The Trump administration is trimming back federal agencies’ rulemaking authority in a move that could curtail the power of the Securities and Exchange Commission. Earlier this month, the Office of Management and Budget (OMB) informed all executive branch agencies that they should clear “economically significant” regulatory actions with the White House. Among other effects, the OMB memo could signal the end of SEC guidance as we know it.
The OMB defines “economically significant” actions expansively. They include any action that has “an annual effect on the economy of $100 million or more or adversely affect[s] in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities.” Per the OMB, every proposed action qualifying as economically significant under this definition would go to Congress for review, giving legislators the opportunity to quash them.
In comments made to The Wall Street Journal, an unnamed Trump administration official characterized the memo from acting OMB director Russell Vought as a mere “clarification” of how regulatory oversight should occur under the Congressional Review Act (CRA). Enacted in the mid-1990s, the CRA granted Congress powers to disapprove agencies’ regulatory rules through a joint resolution.
Calling this a mere clarification, however, seems to undersell the memo’s true effects. Given how flexible the definition of “economically significant” is, the White House — through the OMB — will have wide latitude to determine what rules get referred for Congressional review. And importantly, the OMB policy applies to more than formal rules that have been through the notice-and-comment process; it also applies to other regulatory action like guidance documents.
For the SEC, that’s kind of a big deal. Specifically, the memo raises the possibility that the White House will need to clear the Commission’s staff-level guidance.
Could that be more of a feature than a bug? At least one prominent official at the SEC has taken aim at the expanding influence of non-public guidance. “I have grown increasingly concerned that this necessary guidance — due to a lack of transparency and accountability — may have turned into a body of secret law,” said SEC Commissioner Hester Pierce in public remarks released April 9, just before the release of the OMB memo. “This secret law, as a practical matter, binds market participants like law does but is immune from judicial — and even Commission — review.”
Whether the OMB memo will be read to apply to SEC guidance, and address Pierce’s specific concerns, remains to be seen. Regardless, the agency is still going to get swept up in the White House’s latest power play. The maneuver gives the Trump administration latitude to exert greater influence over the independent Commission’s decisions. It may use that increased influence to restrain government intervention in business or otherwise push a laissez-faire agenda.
Free-market champions on Pennsylvania Avenue should be careful what they wish for, though. The OMB’s directive has added a new layer of red tape to the regulatory — and deregulatory — process. Anyone on a mission to strike down regulations at the SEC may find their job complicated rather than facilitated by the OMB’s memo.