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Kotz issues report criticizing the SEC’s Dodd-Frank rulewriting

U.S. Securities and Exchange Commission Inspector General David Kotz, before leaving the agency, issued a report on Friday criticizing the SEC's Dodd-Frank rulewriting, noting the agency's flawed ability to weigh the cost versus benefit of a rule.

“We found that the extent of quantitative discussion of cost-benefit analyses varied among rulemakings,” Kotz wrote in the report, according to Reuters. “Based on our examination of several Dodd-Frank Act rulemakings, the review found that the SEC sometimes used multiple baselines in its cost-benefit analyses that were ambiguous or internally inconsistent.”

The report covered just a few Dodd-Frank rulemakings, including securities rules and a rule granting shareholders a non-binding vote on compensation.

Over the years, the SEC has lost multiple court battles because of flaws in demonstrating how costs would be outweighed by benefits, Reuters reports.

The Dodd-Frank Act has been a target of criticism for some time. Last year, various U.S. business groups convinced a federal appeals court to overturn a Dodd-Frank rule that made it easier for shareholders to nominate directors to corporate boards.

The court said that the agency did not properly weigh the possible consequences to the economy and effectively rejected the rule. Other business groups, including the U.S. Chamber of Commerce, have voiced similar concern with other pending rules before the SEC.

Under Dodd-Frank, the SEC is responsible for writing approximately 100 new rules. The SEC must also follow rulemaking procedures, allowing time for public comment on the rules.

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