Today, SEC Chair Jay Clayton issued a statement intended to make clear the importance of the distinction between SEC rules and regulations—which are adopted in accordance with the APA, have the effect of law and are enforceable by the SEC—and staff guidance, such as the CDIs and various letters and speeches, which is nonbinding and not enforceable by the SEC or others. What was the impetus for his statement?
Clayton further underscored that the SEC must "keep this important distinction in mind," noting that he had instructed the Directors of Enforcement and Compliance Inspections and Examinations to "further emphasize this distinction to their staff." However, he also indicated that Corp Fin and other Divisions "have been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments. I believe that public engagement on staff statements and staff documents is important and will assist the Commission in developing rules and regulations that most effectively achieve the SEC's mission. I encourage such engagement, with the recognition that it is the Commission and only the Commission that adopts rules and regulations that have the force and effect of law."
SideBar
But might there be a flip side to this coin? Although this statement appears generally intended to provide some comfort that guidance will not be enforced against companies, does this new emphasis on the nonbinding and nonenforceable nature of staff guidance—albeit a longstanding position—also raise the question of the extent to which recipients of guidance are able to rely on it or steer their actions on the basis of it?
Was there an event that precipitated this statement? Perhaps, but more likely it was the statement issued on September 11 by several other agencies, clarifying the difference between supervisory guidance and laws or regulations. More specifically, the Fed, the CFPB, the FDIC, the National Credit Union Administration and the Comptroller of the Currency issued an interagency statement confirming "that supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance." That statement indicates, for example, that, while examiners may look to guidance to provide examples of good practices and appropriate conduct for compliance with laws or regulations, financial institutions will not be criticized for a "violation" of supervisory guidance. In addition, the use of "bright lines" will be limited, and any numerical thresholds used will be characterized as "exemplary only and not suggestive of requirements."
As discussed in this article from Compliance Week, the role of guidance, sometimes referred to by critics as "regulatory dark matter," has been "one of the more contentious debates in compliance and legislative circles." Critics argue that "over time 'guidance' has taken on a life of its own and either supplanted rulemaking or wedged resulting rules into previously unintended and unexpected matters." The article identifies as reflective of this debate, for example, the 2016 "Better Way" plan for rulemaking reform issued by House Speaker Paul Ryan, which "urged regulators to 'rein in the use of guidance.'" The article also highlights a 2000 D.C. Circuit Court case, Appalachian Power Co. v. EPA, which invalidated guidance that the court viewed to have been treated as tantamount to law without the benefit of "notice and comment, without public participation, and without publication in the Federal Register."
The issue is even the subject of a rulemaking petition submitted in July by the New Civil Liberties Alliance, which asks the SEC "to cease its ad hoc promulgation of guidance by which SEC seeks to bind private parties with the force of law." The petition requests that the SEC adopt a "rule prohibiting the Commission or any of its offices from issuing, relying on, or defending the validity of improper guidance. The proposed rule not only adopts existing legal limitations on such improper agency action, but, critically, also creates a permanent and binding set of limits on departmental practice."
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