The top Republicans on three House committees on Sept. 22, 2022, released a letter to SEC Chair Gary Gensler demanding he detail the underlying statutory authority for his rulemaking agenda.
The letter comes months after the Supreme Court’s June decision in West Virginia v. EPA that Gensler’s critics on Capitol Hill hope will constrain his ambitious rulemaking goals on climate risk and other issues. That 6-3 decision curbed the ability of the Environmental Protection Agency (EPA) to limit power plant emissions under a provision of the Clean Air Act. Chief Justice John Roberts, writing for the majority, portrayed the EPA as discovering new authority under Section 111(d) of the Clean Air Act – a rarely-used “ancillary provision” of the law designed as a gap filler – to “substantially restructure the American energy market.”
Roberts declared West Virginia v. EPA a “major questions case.” Under the major questions doctrine, administrative agencies need clear authorization from Congress in order to implement regulations with major economic or political significance. (See In Wake of Supreme Court Emissions Decision, SEC Climate Disclosures Seen on Firmer Ground than EPA Plan in the July 5, 2022, edition of Accounting & Compliance Alert.)
Signing the Sept. 20 letter were Reps. Patrick McHenry of North Carolina, Kay Granger of Texas and James Comer of Kentucky, the ranking members of the House Financial Services Committee, Appropriations Committee and Oversight Committee, respectively.
“Although Article I, Section 1 of the United States Constitution vests ‘all legislative powers’ in Congress, the Biden administration has largely relied on executive action to advance its radical agenda,” they wrote. “For example, in his first year, President Biden issued more executive orders and approved more major rules than any recent president. Such reliance on the administrative state undermines our system of government. Our founders provided Congress with legislative authority to ensure lawmaking is done by elected officials, not Executive branch staff. Given this administration’s track record, we are compelled to underscore the implications of West Virginia v. EPA and to remind you of the limitations on your authority.”
They argued the decision “casts doubt on the Securities and Exchange Commission’s (SEC) authority to develop, finalize and implement a broad swath of regulations.”
Among other proposed rules targeted in the Republican letter were the commission’s March proposals in Release No. 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors, requiring broad new disclosures on public company greenhouse gas (GHG) emissions and related risk; Release No. 33-11038, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, stepping up reporting requirements for cybersecurity incidents and risks; and Release No. 33-11048, Special Purpose Acquisition Companies, Shell Companies, and Projections, proposing disclosure requirements specific to special purpose acquisition companies (SPACs).
The three lawmakers also listed the SEC’s 2015 JOBS Act rules in Release No. 33-9974, Crowdfunding, “an 11 page bill that was turned into hundreds of pages of regulatory requirements.” The rules established Regulation Crowdfunding, allowing startups to raise capital from the public through registered online portals or broker-dealers, subject to certain accounting and disclosure requirement and investment limits. Sec. 1 of pl112-106
McHenry, Granger and Comer also sought, by Sept. 30, a list of all pending and expected rulemakings and their specific statutory authority.
This article originally appeared in the September 26, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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