January 30, 2018

The U.S. GAO published an annual report examining the extent to which, and how, financial regulators performed the required Regulatory Flexibility Act (RFA) analyses and established policies and procedures for complying with the RFA requirements, among other objectives. GAO reviewed the RFA section of financial regulators’ Federal Register notices of rule making, related internal work papers, and policies and procedures for conducting RFA analyses. GAO also determined the extent to which regulators’ analyses reflected RFA requirements, guidance issued by the Office of Advocacy, and OMB guidance on regulatory analysis.

To comply with the RFA, agencies must assess the rule’s potential impact on small entities and consider alternatives that may minimize any significant economic impact of the rule. Alternatively, agencies may certify that a rule would not have a significant economic impact on a substantial number of small entities. GAO found several weaknesses with the analyses of six financial regulators—FED, OCC, FDIC, SEC, CFTC, and CFPB—that could undermine the goal of RFA and limit transparency and public accountability, as shown in the following examples:

  • Certifications. In certifications for rules that regulators determined may affect small entities, regulators conducted analyses to support their conclusions. GAO found that, in general, analyses across all regulators lacked key information the Small Business Administration’s Office of Advocacy and the OMB recommend. Missing information included discussions of data sources or methodologies, consideration of broader economic impact of the rule making, and definitions of the criteria regulators used for substantial number and significant economic impact.
  • Regulatory flexibility analyses. In many of the initial and final regulatory flexibility analyses that GAO reviewed, financial regulators’ evaluation of key components required by RFA—potential economic effects and alternative regulatory approaches—was limited. Most regulators (five of six) did not disclose data sources or methodologies used for their analyses, as OMB recommends. For most rules that GAO reviewed, regulators (five of six) were unable to provide documentation supporting their regulatory flexibility analyses, as OMB recommends, including analyses supporting certification decisions. However, the extent of documentation varied by regulator.

Federal internal control standards state the importance for agency management to establish policies and procedures to achieve objectives. All but one of the financial regulators have guidelines that restate RFA requirements for certification and for preparing regulatory flexibility analyses and provide some information on how to approach these analyses. However, these regulators generally have not developed specific policies and procedures to assist staff in complying with RFA, which may contribute to the weaknesses GAO identified in the analyses. By not developing and implementing comprehensive policies and procedures for RFA analyses, regulators’ ability to consistently and effectively meet RFA objectives may be limited. GAO is making 10 recommendations among the six financial regulators reviewed, including that regulators develop and implement specific policies and procedures for consistently complying with RFA requirements and related guidance for conducting RFA analyses. Five agencies generally agreed with the recommendations and one did not provide written comments.

 

Related Link: Press Release

Keywords: Americas, US, Banking, Securities, Regulatory Flexibility Act, Regulatory Flexibility Analyses, GAO

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