Enactment of the SIA proposal would likely result in the elimination of a new competency exam for investment adviser reprcscntatives, developed by state regulators with the support of the financial planning industry, scheduled for implementation by year's end.

⚫ States would losc vital enforcement authority. Statc securities agencies would be precluded from seeking a financial penalty in an enforcement action against a stockbroker or firm where the SEC, the National Association of Securities Dealers ("NASD") or a stock exchange has already acted and imposed a financial penalty. This provision would tie the hands of a state securitics regulator in cases where state securitics laws have been broken and state residents harmed.

States would lose control of information they need to protect investors. States would lose control of their public records. The NASD would be put in charge of deciding what background and disciplinary information about state licensed brokerage firms and stockbrokers would be collected and disclosed to the public. Currently, state securities regulators have a major role in determining what licensc information is collected, and given state freedom of information laws, they disclose to investors more background information about stockbrokers than the NASD does, enabling investors to make better-informed decisions.

In summary, state securities regulators support well thought-out reforms that will makc our markets and regulation more efficient--but not at the expense of investor protection. These proposals by the SIA arc flawed and fundamentally anti-investor. Our nation's securities markets are well regulated and trusted by tens of millions of investors here and around the world. Radical and extreme proposals like these could undermine that trust and are not in the long-term interest of investors or the securitics industry.

State securitics regulators are represented in Washington, DC by the North American Securities Administrators Association (“NASAA”). Please contact Deborah Fischione, NASAA's Director of Policy at 202-737-0900 if you need additional information.

Statement

Federalism: Comments on S. 1214-The
Federalism Accountability Act of 1999

Executive Order and
UMRA Had Little
Effect on Agencies'
Rulemaking Actions

Few Federalism Assessments Prepared Under Executive Order 12612 Between April 1996 and December 1998

Mr. Chairman and Members of the Committee:

We welcome this opportunity to comment on S. 1214, the "Federalism Accountability Act of 1999." The bill addresses a number of issues affecting intergovernmental relations, including rules of construction regarding preemption, legislative requirements, agency rulemaking requirements, and performance measures for state-administered federal grant programs. My comments are directed to the agency rulemaking and performance measurement requirements.

I will focus most of my comments on two previous executive and
legislative branch initiatives that, like section 7 of the bill, were designed
to highlight the impact of federal rules on state and local governments. Our
past work showed the limited effect of those previous initiatives during the
period of our review, which suggests a need for this section of the
proposed legislation. I will also point out a few similarities and differences
between the bill and the executive order. Finally, I will briefly comment on
the experience of one agency in cooperatively setting the type of goals and
performance measures with states in a federal grant program that are
contemplated in section 8 of the bill.

During the past 20 years, state, local, and tribal governments as well as businesses have expressed concerns about congressional and regulatory preemption of traditionally nonfederal functions and the costs of complying with federal regulations. The executive and the legislative branch have each attempted to respond to these concerns by issuing executive orders and enacting statutes requiring rulemaking agencies to take certain actions when they issue regulations with federalism or intergovernmental relations effects. Two prime examples of these responses are Executive Order 12612 (“Federalism”) and the Unfunded Mandates Reform Act of 1995 (UMRA).

Executive Order 12612, issued by President Reagan in 1987, established a set of fundamental principles and criteria for executive departments and agencies to use when formulating and implementing policies that have federalism implications. The executive order says that federal agencies should refrain from establishing uniform, national standards for programs with federalism implications, and when national standards are required, they should consult with appropriate officials and organizations representing the states in developing those standards. The order says that regulations and other policies have federalism implications if they "have substantial direct effects on the States, on the relationship between the

Statement

Federalism: Comments on 8. 1234--The Federalism Accountability Act of 1999

national government and the States, or on the distribution of power and responsibilities among the various levels of government.'

Executive Order 12612 also contains specific requirements for agencies. For example, the order requires the head of each agency to designate an official to be responsible for ensuring the implementation of the order. That official is required to determine which proposed policies have sufficient federalism implications to warrant preparation of a "federalism assessment." The assessment must contain certain elements (e.g., identify the extent to which the policy imposes additional costs or burdens on the states) and must accompany any proposed or final rule submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866.' OMB, in turn, is required to ensure that agencies' rulemaking actions are consistent with the policies, criteria, and requirements in the federalism executive order.

In May 1998, President Clinton issued Executive Order 13083 ("Federalism"), which was intended to replace both Executive Order 12612 and Executive Order 12875 ("Enhancing the Intergovernmental Partnership"). However, in August 1998, President Clinton suspended Executive Order 13083 in response to concerns raised by state and local government representatives and others about both the content of the order and the nonconsultative manner in which it was developed. Therefore, Executive Order 12612 remains in effect.

To determine how Executive Order 12612 had been implemented in recent years, we reviewed (1) how often the preambles to covered agencies' final rules issued between April 1, 1996, and December 31, 1998, mentioned the executive order and how often they indicated the agencies had conducted federalism assessments under the order; (2) what selected agencies have done to implement the requirements of the order; and (3) what OMB has

'Executive Order 12612 actually refers to rulemaking procedures under Executive Order 12291, which was revoked and replaced by Executive Order 12866 in 1993. Because only "significant" rules are submitted to OMB for review under Executive Order 12866, federallara assessments for nonsignificant rules are not required to be submitted to OMB. For a description of the review process under this order, see Regulatory Reform: Implementation of the Regulatory Review Executive Order (GAOT-06186, Sept. 25, 1996).

'Executive Order 12875, among other things, requires federal agencies to "develop an effective proces to permit elected officials of state, local, and tribal governments to provide meaningful and timely input in the development of regulatory proposals containing significant wifunded mandates."

It is unclear whether Executive Order 12612 covers regulations and other policies issued by independent regulatory agencies, such as the Federal Communications Commission and the Securities and Exchange Commission. Therefore, we focused our review on executive departments and agencies that are not independent regulatory agencies.

Statement

Federalism: Comments on 8. 1214-The Federalism Accountability Act of 1999

Agencies Prepared Few
Federalism Assessments During
Review Timeframe

done to oversee federal agencies' implementation of the order in the rulemaking process. We focused on the April 1996 through December 1998 time frame because we were able to use our database to identify which rules were "major" under the Small Business Regulatory Enforcement Fairness Act (SBREFA) (e.g., those that have a $100-million impact on the economy). As a result, we cannot comment on rules issued outside of that time frame. Although Executive Order 12612 does not require agencies to mention the order in the preamble to their final rules or to note in those preambles whether a federalism assessment was prepared, doing so is a clear indication that the agency was aware of and considered the order's requirements. Also, if an agency prepared a federalism assessment for a final rule, it would be logical for the agency to describe the assessment in the preamble to the rule.

Our work showed that Executive Order 12612 had relatively little visible effect on federal agencies' rulemaking actions during this time frame. To summarize the nearly 3 years of data depicted in figure 1, agencies covered by the order mentioned it in the preambles to about 26 percent of the 11,414 final rules they issued between April 1996 and December 1998.

of Executive Order 12612 in the Rulemaking Process (GAO/T-GGD-09-08,

May 6, 1990).

Page 3

GAOT-GOD-09-143