The U.S. Securities and Exchange Commission has improved how it justifies new regulations after at least five recent court defeats faulted its use of economic analysis, according to an audit by the agency’s inspector general.
The agency specified the reason for regulations, considered alternatives to rules and integrated economic analysis into the rule-writing process, SEC Inspector General Carl W. Hoecker wrote in an analysis of 12 rules proposed or finished during 2012. The analysis was requested by Representatives Darrell E. Issa and Patrick T. McHenry, Republican lawmakers who have been critical of the SEC’s rulemaking procedures.
The audit shows how the SEC has made progress using cost-benefit analysis since having a rule on board of directors nominations overturned by the U.S. Court of Appeals for the District of Columbia in July 2011. That decision said the SEC failed to study the cost to companies of fighting shareholders over a nominee and how it would impact capital markets.
“The findings of the report confirm our own observations that the current guidance has strengthened and improved both the content of and the process for economic analysis in commission rulemakings,” Craig M. Lewis, the SEC’s chief economist, wrote in a response to the audit.
Issa and McHenry requested the analysis after the decision by the appeals court and a critical report on SEC cost-benefit analysis by former Inspector General David Kotz. A spokesman for McHenry declined to comment and a spokesmen for Issa didn’t immediately respond to requests for comment.
Today’s report by Omaha, Nebraska-based HDR Engineering Inc., an outside consultant, says the SEC could improve how it describes alternatives to regulation and why it can’t always calculate the benefits of new rules. The report found the SEC quantified the benefits of regulation in only 1 of the 12 rules studied by the inspector general.
The audit also provided the SEC with six recommendations, including determining whether it’s feasible to determine the average cost and benefits to investors of a new rule.
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