Why Did the SEC Rescind the Proxy Advisory Letters? CII’s View

As we noted earlier, the SEC has rescinded two 2004 letters about proxy advisory firms before the upcoming roundtable on proxy issues. We like CII’s analysis of what is going on.

But some Washington lobbyists believe SEC Chair Jay Clayton ordered the move, at least in part, to protect the agency’s ability to issue staff guidance generally. The reason for this view relates to an obscure 1996 law called the Congressional Review Act (CRA). That law-which was a part of then-House Speaker Newt Gingrich’s Contract with America legislation-gives Congress an expedited way to review and nullify federal regulations.

On August 2, six senators wrote the comptroller general of the U.S. Government Accountability Office (GAO) asking the GAO to determine, by November 5, whether the 2004 guidance constitutes a rule under the CRA. If the GAO considered the guidance a rule, that arguably would have started the clock ticking on Congress to repeal it within 60 legislative days by a majority vote of both houses. Were this to happen, it could set a precedent potentially opening the door to other requests from lawmakers, egged on by interest groups of every stripe, for reviews of other SEC no-action letters.

Lobbyists note that Clayton issued a statement the same day clarifying and highlighting the distinction between SEC rules and regulations and staff guidance. The statement reiterated the SEC’s longstanding position that “all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.”

Clayton’s comments came on the heels of a September 11 joint statement by five other financial regulatory agencies, including the Federal Reserve and the Comptroller of the Currency, that “supervisory guidance does not have the force and effect of law.”

For more, listen to CII General Counsel Jeff Mahoney’s latest regulatory update podcast episode. The SEC’s withdrawal of the proxy advisory letters is discussed starting at 5:37 of the podcast.

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