The Committee on Capital Markets Regulation (the “Committee”) is concerned that in recent years U.S. financial regulatory agencies have increasingly forgone best practices and statutorily required regulatory process in various aspects of financial regulation, supervision, and enforcement. When financial regulators have engaged in notice and comment rulemaking under the Administrative Procedure Act (“APA”), there have often been significant procedural shortcomings. And, in other instances, financial regulators appear to be imposing de facto regulations without engaging in the required notice and comment process at all.

Financial regulation that is transparent, that reflects the input of market participants, and that is consistently enforced and interpreted, is a pillar of U.S. financial markets. The efficient allocation of capital that fuels economic growth requires that regulators continue to uphold the spirit of transparency and consistency in rulemaking, supervision, and enforcement. The trend toward arbitrary rulemaking, supervision, and enforcement discussed herein goes against this spirit and therefore threatens to undermine the preeminence of U.S. financial markets. The Committee calls on U.S. financial regulators to restore their commitment to the norms of transparency and consistency. We also call for the President’s Working Group on Financial Markets and appropriate congressional committees to conduct a comprehensive review of the trend discussed herein.

In this report we identify ten instances of this trend, divided into three categories. Although most of the instances we discuss relate to the most recent two years, others constitute longstanding concerns that the Committee has highlighted in earlier reports.

The first category consists of recent instances in which the notice and comment rulemaking process has involved material procedural shortcomings. Under this category we describe how recent rulemaking proposals by the Securities and Exchange Commission (“SEC”) have (1) contained inadequate cost-benefit analysis, and (2) departed from established principles guiding the length of comment periods, thereby depriving commenters of adequate time to respond.

The second category consists of instances in which a financial regulatory agency has imposed de facto regulations on market participants without engaging in the notice and comment rulemaking process. The first two issues we describe in this category consist of recent occurrences: (1) a recent announcement by the Office of the Comptroller of the Currency (“OCC”) that it may withhold consent to certain regional bank mergers unless the regional bank’s living will meets parameters that the agency has failed to disclose, and (2) the decision of the Federal Trade Commission (“FTC”) to subject private equity acquisitions to higher standards of antitrust review. The other two are issues on which the Committee has already expressed its view in prior reports: (3) the Federal Reserve’s development of the factual scenarios and models underlying bank stress tests outside of the APA’s notice and comment rulemaking process, and (4) bank regulators’ use of confidential criteria for assessing banks’ living wills.

The third category consists of instances in which a regulator has selectively or inconsistently enforced or interpreted existing rules. Under this category we describe (1) the SEC’s announcement that it would decline to enforce a rule regulating proxy advisers during the pendency of a legal challenge to the rule, (2) the Department of Labor’s (“DOL”) inconsistent guidance on the permissibility of private equity investments by 401(k) plans, (3) the SEC’s use of a purported regulatory “clarification” to effect an unauthorized expansion of the statutory definition of “underwriter” in the context of SPAC and de-SPAC transactions, and (4) the SEC’s alteration of its longstanding application of the rules regulating Rule 144A debt offerings.

The full letter is available here.