Executive Branch Regulatory Review Policies Set the Analytic Gold Standard for Independent Financial Agencies to Follow
From: The Regulatory Review
Structural Reforms to Improve Cost-Benefit Analyses of Financial Regulation
Independent agencies should mirror executive branch practices to overcome judicial scrutiny.
Similarly, the SEC’s recent rulemaking problems demonstrate the shortcomings of regulatory analysis at independent agencies. Since the early 1990s, the federal courts have invalidated a slew of SEC rules as a result of the lack of an adequate cost-benefit analysis. Following several judicial rebukes, the SEC decided to update its rulemaking guidance to stave off further such roadblocks to the implementation of its policies. The resulting guidance document borrows very heavily from the White House Office of Management and Budget’s Circular A-4, which instructs executive branch agencies on how to perform cost-benefit analyses. Since adopting protocols that mirror that used in the executive branch, the SEC’s cost-benefit analysis has become, according to the Committee on Capital Markets Regulation, “a candidate for the ‘gold standard’ of cost-benefit analysis in the United States.”
Finally, the CFTC has likewise relied on the executive branch to improve its deficient cost-benefit practices. In the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC faced a significant rulemaking burden but lacked sufficient cost-benefit expertise to bear that burden effectively. Eager for help, the CFTC entered into a memorandum of understanding with OIRA that focused on “technical assistance…particularly with respect to the consideration of the costs and benefits of proposed and final rules.” This uncommon arrangement has shown promising initial results in the quality and depth of CFTC regulatory analyses, although it is too early to assess the full impact of the partnership.
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