SEC’s Schapiro defends Dodd-Frank rule-writing delay

Mary Schapiro

SEC Chairwoman Mary Schapiro recently defended the regulator’s delay in issuing a Dodd-Frank anti-corruption provision intended to put an end to the “resource curse.”

The conflict-minerals provision of the Dodd-Frank Act stipulates that the SEC must devise a disclosure rule that allows companies to track the direct source of natural resources that may come from areas like Africa that are rich in wealth but high in violence and corruption, CFO reports.

Schapiro said that while the regulator may have missed the deadline, devising a rule that is founded in a human-rights issue is difficult.

“This one is harder, there is no question about it,” Schapiro said during a House subcommittee hearing on Tuesday, according to CFO.

The SEC’s delay in rule-writing is compounded by legal challenges to the regulator’s ability to conduct thorough cost-benefit analyses. In 2011, a Washington, D.C. appeals court tossed out a proxy-access rule that would have allowed shareholders with three percent of an institution’s shares to nominate company directors.

“Predicting how people and entities will respond to regulatory changes involves difficult judgments,” Schapiro said during the Tuesday hearing, CFO reports.

Jacqueline McCabe, the executive director for research at the Committee on Capital Markets Regulation, criticized the SEC’s present method of cost-benefit analysis.

“We are deeply concerned that inadequate cost-benefit analysis…expose[s] these rules to judicial challenge, prevent[s] important rules from taking effect and contribute[s] to uncertainty in our markets over their fate,” McCabe said, according to CFO.

In an effort to improve the process of cost-benefit analysis, the SEC recently issued new internal guidelines for how the regulator’s staff devises new rules. The agency expects in-house economists to assume a larger role in the process and will issue explanations with new rules, including the costs and benefits, if they can be quantified.

The agency estimates that the conflict-minerals provision could affect up to 5,000 companies and cost more than $71 million in compliance, leaving some industry groups to question the cost of the provision. The National Association of Manufacturers, however, estimates that the provision could impose on companies $9 billion to $16 billion in compliance costs, CFO reports.

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