Regulatory process returned to the forefront last week, with Department of Health and Human Services (HHS) proposing the latest in Patient Protection and Affordable Care Act rule for small business, while the Small Business Administration (SBA) published four more size standard adjustments and will soon publish new size integrity standards. The Securities and Exchange Commission (SEC) proposed reforms to the money market fund requirements and reporting. In a widely reported non-action, the Department of Transportation (DOT) delayed requiring rear-view cameras on cars – a significant cost issue requiring more research.
Health Care Exchanges: HHS proposed Patient Protection and Affordable Care Act; Program Integrity: Exchange, SHOP, Premium Stabilization Programs, and Market Standards setting out financial integrity and oversight standards. HHS suggests that affected parties will not have difficulty complying with the provisions by their respective effective dates because most of the proposed standards are based on current private market standards.
► Whether that is true will surely be the subject of many comments – which are due only 30 days after publication, or by July 19, 2013, and, as is often the case, conversion of private standards to public regulations often creates new difficulties. HHS appears to be seriously behind schedule as critical implementation dates draw near, but that does not justify a short comment period.
MMF Reform: The SEC proposed new overlapping alternatives for Money Market Fund Reform; Amendments to Form PF, governing money market funds under the Investment Company Act of 1940 to address susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions, and increase risk transparency, while preserving, as much as possible, the benefits of money market funds. The SEC proposes any combination of:
- require money market funds to sell and redeem shares based on the current market based value of the securities in their underlying portfolios, rounded to the fourth decimal place (e.g., $1.0000), i.e., transact at a ‘‘floating’’ net asset value per share (‘‘NAV’’).
- require money market funds to impose a liquidity fee (with exceptions) if a fund’s liquidity levels fell below a specified threshold and would permit the funds to suspend redemptions temporarily, i.e., to ‘‘gate’’ the fund under the same circumstances.
Additionally, the SEC would attempt to make money market funds more resilient by increasing required portfolio diversification, enhancing stress testing, and require additional information to the SEC and investors.
► Unlike HHS, the SEC provides a reasonable 90-day comment period.
Size & Integrity Matters: Lest we forget SBA’s ongoing efforts to update size standards for small business loans, eligibility, and application of the Regulatory Flexibility Act (RFA) in regulatory analysis, the SBA published four new Small Business Size Standards rules:
- Agriculture, Forestry, Fishing and Hunting;
- Support Activities for Mining;
- Finance and Insurance and Management of Companies and Enterprises; and
- Arts, Entertainment, and Recreation.
Additionally, the Office of Management and Budget (OMB) completed review of SBA’s Small Business Jobs Act: Small Business Size and Status Integrity final rule. The rule addresses intentional misrepresentations of small business status and statutory requirements that small businesses must annually recertify.
► Size standard updates reflect changes in many different inputs and result increased potential impact of regulations on a larger potential pool of small businesses. Agencies should be seeking the assistance of SBA and its Office of Advocacy in fulfilling their initial and final regulatory flexibility analysis obligations. Quality economists and analysts do read these rules.
Cost Delay: DOT withdrew from OMB consideration its final Federal Motor Vehicle Safety Standard No. 111, Rearview Mirrors rule which would have added requirements under a 2007 Act to expand the required driver’s field of view behind a motor vehicle to reduce death and injury resulting from backing incidents. The rule had been under review for over 18 months before its demise. The press repeated widely a story that the Secretary of Transportation (DOT) informed Congress of the delay in requirements for rear-view cameras on (nearly) all vehicles under the 2007 Act in order to conduct more research. DOT has reported that, on average, 228 people are killed and 17,000 injured annually in back-over accidents (with a high incidence of elderly and juvenile victims). On the other hand, DOT estimated that mandating rear-view cameras as standard equipment on every car would add $58 to $88 to the price of vehicles with dashboard screens or $159 to $203 to add a camera and a dashboard screen. The auto industry projected an annual cost of $2.7 billion.
► Although the balancing of systemic costs against the benefits (i.e. value of life or marginal cost of death prevention) may appear to be ungracious, this is a balancing that everyone undertakes at some level daily. DOT has long experience in this analysis and this rule requires much more consideration by DOT. DOT may not be able to justify the costs. In the final analysis, Congress may need to reweigh what it has imposed.