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Compliance March 20, 2024
GOP Proposes Bills to Require Longer SEC Comment Periods, Overturn Private Funds Adviser Rule
Introduced in the House of Representatives, a bill to invalidate the private funds adviser rule would be unlikely to pass the Senate.
Reported by Paul Mulholland
At a hearing Wednesday, “SEC Overreach: Examining the Need for Reform,” the U.S. House Committee on Financial Services’ Subcommittee on Capital Markets heard testimony on 13 bills it is considering to address what it terms the “frenetic, partisan rulemaking agenda” of the commission under Chairman Gary Gensler.
The bills reflect the concerns long expressed by committee Republicans and trade groups.
Representative Anne Wagner, R-Missouri, who chairs the subcommittee, called the Securities and Exchange Commission’s approach to regulation “aggressive and burdensome,” and she expressed concern about an “alarming absence of stakeholder input and meaningful cost-benefit analysis during the rulemaking process.”
Wagner also criticized as too speedy the SEC’s rulemaking process, questioning why comment periods on proposed rules have been as short as 30 days. A discussion draft of one of the bills circulating in the subcommittee would require the SEC to have comment periods of at least 60 days, excluding federal holidays, for rule proposals. Under current law, comment periods must be open for at least 30 days, inclusive of holidays.
In remarks at the hearing, Wagner also criticized the SEC for issuing its recent climate disclosure rule earlier this month.
“As members of this committee have made clear: The SEC is not an environmental regulator, nor was it given clear authority to finalize climate-related regulations that will only burden American businesses with serious costs,” Wagner said, adding that the full financial services committee plans to review the new rule in detail on April 10.
A bill proposed by Wagner would require the SEC to explicitly identify a market failure and calculate its size before proposing a rule to address it, and the commission would also have to identify any market participants that would be subject to the rule. This bill reflects a common industry refrain that many SEC rule proposals under SEC Chairman Gensler are “a solution in search of a problem.”
William Birdthistle, the former director of the SEC’s Division of Investment Management who recently stepped down, answered this longstanding criticism at the Investment Adviser Association’s 2024 Compliance Conference on March 7 by saying that parents do not wait until their child is in an intersection before acting, therefore if the SEC anticipates an issue in the future, it does not have to wait for the problem to arrive.
Other proposals and drafts before the committee would require the SEC to review every rule every five years and conduct a new economic analysis for each; to issue a report to Congress twice per year on the SEC’s discussions with foreign securities regulators; and to report to Congress on the SEC’s data and cyber security measures.
Still other legislation targets specific SEC rules. One bill would invalidate the private funds advisers rule, currently being challenged in the U.S. 5th Circuit Court of Appeals. That rule would require private fund advisers to provide more disclosures to clients on fees and performance and to provide valuation opinions to clients for adviser-led transactions. Oral arguments took place in February but the court has not yet ruled on the issue. The subcommittee has not announced a date for a markup or vote on the bills discussed during the hearing.
