Rulemaking for Federal Agencies

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Many federal agencies are responsible for regulating and supervising financial markets and institutions in the United States, including the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB), among others. . The US Congress authorizes these and other federal agencies and grants many of them broad authority to make rules relating to their areas of specialization.

These rules are crucial for the proper functioning of markets and financial institutions, even if the way in which they are drawn up is not always transparent. Below, we explore how some of the best-known federal financial agencies create rules.

Key points to remember

  • Federal agencies such as the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB) are delegated by Congress the power to regulate and oversee various aspects of the US financial space.
  • These agencies are authorized by Congress to make rules that have the force and effect of law.
  • Agencies must follow a complex rule-making process established by the Administrative Procedure Act.
  • Some agencies also add additional steps to the rulemaking process.

Overview of the Federal Rulemaking Process

Congress grants authority to federal agencies to allow them to implement a variety of rules related to statutory programs. Agencies often have highly specialized and technical expertise that Congress lacks, although Congress retains oversight and the ability to repeal any regulations in these cases. Once completed, the rules of the federal agency have the force of law and effect.

A federal agency that has been granted regulatory power by Congress must follow a general procedure to finalize a rule and make it legally binding. This process is in place to ensure that thorough analysis of regulatory changes takes place before any changes come into effect. Many of these procedural components are established and required by the Administrative Procedure Act (APA). The process also involves close oversight by the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget. OIRA was established as the central reviewer of federal agency rules by then-President Ronald Reagan in 1981.

Once Congress has authorized a federal agency to make rules, the general rule-making process looks like this:

  1. The federal agency creates a draft of the proposed rule.
  2. OIRA completes review of proposed draft regulations.
  3. The Agency publishes the proposed rule.
  4. The agency receives feedback and makes changes to the rule.
  5. OIRA completes review of draft final rule.
  6. The agency publishes the final opinion.
  7. The rule is subject to judicial or congressional review.

Congress can use the Congressional Review Act (CRA) to strike down rules, and a court can also strike down agency rules in certain circumstances. Additionally, the process provides an opportunity for the public to submit comments during the drafting and review process, which may impact the final rule.

Rule-making by federal agencies in the financial space

While the broader regulatory process for federal agencies follows the procedures listed above, some of the federal agencies responsible for regulating the financial space also adopt additional or varied procedures. Below, we explore the regulatory process for several of these agencies.

Securities and Exchange Commission (SEC)

The SEC oversees the operation of US stock markets. It also facilitates capital formation and works to protect investors against fraud and manipulative market behavior.

The rules created by the SEC generally come from one of the agency’s three divisions: market regulation, corporate finance, or investment management. The SEC’s Office of General Counsel (OGC) and Office of Economic Analysis (OEA) are also typically involved in the process, to ensure that the rules are consistent with existing policies, statutes, and regulations, and to perform a cost-benefit analysis regarding the impacts, respectively.

The SEC’s rulemaking process begins either with a rule proposal, as in the broader rulemaking process above, or with a solicitation of public comment on appropriate approaches to a given issue. In the latter case, the SEC will issue a statement or hold public hearings describing the matter and the SEC’s concerns. The SEC then considers public comments when creating the proposed rule. The rule-making process then continues as in the procedure described above.

The SEC maintains a chronological list of proposed rules dating back to 1988 on its website.

Federal Reserve Board (FRB)

Also known as the Board of Governors of the Federal Reserve System, the Federal Reserve Board (FRB) is the governing body of the central bank of the United States. The FRB is responsible for setting monetary policy in accordance with a set of principles that prioritize employment and stability. price, among other objectives.

The FRB is charged by Congress with implementing the Federal Reserve Act, in part by enacting a series of regulations. The FRB follows a process similar to the other agencies on this list and posts pending proposed changes on its website for public comment. The agency also provides compliance guides for its regulations.

