For Independent Agencies, SEC Regulatory Accountability Bill is an Act to Follow

Everyone needs a reality checks sometimes, even "the experts." When so-called expert independent agencies consider regulating areas of our economy, shouldn't they check to make sure new regulations won't cause more economic harm than good? Isn't it worth double-checking the results once new regulations are in place?

For independent agencies, cost-benefit analysis should provide that reality check. And post-adoption "look back" assessments should serve as a double check. This is the basic approach of the SEC Regulatory Accountability Act (H.R. 1062). It's an economic-minded reform bill scheduled for consideration soon on the floor of the U.S. House of Representatives.

H.R. 1062 offers a constructive model for regulatory reform for other independent agencies – like the FCC. Provisions of the SEC Regulatory Accountability Act could form the foundation of a future "FCC Regulatory Accountability Act."

Absent market failure, regulation typically reduces economic efficiency and technological innovation. Regulation reduces the freedom of market participants to rely on their informational insights and skills to pursue new technological and service strategies to meet consumer demand. Freedom and knowledge is replaced by prescriptive government rules. Those come with compliance costs and are more likely to preserve the status quo. And regulatory costs to providers routinely reach consumers in the form of higher prices.

Where regulation is suggested to remedy a perceived problem, cost-benefit analysis can help identify those situations where regulation is justifiable. This means an economically grounded assessment by the assigned government agency. Such an assessment can improve the likelihood that proposed regulations might outweigh the negative consequences often attached to government controls on markets.

Requiring a government agency to conduct a cost-benefit analysis prior to imposing regulation offers a check on bureaucracy. It is an informative procedure that can help stave off harmful overregulation.

The SEC Regulatory Accountability Act (H.R. 1062) would reform Securities and Exchange Commission processes for assessing, adopting, and reviewing rules. Among the legislation's provisions, two features stand out.

H.R. 1062's first standout feature is its requirements for agency cost-benefit analysis. Before issuing a regulation under the securities law, the SEC would be required to:

[U]tilize the Chief Economist to assess the costs and benefits, both qualitative and quantitative, of the intended regulation and propose or adopt a regulation only on a reasoned determination that the benefits of the intended regulation justify the costs of the regulation.

Also, "[i]n deciding whether and how to regulate," the SEC must assess costs and benefits of alternative approaches, "including the alternative of not regulating." The SEC must pick the approach that "maximizes net benefits."

H.R. 1062 lists components of such cost-benefit analyses. Those include whether the rulemaking: (i) "will promote efficiency, competition, and capital formation"; (ii) " is tailored to impose the least burden on society, including market participants, individuals, businesses of differing sizes, and other entities"; and (iii) "is inconsistent, incompatible, or duplicative of other Federal regulations."

H.R. 1062's second standout feature is its post-adoption impact requirements regarding "major rules." The SEC would have to track the consequences of new regulations likely to have an annual economic impact over $100 million or which result in "a major increase in costs or prices" for consumers or industries. When adopting major rules, H.R. 1062 would require the SEC to set out post-implementation metrics to measure their economic impact. 

Those metrics would form the technical basis of a required SEC "assessment plan" regarding major rules. The assessment plan would have to consider "the costs, benefits, and intended and unintended consequences of the regulation." That plan sets the groundwork for an assessment report, submitted by the SEC's Chief Economist within two years of the major rule's adoption. Within 180 days of an assessment report's publication, the SEC would be required to propose amending or rescinding the major rule, or to publish a notice stating no action will be taken.

In short, H.R. 1062 reform proposals are commendable and worthy of the U.S. House's full consideration.

And Congress should consider applying the SEC Accountability Act's cost-benefit analysis and post-adoption assessment requirements to other independent agencies. Both of H.R. 1062's standout features are suitable for application to the FCC and for inclusion in FCC reform legislation.

As observed earlier, the FCC is not required to attempt cost-benefit analyses before it imposes expansive regulations. For example, the FCC's decision to impose network neutrality regulation on broadband Internet access services was criticized on this count. The FCC lacked any cost-benefit basis for its sweeping regulatory intrusions. Its Open Internet Order was further criticized for dismissing any need to demonstrate existing or likely anticompetitive conduct or consumer harm before imposing regulations.

More recent FCC notices, such as its proposed rulemaking regarding spectrum aggregation, invited interested parties to explain likely costs and benefits of different agency actions.

But asking marketplace competitors to offer the assessments the agency should consider is not a serious accountability measure. And the FCC is vigorously defending its legal authority to impose net neutrality regulations without any cost-benefit analysis in the D.C. Circuit.

For that matter, the FCC has no empirically-based process for measuring and examining the results of its new regulatory undertakings. The FCC's two primary tools for removing outdated regulations – Section 10 forbearance authority and Section 11 biennial review authority – have been largely neglected by the agency.

In many instances, H.R. 1062's language could be lifted directly from the bill and made applicable to the FCC context. Other bill provisions would need only minor recalibration.

An "FCC Accountability Act" would help ensure proposed regulations are justifiable. And it would serve as a check against agency overregulation. Requiring the FCC to undertake cost-benefit analyses prior to adopting rules and to measure results post-adoption is sound policy. It makes economic sense too.