Feedback can help regulators understand how new requirements will work on the ground or gauge unintended negative consequences.
There are very important reasons for stakeholders to weigh in on regulations that will affect them, however, we are seeing a troubling trend in federal rulemaking that undermines the idea that meaningful public input is critical to effective regulation.
The Administrative Procedure Act, or APA, mandates that agencies provide the public with adequate notice of and a meaningful opportunity to comment on proposed regulations is designed to help regulators refine their proposals to make it more likely that their changes will work, achieve their policy goals, and, on balance, be more beneficial than harmful.
The financial markets are more complex and intertwined than ever. Regulators must navigate challenging waters to balance investor protection and market integrity and vibrancy. Engaging in dialog with stakeholders enables regulators to benefit from a wide range of perspectives, practical, operational experience, and deep knowledge and expertise, which can only improve the agency’s process.
We and other commenters often try to explore alternative, more effective means to achieve the same goals pursued by the regulators. For stakeholders to provide helpful input, they must have enough time to analyze and provide a reasoned response to highly complex, technical, and lengthy proposals.
In recent years, however, federal financial agencies are increasingly providing unreasonably short deadlines — often only 30 days — for stakeholders to respond to enormously consequential regulatory proposals. For example, complex and controversial proposals out of the Department of Labor in 2019 and 2020 on ESG, proxy voting, and investment advice standards for retirement accounts provided only 30 days for comments. Several recent SEC proposals are similarly disserving public engagement in the rulemaking process by setting 30-day comment deadlines, including on proxy voting, executive compensation, digital engagement, and securities lending.
The SEC has an ambitious policy agenda, much of which is aligned with the Investment Adviser’s Association’s policy priorities, and we commend the agency for moving forward in many areas of importance to our members and their clients. But its agenda is extremely complicated and will have significant implications for the markets, market participants, and the investing public.
The unreasonably short comment windows do not allow us and our members enough time to discuss proposals and identify potential issues for comment. Moreover, the sheer number of concurrent SEC proposals with short comment periods — with more expected as signaled by the SEC’s latest regulatory agenda, including on ESG, cybersecurity, and private fund advisers — will greatly diminish the quantity and quality of comments to the SEC.
This practice effectively denies stakeholders a meaningful opportunity to provide useful input that would help agencies improve on proposals and serve the purposes of the APA’s notice and comment requirements.
Notwithstanding the challenges created by these exceedingly short deadlines, we have rolled up our sleeves and responded to proposals that will most directly affect our members and their clients, including on digital engagement practices, proxy voting, and Form 13F reporting. These efforts have been in addition to responding to a Department of Labor proposal on ESG and submitting comments to the SEC’s Asset Management Advisory Committee on the impact of regulation on smaller advisers, among other things.
We believe strongly in the value of providing feedback on proposals that will affect our members and their clients. Our message to regulators is this: we appreciate your desire to move your agenda forward, but please provide the time to allow us, our members, and others to be able to assist more meaningfully in the process.
Gail Bernstein is general counsel of the Investment Adviser Association, an organization for fiduciary investment advisers based in Washington, D.C.
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