Rollback of SEC Regulations Promulgated Under Dodd-Frank Has Begun

by Cozen O'Connor
Contact

Cozen O'Connor

In several uncoordinated actions, the dismantling of Securities and Exchange Commission (SEC) regulations promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) has begun. In two recent statements, Acting SEC Chair Michael S. Piwowar (R) has directed the SEC staff to reconsider the SEC’s prior guidance on two rules, conflict minerals, and CEO pay ratio disclosure, signaling that the SEC may be embracing the new administration’s focus on deregulation. Separately, the Republican-led Congress has approved a joint resolution that has the effect of causing the SEC’s resource extraction rule not to take effect. These three rules that have been targeted to date have been controversial within the business community, because, many have argued, the cost of compliance outweighs the minimal perceived value of the mandated disclosures to investors.

On January 31, 2017, Commissioner Piwowar directed the SEC staff to consider whether its guidance on conflict minerals disclosure is still appropriate and whether additional relief from those disclosure requirements should be granted to public company issuers. In a related development, according to a February 7, 2017, Reuters’ report based on sources close to the new administration, President Trump is planning to issue an executive order on conflict minerals disclosure. The report did not provide any details on the scope or timing of such an executive order. The conflict minerals rule was enacted by the SEC in November 2012 as required by Dodd-Frank and requires certain public companies to provide disclosure to the SEC on their use of conflict minerals (including tantalum, tin, gold, and tungsten) that originated in the Democratic Republic of the Congo (DRC) or an adjoining country, if those minerals are “necessary to the functionality or production of a product” manufactured by such companies. The conflict minerals provision of Dodd-Frank was enacted in response to congressional concern that the exploitation and trade of conflict minerals by armed groups was helping to finance conflict in the DRC and fueling a humanitarian crisis in Africa. In his statement directing reconsideration of the rule, Acting Chair Piwowar questioned whether the rule has helped the crisis in Africa and also mentioned potential national security concerns posed by the rule.

On February 3, 2017, the U.S. Senate passed a resolution under the Congressional Review Act (CRA) disapproving of the SEC’s resource extraction rule, which would have required publicly traded mining, oil, and gas companies to disclose the payments that they make to governments for the commercial development of oil, natural gas, or minerals. The measure had previously been approved by the House of Representatives and had been publicly supported by President Trump. The effect of the passage of the resolution by both houses of Congress is to cause the SEC’s resource extraction rule not to take effect. The president’s signature is not required for the congressional measure to be effective (but the president may sign the measure to signal his support). Under the CRA, the president could veto the measure (which would invalidate congressional disapproval of the regulation unless overridden by Congress), but this is unlikely as President Trump has publicly supported the abandonment of the resource extraction rule. In addition to causing the rule not to take effect, under the CRA a rule that does not take effect as a result of a joint resolution of Congress also may not be reissued “in substantially the same form and a new rule that is substantially the same as” the invalidated rule may not be issued unless specifically authorized by a law enacted after the date of the congressional joint resolution. Thus, reissuance of the resource extraction rule by the SEC is unlikely. The resource extraction rule has been unpopular with companies in resource extraction industries and had a difficult history even prior to passage of the congressional joint resolution.

The resource extraction rule was required by Dodd-Frank but was unrelated to the principal financial reform purposes of the Act. Rather, the SEC indicated that the resource extraction rule was enacted to promote U.S. foreign policy interests by mandating disclosure by the extraction industries and promoting transparency about payments to governments related to resource extraction. The SEC initially promulgated the rule in 2012 under Dodd-Frank, but the rule was invalidated by the U.S. District Court for the District of Columbia. The SEC was subsequently sued to seek to enforce the SEC’s obligation to promulgate the rule as required by Dodd-Frank and, under a court-ordered schedule, the SEC published a final resource extraction rule for the second time in 2016. The disclosure required by the SEC’s resource extraction rule would have first been required in 2019. Opponents of the rule have long argued that the disclosure mandated by the rule would put U.S. public company issuers in the resource extraction industries at an economic disadvantage in the global economy, without providing any meaningful disclosure for investors.

Separately, in a move that could broadly impact U.S. public companies, on February 7, 2017, Acting Chair Piwowar directed the SEC staff to reconsider implementation of the so-called CEO pay-ratio rule, including determining “as promptly as possible whether additional guidance or relief may be appropriate.” The pay-ratio disclosure rule was adopted by the SEC in August 2015, also as required by Dodd-Frank, and requires public companies to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the CEO. The CEO pay-ratio rule has been unpopular among public company issuers. Critics have suggested that disclosing the CEO pay ratio provides little value, particularly compared to the costs issuers are incurring to collect and process the information needed to prepare and present the ratio. The SEC is now seeking comments on the challenges that public companies are experiencing as they implement and test systems and controls to comply with the rule. After the comment period, the SEC could delay implementation of the CEO pay-ratio rule beyond its scheduled 2018 implementation date (requiring the disclosure for fiscal years beginning on or after January 1, 2017), or could modify its guidance regarding the rule that could effectively invalidate the rule’s efficacy.

Reconsideration of these rules may be a sign that the SEC, under the new administration, will embark on a pattern of deregulation, reversing or significantly cutting back some of the large numbers of new regulations implemented in response to the financial crisis and required by Dodd-Frank. (According to its website, the SEC has adopted final rules for 67 mandatory rulemaking provisions of Dodd-Frank.) Deregulation would be consistent with the new administration’s policies.

On January 30, 2017, Trump’s administration issued an executive order directing that the costs associated with any new regulation should, to the extent legally permissible, be offset by eliminating the costs of at least two existing regulations. While the executive order does not apply to independent agencies such as the SEC, the SEC could be indirectly affected as a result of joint rulemakings with other departments or agencies that are subject to the order, or it might voluntarily choose to deregulate to maintain consistency with the new administration’s focus. The SEC currently has only two sitting commissioners, Commissioner (and Acting Chair) Piwowar and Commissioner Kara M. Stein (D). When fully constituted, the SEC has five sitting commissioners and, as an independent non-partisan agency, no more than three SEC commissioners may belong to the same political party. President Trump has nominated Jay Clayton to chair the SEC, but confirmation hearings have not yet been held.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cozen O'Connor | Attorney Advertising

Written by:

Cozen O'Connor
Contact
more
less

Cozen O'Connor on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.