- The SEC Regulatory Accountability Act holds the body responsible for maintaining effective regulation.
- This act aims to protect investors by balancing regulation efficiency and fair market competition.
During the US House of Representatives Financial Services Committee hearing on June 22, 2023, entitled “Oversight of the SEC’s Division of Trading and Markets,” Subcommittee Chairman Ann Wager reintroduced the SEC Regulatory Accountability Act, which, according to Wagner, would “require the SEC to identify the problem a proposed regulation is seeking to address and conduct a thorough cost-benefit analysis before issuing any regulation.”
SEC Regulatory Accountability Act Explained
The “SEC Regulatory Accountability Act” is a congressional act that aims to enhance the accountability and transparency of the U.S. Securities and Exchange Commission when outlining new policies. The act requires the SEC to:
- Identify the problem targeted by the proposed regulation and evaluate its importance. The SEC must involve its Chief Economist to assess the costs and benefits of the regulation, both qualitative and quantitative, ensuring that the benefits outweigh the costs.
- Evaluate the costs and benefits of different regulatory options, including the possibility of no regulation. The SEC should promote efficiency, competition, and capital formation while safeguarding investors. The SEC should consider the proposed regulation’s impact on society, including market participants, individuals, and businesses of all sizes, and avoid regulations that conflict with or duplicate existing federal regulations.
- Consider the effect of regulations on investor freedom, securities market liquidity, and SMEs when determining costs and benefits.
- Provide a clear explanation of the comments received on the proposed regulation. The SEC must address comments from industry or consumer groups about the proposed regulations’ potential costs or benefits.
- Review its regulations every five years to determine if any are outdated or ineffective. The SEC must adjust and streamline past regulations based on this review. The review should consider the public interest and protection of investors and whether or not the regulation promotes competition and capital formation.
- Define the purposes and intended consequences of the proposed regulation. The SEC should establish ways to measure the proposed regulation’s economic impact and determine if its regulation achieves its stated purposes.
Implications for Retail Investors
The SEC Regulatory Accountability Act can have significant implications for retail investors and the markets they participate in. With its focus on considering the costs and benefits of regulations, the Act aims to promote market efficiency, competition, and capital formation while safeguarding investor interests. This approach could lead to more precise and accessible rules, benefiting retail investors with greater clarity and understanding.
Furthermore, the Act’s requirement for periodic review of existing regulations may result in removing outdated or burdensome rules, creating a more favorable regulatory environment for retail investors. Overall, the Act strives to balance protecting investors and fostering market effectiveness, potentially enhancing the retail investor experience in the markets.
