency's compliance with applicable "regulatory analysis requirements."   All of this allows for shifting standards and increased delay.  

What are the consequences of delay?  The SEC's proposal to repeal the ban on general solicitations was sharply criticized in some quarters because it was issued as a proposal rather than an interim final rule.  In other words, the SEC was criticized for delay.  Yet had this Act been in place and the SEC was required to submit the proposal to OIRA, there would have been additional delay.

The assessment by OIRA is described as "nonbinding."  To the extent that OIRA finds that the independent agency did not follow the required procedures, however, the head of the agency must provide "an explanation" for the noncompliance.  Rather than acknowledge noncompliance as part of the rulemaking process, an agency head is likely to "comply" with any issue raised by OIRA.  As a practical matter, therefore, the so called "nonbinding" review by OIRA will in fact be "binding."

Finally, the approach will simply discourage rulemaking, a trend already underway as a result of decisions like Business Roundtable v. SEC (see Shareholder Access and Uneconomic Economic Analysis: Business Roundtable v. SEC).  The consequence is not necessarily less regulation.  Agencies may not be willing to update their regulatory framework, leading to an ossified regulatory structure, or may rely on more informal methods of implementing regulations.  The SEC can use no action letters, enforcement proceedings, phone advice, and other informal mechanisms to set out regulatory positions.  The integration of the Internet into the private offering process (through password protected web sites) was, for example, done as part of an informal process mostly through the mechanism of no action letters. 

Informal positions are less transparent and do not have to go through notice and comment.  Nor do they necessarily result in better outcomes.  Nonetheless, informal positions will not need to go through OIRA. 

J Robert Brown Jr.