You may have seen May 2, 2011 Wall Street Journal
article entitled "Overhaul Grows and Slow" (here),
which described the backlog developing as regulators struggle to meet the
rule-making guidelines mandated by the Dodd-Frank Act. The article itself was
interesting enough, but if you really want to appreciate the daunting task
regulators face, you may want to take a look at the law firm memo on which the
article was based.
The May 1, 2011 memo from the Davis Polk law firm,
entitled "Dodd-Frank Rulemaking Report" (here)
provides a much more detailed look at the regulators'' massive burden.
As the memo details, Dodd-Frank (which was massive enough
itself) mandated 387 different rulemakings from 20 different regulatory
agencies. (Some of the mandates require multiple agencies to issue rules on a
given topic or item; if the joint rules are not double-counted, the number
drops from 387 to 243.) Congress not only required the rulemakings, but
it specified the rulemaking schedule for many of the mandates as well. Of the
387 required rulemakings, 275 have specified rulemaking deadlines or annual
The bad news for regulators is that with most of the
regulatory deadlines yet to come, they have already fallen behind. For example,
not a single one of the agencies involved met any of the 26 deadlines that fell
in April 2011. Cumulatively, the agencies collectively have now missed more
than 30 deadlines.
The worse news for regulators is that most of the
deadlines are yet to come. As the chart on page 8 of the law firm memo shows,
only 40 of the 387 deadlines will have occurred through the end of the 2nd
quarter 2011. The real problems will arise during the 3rd quarter of
2011 (which will coincide with the first anniversary of Dodd-Frank's passage).
In the third quarter alone the agencies will face 108 different rulemaking
deadlines, about 28% of the total. There is no relief after that, either, as 37
more deadlines fall in the fourth quarter.
The agency that will face the biggest challenge is the
SEC. Of the 387 rulemaking mandates, 95 (or about one quarter of the total) are
directed to the SEC. Of those 95 SEC mandated rulemakings, 75 have deadline
requirements, and 45 have deadlines that fall in the third quarter of 2011. As
of today, the SEC has completed new regulations only six required items,
proposed 28 additional rules and missed deadlines on 11. In the second half of
2011, the SEC will have to complete a total of 52 more rulemaking -- and that
doesn't even take into account the deadlines on which the SEC has already
The authors of the law firm memo are not optimistic that
the regulatory agencies will much greater success meeting these upcoming
deadlines than they did with the deadlines that have occurred so far. As
graphics in the memo depict very vividly, the commentary period that follows a
proposed rulemaking produces a "mountain" of comments. Working their way
through that mountain required regulators to read many comments in a short
timeframe. Missed deadlines seem likely.
The rulemakings that have been delayed already include
some of those relating to the Dodd-Frank Act's most closely watched provisions.
For example, the rules relating to the Act's new whistleblower provisions,
which had been due April 21, now reportedly
will not be available until late July. The SEC also
delayed the release of its proposed regulations on resource extraction and
conflict minerals disclosure, which had been required earlier in April.
The problem is not just the sheer magnitude of the task;
it is also the political pressure that interested groups are applying to the
process. The Journal article cites Stanford Law Professor (and former SEC
Commissioner) Joseph Grundfest as saying that "the problem is not just the
number of the rules, It's the complexity of them, and it's the political power
of the various constituencies that are affected by these rules."
Whatever the reason for the delay, it seems like the day
by which we will finally be able to assess the overall impact of the Dodd-Frank
Act may now be even further off into the future.
Legal History: The
Davis in the Davis Polk law firm's name refers to John W. Davis, who was
the Democratic party candidate for President in 1924. Davis lost the
election to Calvin Coolidge. The firm can boast of a former President
among its alumni, as Grover Cleveland was a member of a predecessor firm during
the period between his two separate Presidential terms.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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