HFS Chair McHenry Urges SEC to Evaluate Aggregate Impact of Recent Proposals
Commentary by Steven Lofchie
House Financial Services Committee Chair Patrick McHenry (R-NC) led Republican committee members in urging the SEC to not finalize any new regulation until evaluating the aggregate impact of interconnected proposals on private funds, equity market structure and corporate governance.
In a Letter addressed to SEC Chair Gary Gensler, Chair McHenry criticized the SEC for "consider[ing] rules related to one another in a siloed fashion" and failing to conduct a "thorough economic analysis" on the proposals. Chair McHenry urged the SEC to:
- conduct a cost-benefit analysis on the aggregate impact of the proposals and release the analysis for public comment; and
- put forth a staggered schedule - also for public comment - of the adoption and implementation of the proposals that takes into consideration the proposals' "overlapping nature" and any compliance burdens.
Commentary
The cost of dealing with any rule change increases in a more than straight-line basis as new rules are added. For example, a firm may have technology staffing to deal with one rule change at a time, but if there are two or five rule changes simultaneously, then the firm must hire more staff at the same time that other firms are trying to hire additional staffing.
This, of course, assumes that the costs of any one rule change are readily quantifiable and can be managed. The costs of (i) proposals that would require private funds to register as broker-dealers and become subject to capital charges, (ii) new custody rules that will make it difficult for advisers to obtain custodians for foreign assets and (iii) climate rules are not ones that can be readily quantified or managed.