^®: CRE Regulatory Action of the Week

CRE Proposes Alternative to Additional Regulation of the Securities Market

Over-regulation of Corporate America threatens to render businesses extensions-in-kind of the federal government. As is usual when there is a failure in the markets, the government's first instinct is to respond with additional regulatory proposals, without first studying ways to strengthen the existing regulatory system. It is this habitual discarding of existing systems and the creation of new ones that contributes to an increase in the federal regulatory reach.

A case in point is the current failures in the securities markets. Congress is considering passage of laws to expand regulation of corporations, and there are proposals to create a vast new regulatory bureaucracy to check financial reports.

However, before such steps are taken, CRE recommends consideration of the alternative of applying Data Quality Act guidelines to the corporate data submitted to the SEC. The Act mandates government-wide standards for the quality of information that federal agencies disseminate to the public, and to the extent the SEC makes such corporate data publicly available, it would not be unreasonable to have the Data Quality guidelines apply in this context. This approach, utilizing the Act's administrative correction mechanism, would empower parties most affected by misleading information to correct it. This would bolster transparency and subject the reported information to rigorous analytical review by third parties.

If Congress were to adopt such approach to resolve current market problems, no additional legislation involving substantial fines or jail terms should be enacted until the Data Quality Act approach has been in place for one year and the SEC has issued a report to Congress on its effectiveness. This trial period would permit regulators to assess the efficacy of the Data Quality Act in terms of increasing the quality of financial information and corporate accountability. If new legislation is ultimately deemed necessary, it should be written so that a majority of the SEC Commissioners must vote, after an assessment of the Data Quality Act approach, before the new legislation can take force.