Federal Deposit Insurance Corporation (FDIC)

The FDIC insures deposits in US banks and savings in the event of bank failure. It was created in the aftermath of the Great Depression with the aim of stabilizing the banking system and boosting public confidence.

The FDIC publishes proposed rules and public comment information in the Federal Register, which is the daily newspaper of the US government, as well as on its own website. The agency says its goal is to implement regulations in the “least burdensome way possible” and in a way that ensures regulations and policies effectively achieve their goals. Additionally, the FDIC periodically reviews its regulations and policy statements to maintain their effective and efficient status. This review process has included conferences, internal reviews, public participation and other mechanisms to reduce burden and improve transparency.

Consumer Financial Protection Bureau (CFPB)

Among the newer federal agencies in the financial space, the CFPB was created in 2010 by the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It aims to educate and protect consumers in the financial sector.

The CFPB provides rules governing a multitude of financial institutions and has a detailed rule-making process. The Dodd-Frank Act requires the agency to form a small business review committee when it creates a rule that may have a significant impact on small entities. Each panel includes representatives from the CFPB, OIRA, the Small Business Administration’s Chief Advocacy Counsel, and a cross-section of small businesses. Small business representatives receive information about the potential rule and have the opportunity to provide comments as part of the panel. The CFPB creates a report on the content of the panel and publishes this report with the proposed rule.

The CFPB provides “advance notice of proposed rulemaking” in some, but not all, cases to solicit initial public comment on potential rules. Like other agencies on this list, it also provides proposed rules to the public for the purpose of getting feedback that may or may not affect the final rule. In some cases, the CFPB provides what it calls “Interim Final Rules,” or rules that are implemented without a prior public comment period. The agency may request comments and make changes to these rules at a later date.

In October 2022, the United States Court of Appeals for the Fifth Circuit ruled that the CFPB funding scheme was unconstitutional. The future of this agency is unclear.

Office of the Comptroller of the Currency (OCC)

The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises national banks and other federally chartered savings associations. This agency has the power to take supervisory action against banks, dismiss bank managers, and deny applications for new bank branches, among other things.

The OCC provides publications on authorized activities for banks and associations under its jurisdiction, as well as administrative bulletins and interpretations and actions. Like other agencies, it posts proposed rules for public comment before making final decisions. The OCC is advised by the Legislative and Regulatory Activities Division of its Legal Department in the rulemaking process.

Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority (FINRA) is an agency that oversees brokers and brokerage firms registered in the United States. It aims to protect the public against fraud and bad practices by these institutions.

FINRA has a complex rulemaking process consisting of 10 steps:

  1. A new rule is proposed (by FINRA firms, investors, interested parties, other regulators, etc.)
  2. Internal review by FINRA
  3. Presentation of the Proposed Rule to FINRA Committees
  4. Submission of the proposed rule to the FINRA Board of Directors
  5. Regulatory notice and solicitation of public comments
  6. Filing of the rule with the SEC
  7. SEC publishes proposed rule in Federal Register for comment
  8. FINRA Response to Comments Received
  9. SEC Approval of Proposed Rule
  10. FINRA Releases Regulatory Notice of Finalized Rule

Who sets the rules for federal financial agencies in the United States?

Various federal financial agencies are authorized by the US Congress to make rules relating to their specific areas of expertise. Congress retains the power to override these rules.

How is a new rule created?

Each agency has its own unique process, but all are governed by federal rulemaking procedures, which include drafting a proposed rule, reviewing drafts, soliciting public comment, amendments, and review. more in-depth, and the publication of the final rule.

How are these rules applicable?

Once finalized, rules issued by federal agencies have the force of law.

The essential

Congress authorizes federal agencies such as the SEC, FINRA, and FDIC to create rules regarding their areas of expertise. These agencies must go through rigorous and complex rule-making processes that involve multiple drafts, review periods, and an opportunity for the public to provide comment. Once finalized, these rules have the force of law and effect.

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