SEC chair questions whether her agency should issue rules to exert societal pressure on humanitarian issues when its mandate is disclosure of relevant financial information for investors
WASHINGTON (Thomson Reuters Foundation) - The chief U.S. securities regulator has thrown a shadow over civil society groups’ hopes that the agency would reissue broad rules on corporate disclosure on conflict minerals and payments to governments for natural resource extraction.
The U.S. Congress has required these disclosures as a way to combat corruption by allowing citizens to see how much companies pay their governments for the right to extract oil, gas and minerals, and requiring companies to trace whether they use minerals from the conflict zone of the Democratic Republic of Congo in their products.
The oil industry, led by the American Petroleum Institute, has challenged how the Securities and Exchange Commission wrote the disclosure regulations on natural resource extraction, arguing that the agency had over-reached by writing the rule too broadly and that its rules were anti-competitive and burdensome. A similar legal challenge has been filed on the contract minerals rules.
The U.S. district court partially agreed with the oil companies’ argument and sent the natural resource disclosure rules, known as Dodd-Frank Section 1504, back to the SEC. It said the SEC must revisit the issue and at least explain more effectively why it required companies to make the disclosures public and in such detail.
SEC Chairwoman Mary Jo White on Oct. 3 raised the spectre of a narrow ruling. She discussed in a speech the importance of an independent securities agency, one that sticks to its mandate of protecting the investor’s financial interests and the smooth functioning of capital markets. And she questioned using mandatory disclosure as a weapon to exert societal pressure on companies to change their behaviour.
“That is not to say that the goals of such mandates are not laudable. Indeed, most are. Seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share,” she said in the speech.
“But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.”
Not that the SEC would ignore a statute. “Instead, in such cases, we can, unless no leeway is given, write the rule in a way that best comports with our view of our mission and tries to mitigate the costs, so long as we faithfully carry out Congress’ mandate,” she said.
Ian Gary, senior policy manager for extractive industries at Oxfam America, however, said that a strong rule requiring detailed public disclosure of payments for natural resources has an important dual purpose: It both informs investors about material risks and informs citizens about government revenues derived from those sectors.
“There has been a strong and clear demand from investors for extractive industry sector-specific information, whether reserves reporting or payment reporting. Investors worth over $5.6 trillion in assets under management wrote to the SEC in August telling the agency to reissue a strong rule,” Gary said in an email to Thomson Reuters Foundation.
The SEC has not said when it might issue updated regulations. The European Union meanwhile has agreed to similar regulations for broad public disclosure by publicly traded companies on their natural resource payments.
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