SEC Stall Leaves Key Dodd-Frank Rules More Than A Year Overdue

WASHINGTON -- A full year after the official deadline came and went, key regulations necessary to enforce the Dodd-Frank financial reform law remain unwritten, leaving vast areas of the financial market still vulnerable to self-destruction and failing to discourage corrupt practices overseas.

Among the overdue regulations from the Securities and Exchange Commission alone are complicated rules, like those that would rein in the derivatives market, and simple rules, like the pending requirement that companies publicly reveal the median compensation of all their employees, the compensation of their CEO, and the ratio of the two.

There are also long-delayed but important anti-corruption regulations, including one that would instruct publicly traded companies listed on U.S. stock exchanges to start disclosing exactly how much they pay foreign governments to acquire drilling and mining rights. The idea is to make it more difficult for foreign leaders to abscond with secret stashes of billions of dollars they received from energy and mining companies.

The Dodd-Frank legislation specifies that the anti-corruption provision and many others should be implemented within nine months of the bill becoming law -- namely, by April 15, 2011. Now another whole year has passed.

There is reason to hurry, said Bartlett Naylor, financial policy advocate for the consumer group Public Citizen. "Our financial industry has developed an ability to blow itself up very quickly, apparently unbeknownst to its regulators," he said. "It's unclear when the next bomb will explode. But I think defusing it sooner is certainly better."

Naylor is eagerly waiting for the SEC, which must write a significant number of Dodd-Frank's required rules, to detail and enforce the law's prohibition on employee bonuses that encourage inappropriate risk taking by financial institutions. "Given that Wall Street was crashed not by philanthropists or people randomly making decisions, but by people who were bonus-based, I think that's the single most overdue rule," he said.

Some observers worry that the Obama administration is now making a higher priority of eliminating disclosure rules and regulatory burdens for small companies seeking capital. Those are requirements of the recently passed JOBS Act, which won bipartisan support in Washington despite considerable concerns that it invites a new wave of conflicts of interest and financial fraud.

The big question, Naylor said, is whether the SEC is taking the 270-day rulemaking timeline for that law more seriously than the 365-days-overdue deadline for Dodd-Frank.

"We, of course, don't think it should," he said.

An SEC spokesperson was not available for comment. The agency generally declines to publicly discuss internal deliberations.

Oxfam America and other international humanitarian groups have strongly objected to the delay on the rules regarding disclosure of payments for natural resources overseas. Three activists from a coalition that Oxfam helps lead dressed in suits and monkey masks and stood inside an oil barrel in front of the SEC on Monday to convey the message that "transparency in the oil, gas and mining industry is not monkey business."

Ian Gary, who handles extractive industries issues for Oxfam, said the group has grown increasingly concerned about the rule delay. "The SEC has blown past every timetable and promise they've made," he said.

The SEC's latest estimate is that the rule will be finalized by June at the latest. "But based upon the serial violations of promises in the past, we're deeply concerned that the agency is not taking the congressional deadline seriously and has really drawn back from rulemaking in general," Gary said.

Indeed, the SEC hasn't adopted any substantive Dodd-Frank rules this year, a slowdown that is widely seen as the result of a federal appeals court ruling last July that struck down one of its rules on the ground that the agency failed to adequately assess the potential economic effects.

Since then, as Reuters reported, the SEC has been "taking extra steps to bulletproof its rulemaking."

That worries Gary. "I think the agency is in some ways being cowed by the oil industry -- and other industry -- lobbyists to water down this rule and water down other rules so they might withstand a legal challenge," he said.

The powerful oil and gas lobbying group, the American Petroleum Institute, has long argued that the overseas payment disclosure rule would put it at a competitive disadvantage when competing for international contracts. Now it's demanding that the draft rule be rewritten, and its main argument is that, if not, it will sue and win.

Naylor calls the litigation threat "the sharp edge" of an industry lobby that was already relentlessly pressuring the SEC's members and staff. And he fears the agency is listening.

"If you are spending 90 out of 91 conversations talking to a banker rather than a consumer advocate," Naylor said, "you will begin to speak their language and think their thoughts."

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