MSRB Adopts Policy on Economic Analysis

CHICAGO — The Municipal Securities Rulemaking Board has announced a policy for formally incorporating economic analysis in its regulations.

The policy largely borrows from that used by the Securities and Exchange Commission, which now takes great care to craft lengthy justifications for its rules after several court challenges to the commission’s rulemaking after the Dodd-Frank Act, which was enacted in 2010.

The new policy is the result of a one-year effort by a working group of board members, the MSRB said.

The policy specifies that the MSRB will be identifying the need for a proposed rule, articulating a baseline against which to measure a rule’s likely economic impact, evaluating alternatives, and assessing the benefits and costs.

“The MSRB recognizes industry concerns about the costs of regulation and designed the policy to provide additional rigor to its existing practice of evaluating possible alternatives and assessing potential burdens and benefits of rule proposals,” said MSRB chair Jay Goldstone. “The policy will inform the MSRB rulemaking process and better establish the basis for future rule proposals.” 

Justifications for a rule could include a congressional mandate, a general aim to improve processes, or an attempt to remedy a specific “market failure,” according to the MSRB policy. The MSRB staff is directed to weigh benefits such as efficiency and greater compliance against compliance and other costs associated with new regulations.

The board may vote to undertake rulemaking without an economic analysis, so long as it states a reason for not doing one and provides to the SEC a statement of what costs and benefits could be expected “based on the board’s expertise,” the policy states.

The new policy comes just as the board is poised to begin a busy stretch of rulemaking following the release of the SEC’s municipal advisor registration rule.

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