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Led by Chairman Barney Frank, D-Mass., the House Financial Services Committee held a hearing Thursday to address concerns regarding a clause in the Dodd-Frank Wall Street Reform and Consumer Protection Act that shields public access to certain records and information obtained by the Securities and Exchange Commission.
Under Section 929I of the Dodd-Frank Act, the SEC is not required to grant access to records regarding the financial institutions it regulates if the records have been obtained for purposes of “surveillance, risk assessments, or other regulatory and oversight activities.”
Opponents of the provision argued before the committee that Section 929I is too broad, thereby giving the SEC the power to refuse the disclosure of information that could be crucial to public oversight of the financial system and to prevent future financial crises.
Those supporting the clause, including SEC Chairman Mary Schapiro, argued that without Section 929I, financial institutions regulated by the SEC would resist providing important financial records needed for SEC examination and oversight, fearing that such information could become public knowledge under Freedom of Information Act requests or through third-party subpoenas. Many institutions claim that disclosure of sensitive financial information could greatly hinder investment or cause financial panic, she said.
In her testimony, Schapiro said section 929I was “never meant to exempt the SEC from FOIA,” and that such criticism “doesn’t recognize the extraordinary changes” that have recently taken place at the SEC. She cited cooperation with recent FOIA requests as evidence of the organization’s good faith efforts toward greater transparency.
“We have a bias towards turning over anything that we can,” she said.
Shapiro also expressed her desire to cooperate in clarifying the broad language of Section 929I, some of which she attempted to address in guidance released on Wednesday. Although the document details the SEC’s intention to narrowly interpret Section 929I, opponents fear that without a narrower law in place, the SEC would be free to change its interpretation of the clause at will.
Among those opposing section 929I at the hearing were members of Congress, who advocated the need for greater transparency in the SEC and who faulted the organization for several recent financial mishaps.
Spencer Bachus, R-Ala., ranking member of the House Financial Services Committee, said the SEC “must be more transparent,” placing blame on the commission for the Bernie Madoff scandal and for presiding over the 2008 financial collapse.
Darrell Issa, R-Calif., in testimony before the committee, charged that “The SEC is not an enforcement agency first. . . . It is not the FBI,” but that the group “only exists to ensure transparency” and to provide “public confidence, trust and the free flow of investments.”
Edolphus Towns, D-N.Y., also testified and argued: “The culture of accountability must start at the top.” Issa and Towns are members of the House Committee on Oversight and Government Reform and each has authored a legislative proposal to amend the opposition’s concerns over Section 929I.
Along with representatives of Congress, members of the public representing the news media and government accountability groups also testified in support of amending or repealing Section 929I.
Angela Canterbury of the Project on Government Oversight said Americans are currently suffering from a financial crisis created by systemic regulatory failures and Section 929I would remove accountability from the SEC in future financial crises. She also encouraged the committee to consider the bills proposed by Issa and Towns.
Rick Blum, coordinator of the Sunshine in Government Initiative, a coalition of media groups which includes The Reporters Committee for Freedom of the Press, argued that in the past, federal agencies have often interpreted exemptions to FOIA as broadly as they see fit and thus only an act of Congress can resolve the concerns many have with Section 929I.
Frank and committee members agreed that a revision of the clause is necessary to ensure that the SEC does not have a broad exemption from disclosure under Section 929I. Chairman Schapiro admitted that section 929I is worded broadly and that she would support legislation to clarify the language in the bill, although she was not in favor of legislation that would repeal the clause entirely. Rep. Frank said at the hearing that he hopes to reach an agreement on proposed legislation to reform the law by next week.
Susan Merrill, who has previously headed securities industry self-regulatory bodies and now represents investment firms as a private attorney, argued against repealing section 929I, claiming that the clause is essential to developing a “harmonious relationship” between the SEC and the organizations it regulates. In response, Rep. Frank said she was “over-arguing,” and that it is unrealistic to believe that the bill would create a “wonderful, cooperative relationship” between financial institutions and the SEC.
Committee members were concerned, however, about the need to protect sensitive financial information from being obtained through third-party lawsuits. Frank expressed his desire for the finalized legislation to allow financial institutions to defend against third-party subpoenas of confidential information obtained by the SEC.
“We want to give protection to private information. That will help greatly,” he said.