SEC Commissioner Hester M. Peirce urged the agency to keep its rules current.
In remarks at the Exchequer Club, Ms. Peirce called on the SEC to reexamine its rules on a regular basis to ensure that they continue to effectively advance the regulatory mandate from Congress. If a rule is not solving the problem that the SEC sets out to solve, then it is important to figure out another solution and eliminate the rule if the problem no longer exists, she said.
In addition, Ms. Peirce stated that "outdated rules can impose significant costs on market participants." For this reason, she said, she opposes requiring specific technologies in SEC rules. "We ought to consider whether it is time to allow firms the flexibility to use some of these more cost-effective [technological] approaches — methods that integrate seamlessly with the firm's operations" she argued.
Ms. Peirce said that lessons about what worked and what did not work in one rulemaking exercise should inform future approaches to regulation. Ms. Peirce touted the practice of retrospective review of SEC rules, stating that the Commission is reconsidering rules related to the proxy process, capital formation and market structure.
Commentary / Conor Almquist
Commissioner Peirce rightly addresses the issue of technological obsolescence in her speech. It can be unduly challenging for firms to meet very specific technological requirements embedded in rules and even more challenging for regulators to predict when future technological developments will make obsolete old requirements. To take a simple example of this, notices from broker-dealers of financial distress under SEA Rule 17a-11 may be given only by telegraph or fax. Why isn't email ok? It wasn't around when the rule was adopted.
Leaving aside that one rule, Commissioner Peirce raises the issues presented by the Write Once, Read Many ("WORM") technology required by the broker-dealer books and records rules. The WORM requirement imposes significant costs and operational headaches, particularly in conjunction with the uncertainty surrounding the various ancillary requirements associated with creating and keeping electronic records. Although the broker-dealer books and records rules were updated in 1997 to allow for electronic storage, the revised rule contemplates "microfilm or microfiche" and "optical storage technology" (including certain forms of CD-ROM and optical tape). While the SEC released interpretive guidance in 2003 clarifying that other electronic storage systems such as magnetic disk could be made WORM compliant (and thus permissible under the rules) "using integrated hardware and software codes," the rules still require notifying an examining authority when using electronic storage "other than optical disk technology." In the era of cloud storage and blockchain, there is no reason for the SEC to be giving its blessing to microfiche storage.
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