Even with Bush, unpopular rules likely to stay

A Bush administration would be unlikely to undo Clinton-era regulatory red tape, even with Republican support in Congress.

But that may not stop some business groups from asking it to try if Texas Gov. George W. Bush ultimately takes the White House.

In the past several weeks, the Securities and Exchange Commission has adopted a series of new regulations to increase public disclosure and curb potential conflicts of interest – many of which were hotly opposed by industry groups.

And more are on the way.

So far, at least one trade group, the American Institute of Certified Public Accountants in New York has left the door open to try to weaken a rule adopted last month to curb conflicts of interest between auditing firms and the companies they examine.

But it is likely to find that options are limited for any new administration, even a business-friendly, Republican one.

For the securities industry, that means the dreaded Regulation FD, which prevents public companies from selectively disclosing key corporate information will remain in place.

“There was plenty of grumbling to be heard on Regulation FD, and yet we’re going to live with it,” says John Collins, spokesman for the Investment Company Institute in Washington, which represents mutual fund companies.

A spokesman for the Securities Industry Association in Washington, which represents brokerage houses and was a leading opponent of Regulation FD, says no plans exist to water down the regulation under a new administration.

While the industry might look forward to more-lenient regulations under George W. Bush, investor advocates think Republicans would be harmful to investors.

advocates’ view

SEC Chairman Arthur Levitt, a Democratic appointee, is expected to retire next year.

Assuming there will be a GOP presidency, a Republican will be named to take his place. At the top of the list of likely candidates is Laura Unger, a commission member.

“From my point of view, [a new chairman] is not a very good sign,” says Mercer Bullard, founder and CEO of Fund Democracy, an advocacy group in Chevy Chase, Md.

“Republicans are less inclined to look to regulation to improve investors’ situation, and the Republican [SEC] appointees have frequently been skeptical of initiatives put forward by Levitt,” says Mr. Bullard, who spent several years at the SEC as assistant chief counsel in the division of investment management.

He’s hoping that the SEC takes care of its handful of unfinished business items before Mr. Levitt steps down – not because the rules would disappear but rather because they might come out weaker under a Republican chairman.

Pending SEC business championed by Mr. Levitt includes the contentious “pay-to-play” rule.

The rule would ban most political contributions from the industry to government officials who have influence over public pension funds managed by advisory companies.

An SEC spokesman says the agency “is committed to having [the rule] done before the end of the year.” The same goes for rules to strengthen the independence of mutual fund directors, require funds to report after-tax performances and force fund names to better reflect their holdings.

No quick fix

One lawyer who worked at the SEC during an administration change says that despite political influences shifting in the leadership, “there tends to be some continuity in the rulemaking even with a change in commissioners.”

But, he adds, “absent Levitt’s political will to get the auditor independence rule done, that’s the sort of thing that could have been swept under the rug.”

For the moment, the public accountant trade group will say only that the matter is being studied. “We’re reviewing it, and that’s really all we can say right now,” confirms spokeswoman Linda Dunbar.

So what could the AICPA do if it decided to battle that particular rule? The choices are limited, and none offer a quick fix.

Even if Republican leadership at the SEC – or in the White House – would mean a more sympathetic ear, any changes to the rule still would have to go through the public rulemaking process again. That is often a long and laborious procedure.

The Congressional Review Act, which gives Congress the chance to review and possibly reject a rule, could help, but it’s never been tested.

Passed as part of the Small Business Regulatory Enforcement Fairness Act in 1996, it essentially lets lawmakers take up to 60 working days after the rule’s publication in the Federal Register to decide whether to rescind it.

Considering the likelihood of gridlock in Congress – a 50-50 split in the Senate and a 10-seat Republican majority in the House as of last week, with two elections being challenged – winning majority support to rescind what’s already gone through the public rulemaking process is unlikely.

The president also has the authority to rescind executive orders enacted by predecessors, but none are on the books that would broadly affect the financial services industry.

Legal battles also can be a tactic.

For instance, a coalition of businesses led by the National Association of Manufacturers plans a court challenge to ergonomics regulations adopted last month by the Occupational Safety and Health Administration. Those rules govern how employers must handle and pay for stress-related injuries caused by repetitive motions or overexertion.

Opponents argue that the Clinton administration rushed those regulations through, which will be costly, and they are too broad, overly vague and scientifically unsound.