ASA Opinion: The True Cost of the SEC’s Regulatory Overreach

ASA CEO Christopher A. Iacovella's opinion was published in The Washington Times

By Christopher A. Iacovella

Christopher A. Iacovella is CEO of the American Securities Association

Under Chair Gary Gensler, the U.S. Securities and Exchange Commission (SEC) has become aggressive and ambitious, proposing over 44 new and costly regulations since 2021.

While Chairman Gensler certainly can propose rules to advance his agenda, the SEC must, by law, do a cost-benefit analysis of its rulemakings.

In assessing the costs and benefits, however, the SEC is not allowed to use inaccurate cost estimates that misrepresent the actual financial burden of its rules on the American economy. Unfortunately, for more than a year, the Commission has done just that.

The result? The SEC has routinely underestimated the cost of its rules to American businesses and taxpayers.

For some time now, the SEC has estimated the legal and compliance costs associated with its rules to be $400 an hour. Even before our economy entered today’s high inflation environment, the SEC’s $400 per hour estimate was wildly understated. When you consider inflation and the generous hourly rates that accounting and law firms in Washington and New York charge, the problem only gets worse.

This figure was so off that SEC Commissioner Mark Uyeda pointed out the absurdity of this figure while dissenting to a rule last August. He cited comments from the National Stone, Sand and Gravel Association, pointing out that $400 per hour “does not at all approach the $1,000 per hour or more that experienced partners and other senior employees of major law and accounting firms now regularly charge.”

In every rulemaking since, the agency has quietly adjusted the hourly compliance cost to $600 per hour, hoping no one would notice.

Why should anyone care? Well, the SEC’s tacit acknowledgment that it has been understating compliance cost estimates means the public doesn’t know the actual costs of the agency’s rules.

More ominously, it also means that the sky-high cost of the SEC’s regulatory agenda is wrong even by its own estimates. For example, simply using the $600 per hour compliance cost – which is still far too low – increases the total cost of the Commission’s highly controversial climate disclosure rule alone to over $8 billion. That’s an increase from the $6.3 billion estimate when the rule was proposed.

In short, a lot more money than we imagined (or were told) will be taken out of the productive American economy and the pockets of our nation’s investors to pay for layers of suffocating new regulations from the SEC.

Put simply, the SEC asked the American public for feedback on wide-ranging proposals that included misleading information about their real economic impact. This is the epitome of the administrative state gone wild, with little regard for the costs that will be shouldered by the American economy and its workers.

The American people deserve better, and it’s time their elected representatives took notice.

If Chairman Gensler wants to restore public confidence in the agency and fairness to the rulemaking process, he must ensure the American people have accurate facts that underpin every agency rule. That should be standard practice for an agency tasked with protecting investors, promoting capital formation, and maintaining fair, orderly, and efficient markets.

To make this right with the American public, the SEC needs to immediately reopen the comment period and recalculate the cost-benefit analysis for every proposed rule that used incorrect cost estimates. This is the only way to afford small businesses, working families, and retirement savers the opportunity to have their voices heard on the true financial burden of each proposal.

Congress is accountable to the American public, and so is the administrative state. The SEC is no exception.

This op-ed originally appeared in The Washington Times. Click here to read online.