Senate Republicans prod SEC nominees on Dodd-Frank

The leading Senate Republican on financial issues won't block the confirmation of two Securities and Exchange Commission nominees, though he will push the agency to conduct economic analyses of financial regulations — a demand that is slowing down the implementation of the Dodd-Frank reform law
JUL 11, 2011
The leading Senate Republican on financial issues won't block the confirmation of two Securities and Exchange Commission nominees, though he will push the agency to conduct economic analyses of financial regulations — a demand that is slowing down the implementation of the Dodd-Frank reform law. Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, indicated last week at a nomination hearing that he supports SEC commissioner Luis Aguilar, a Democrat who is being renominated, and Daniel Gallagher Jr., a Republican tapped to replace commissioner Kathleen Casey. “I hope we can expedite their confirmation,” he said of the nominees, who are appearing today before the banking panel. The nominations stalled momentarily Tuesday as Sen. David Vitter, R-La., put a hold on a confirmation vote. He released the hold the next day, when the SEC announced that thousands of investors who lost money in the Ponzi scheme allegedly masterminded by R. Allen Stanford are entitled to compensation from the Securities Investor Protection Corp. Mr. Vitter has many constituents who were victims of the alleged rip-off. It now appears that the Senate GOP caucus is giving Mr. Aguilar and Mr. Gallagher a clear path to confirmation, although any senator could place a hold on them at any time. Republican senators have warned, however, that they will filibuster the nomination of anyone picked by the Obama administration to be director of the Consumer Financial Protection Bureau unless Congress changes how the agency will operate. Sen. Tim Johnson, D-S.D., chairman of the Banking Committee, did not indicate when the panel will vote on the SEC nominees. “We need strong leadership at all our financial regulators,” he said. “I hope the Senate can consider their nominations in a timely manner.” Mr. Shelby used the hearing to admonish the SEC to conduct cost benefit analyses of the 100 or so regulations that it must write under Dodd-Frank. He argued that the regulatory burden will undermine U.S. companies and cripple job creation. House and Senate Republicans have called on the SEC not to move forward with a universal fiduciary duty until it does more work on determining how making broker-dealers adhere to the more stringent standard of care that governs financial advisers would affect the investment advice market. Ms. Casey and Troy Paredes, the two Republican SEC commissioners, dissented from an SEC staff report recommending a single standard, saying that it fails to offer sufficient economic analysis. It appears that Mr. Gallagher, a partner at Cutler Pickering Hale & Dorr LLP and former acting co-director of the SEC Division of Trading and Markets, will pick up where Ms. Casey left off.

COSTS AND BENEFITS

“It is critically important that the SEC get the rulemakings right,” Mr. Gallagher said in response to a question from Mr. Shelby. “Getting it right means also properly weighing the costs and benefits of the rulemaking,” he said. “It's impossible to say you got the rulemaking right when the costs outweigh the benefits.” Mr. Gallagher also cautioned that a lack of appropriate cost benefit calculations makes SEC regulations vulnerable to court challenges. Mr. Aguilar assured the senators that an economic analysis is part of the SEC process for adopting rules. “It's important to weigh as best we can the balance between the costs and benefits,” he said. E-mail Mark Schoeff Jr. at [email protected].

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