The SEC decided to forgo the option of issuing an interim final rule – during which time, stakeholders could submit comments and the rule could be changed at a predetermined sunset date – for a traditional proposed rule and comment period. Duffy said emails proved the decision happened after lobbyists from the Consumer Federation of America met with Shapiro and the SEC.
“I have two worries,” wrote Shapiro in an email. “One is that if that these guys (CFA et al) feel this strongly, we should give them a comment period, it’s not really asking for much. The other is that I don’t want to be tagged with an anti-investor legacy.”
An attorney at the agency floated the idea of issuing an interim rule, according to other emails released at the hearing, and Duffy and Subcommittee Chairman Rep. Patrick McHenry (R-N.C.) pounced on it, alleging the SEC bent to the will of special interests.
“We meet with everybody comes in,” Walter said. “We always talk to all sides of the issue and listen to their views. Frequently during the rulemaking process, we change our minds.”
During the two-hour hearing, Walter emphasized that she had advocated for including a proposed rule stage all along.
The SEC issued a proposed rulemaking on the regulation and received 220 comments, she said, adding that even those that supported the rule suggested changes.
“People from all walks of life came unanimously to us” and told the SEC not to move forward until the rule had stronger protections for investors, Walter said on Friday. She said the comments indicated that forging ahead with the rule too quickly could have led to lawsuits against the agency.
Rep. Al Green (D-Texas), the subcommittee’s ranking member, asked Walter if Congress had consulted the SEC about the short 90-day timeframe.
“No,” she replied.
“Are you aware of Congress doing any due diligence to make sure that the 90 days was right way it should be done?” he continued.
Again, Walter replied, “No.”
The regulatory process is bound by the Administrative Procedure Act, which generally requires agencies to seek comment before imposing any new regulations. There are cases when interim rules will be issued before asking for public feedback, but those are most often done in uncontroversial cases.
“The rulemaking process is not the easy process it appears to be,” Walter told the panel. Even if they had chosen to employ the interim rule – companies would have to set up ways of complying with it, she added, only to possibly have to change it years later after all the comments came in.
Financial regulators have been plagued with dwindling resources and increasing responsibility since 2010, when Congress passed the Dodd-Frank law. The SEC, in particular, has cited budgetary shortfalls for not being able to meet several deadlines set by legislation.
Further down in the email brought up at the hearing, however, some of Shapiro’s words foreshadowed Friday’s event:
“Given how high emotions run on anything related to the JOBS Act,” she wrote, “it doesn’t seem worth it for an extra 45 days of process.”