President signs bill revoking controversial SEC FOIA exemption

U.S. President Barack Obama signed into law Monday a bill revoking a Freedom of Information Act exemption for a broad range of Securities and Exchange Commission investigations and regulatory acts contained in the recently-passed Dodd-Frank Financial reform bill. The bill was in response to numerous complaints by open government advocates and members of Congress that the language of the exemption was too broad because it could potentially apply to any SEC action or investigation and related documents.

The provision in question, section 929I of the Dodd-Frank Wall Street Reform and Consumer Protection Act, exempted the SEC from FOIA with respect to the agency's regulatory and oversight activities, which potentially touches upon everything the SEC does. Now, Wall Street institutions that fall under the new SEC authority to regulate Wall Street will find some protection as "financial institutions" under exemption 8 of the federal Freedom of Information Act. Exemption 8 applies to records that involve investigations into the operation and condition of financial institutions, which generally are considered banks, trust companies and investment banks. This bill extends that definition to include a broader range of companies.

News of a possible repeal first arose in July when U.S. Rep. Darrell Issa, R-Calif., and ranking member on the House Oversight and Government Reform Committee objected to the provision. Joining Issa in criticizing 929I were Sens. Patrick Leahy, D-Vt., and Ted Kaufman, D-Del., and Rep. Ron Paul, R-Texas. In September, the House Oversight and Government Reform Committee held a hearing on the issue and the proposed repeal of the provision. Members of Congress and open government advocates alike testified that the provision created a far too broad exemption for the SEC that could easily be abused.

Chairman of the SEC, Mary Shapiro, agreed at the hearing that the exemption was broadly worded, but insisted that the SEC "ha[s] a bias towards turning over anything that we can."

Rick Blum, of the Sunshine in Government Initiative, a coalition of media groups which includes The Reporters Committee for Freedom of the Press, also testified at the hearing. He says the bill's passage is a "very strong first step" but more reform will be needed in the future.

"The challenge is that exemption 8 is broad and no one really knows what it means and the SEC has not [previously] overseen or monitored how Wall Street works," Blum said.

Blum said that, down the line, Congress will need to hold more hearings to find out how the SEC has used its new authority and find out what is really needed to ensure both regulatory compliance from Wall Street as well as maintaining agency openness so the public can remain informed of agency activity.