After intense pressure from numerous industry groups and dozens of lawmakers, including Democratic members, about the relatively short comment period provided on rule proposals in the past few months, the SEC on May 9, 2022, extended the comment deadline for its high-profile but controversial rulemaking related to disclosure of climate change risks.
The new comment deadline is June 17 according to SEC Release No. 33-11061, The Enhancement and Standardization of Climate-Related Disclosures for Investors.
On March 21, the SEC issued the proposal in Release No. 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors.
The original deadline was 30 days after publication in the Federal Register, or 60 days after the rule is posted on the SEC’s website, whichever is later. This meant that comments originally were due by May 20.
“Today, the Commission acted to provide the public with additional time to comment on three proposed rulemakings that have drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders,” said SEC Chair Gary Gensler in a statement. “The SEC benefits greatly from hearing from the public on proposed regulatory changes. Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.”
The market regulator also reopened the comment periods on proposals related to private fund advisers and Regulation Alternative Trading Systems (ATS) for 30 days.
The SEC’s decision to grant more time for the public to weigh in on the proposal comes as critics said Chair Gensler should slow down his ambitious rulemaking agenda, which has about 50 projects for the near-term.
In December last year, SEC Commissioner Hester Peirce even issued a statement to emphasize the need to give ample time for those who wish to comment on the proposed rules. She even used a rat anecdote to make her case. Gensler has typically given 30 days, sometimes 45 days, to comment.
In her view, 30 days is typically not enough time. It should generally be at least 60 days, she said. For complicated rulemakings or when the commission has many outstanding rulemakings at the same time, she said a 90-day comment period is more appropriate.
Since then, industry groups, led by the Securities Industry and Financial Markets Association (SIFMA), have been increasingly vocal about the short comment period. Sympathetic to their argument, lawmakers have been sending letters to the SEC as well.
A couple of sources who are in the middle of writing comment letters on the climate proposal sighed with relief. Their heads were beginning to hurt, they joked. The proposal is complex, long, with many moving parts that take a significant amount time even for experts to digest. Moreover, this rule, if adopted, is expected to be consequential.
Critics, including Peirce, believe that the SEC is stepping out of its role to act like the Environmental Protection Agency (EPA).
But Chair Gensler defended the rulemaking, saying that with changing times, the commission has always required new types of disclosures over the several decades. And he said that this is something that more investors say they want to be able to make investing and voting decisions.
“This is a very welcome extension…. the initial comment period was incredibly short for a proposed rulemaking of this magnitude,” said Dave Brown, a partner with Alston & Bird LLP. “The extension should allow more thoughtful comments that the SEC will hopefully consider in a final rule.”
“The SEC under Chairman Gensler has not demonstrated a willingness to listen to feedback,” Brown added. “It may be that the extension was granted to improve the SEC’s position with an inevitable court challenge. Regardless, this proposed rule is very significant and has far reaching implications for issuers and a thoughtful approach by the SEC is critical to make sure that the proposed rules protect investors and promote capital raising.”
SIFMA welcomed the SEC’s decision.
“Providing more time to comment will allow stakeholders time to provide critical information the SEC must consider, including preparing robust cost benefit analysis, impact on market functioning and, importantly, investors,” SIFMA President and CEO Kenneth Bentsen, Jr. said in a statement. “Further, the Commission should consider the cumulative impact of its rulemaking agenda and the need for prioritization, particularly given the need to finalize important, long pending rule proposals such as the Consolidated Audit Trail (CAT) Data Privacy Rule.”
Reopening of Comment Periods
The following proposed rules were reopened to give the public 30 additional days to comment following the publication in the Federal Register:
Release No. IA-5955, Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews. The comment period originally closed on April 25.
Release No. 34-94062, Amendments Regarding the Definition of ‘Exchange’ and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities. The comment period originally closed on April 18.
This article originally appeared in the May 10, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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