Securities and Exchange Commission: Proxy Voting Advice

B-334478 Jul 25, 2022
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GAO reviewed the Securities and Exchange Commission's (SEC) new rule entitled "Proxy Voting Advice." GAO found that the final rule (1) adopts amendments to the federal proxy rules governing proxy voting advice; and (2) rescinds certain SEC guidance previously issued to investment advisers about their proxy voting obligations, as well as removes a note that used to provide examples of situations where failure to disclose certain information in proxy voting advice could be considered misleading under the federal proxy rules' prohibition on material misstatements or omissions.

Enclosed is our assessment of SEC's compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. If you have any questions about this report or wish to contact GAO officials responsible for the evaluation work relating to the subject matter of the rule, please contact Shari Brewster, Assistant General Counsel, at (202) 512-6398.

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B-334478

July 25, 2022

The Honorable Sherrod Brown
Chairman
The Honorable Patrick J. Toomey
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Maxine Waters
Chairwoman
The Honorable Patrick McHenry
Ranking Member
Committee on Financial Services
House of Representatives

Subject: Securities and Exchange Commission: Proxy Voting Advice

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Securities and Exchange Commission (SEC) entitled “Proxy Voting Advice” (RIN: 3235-AM92). We received the rule on July 13, 2022. It was published in the Federal Register as a final rule on July 19, 2022. 87 Fed. Reg. 43168. The effective date is September 19, 2022.

According to SEC, the final rule adopts amendments to the federal proxy rules governing proxy voting advice. SEC states that the amendments adopted by this rule remove a condition to the availability of certain exemptions from the information and filing requirements of the federal proxy rules for proxy voting advice businesses (PVABs). SEC states that this rule also rescinds certain SEC guidance previously issued to investment advisers about their proxy voting obligations, as well as removes a note that used to provide examples of situations where failure to disclose certain information in proxy voting advice could be considered misleading under the federal proxy rules’ prohibition on material misstatements or omissions. Finally, SEC states that this rule discusses SEC’s views regarding the application of the prohibition on material misstatements or omissions to proxy voting advice, in particular with respect to statements of opinion.

Enclosed is our assessment of SEC’s compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. If you have any questions about this report or wish to contact GAO officials responsible for the evaluation work relating to the subject matter of the rule, please contact Shari Brewster, Assistant General Counsel, at (202) 512-6398.


Shirley A. Jones
Managing Associate General Counsel

Enclosure

cc: Vanessa A. Countryman
Secretary
Securities and Exchange Commission

ENCLOSURE

REPORT UNDER 5 U.S.C. § 801(a)(2)(A) ON A MAJOR RULE
ISSUED BY THE
SECURITIES AND EXCHANGE COMMISSION
ENTITLED
“PROXY VOTING ADVICE”
(RIN: 3235-AM92)

(i) Cost-benefit analysis

The Securities and Exchange Commission (SEC) conducted an economic analysis of this final rule. In terms of benefits, SEC stated that the main benefit to proxy voting advice businesses (PVABs) from this rule’s rescission of Rule 14a-2(b)(9)(ii) conditions would be the reduction of PVABs’ costs associated with modifying their current systems and methods, or developing and maintaining new systems and methods, to comply with Rule 14a-2(b)(9)(ii) conditions. Additionally, SEC stated that the rule may benefit clients of PVABs to the extent that cost savings could be passed on to such clients. Finally, SEC stated that PVABs, their clients, and investors in general could benefit to the extent that this rule eliminates possible adverse effects of Rule 14a-2(b)(9)(ii) conditions on the independence of proxy voting advice.

In terms of costs, SEC stated that the rule may impose costs on the clients of PVABs by potentially reducing the overall mix of information available to such clients as they assess proxy voting advice and make determinations about how to cast their votes. Additionally, SEC stated that to the extent a PVAB might have relied on the safe harbor of Rule 14a-2(b)(9)(iii), the rule may cause some registrants and investors to incur costs in the form of fees for the purchase of additional PVAB services.

(ii) Agency actions relevant to the Regulatory Flexibility Act (RFA), 5 U.S.C. §§ 603–605, 607, and 609

SEC prepared a Final Regulatory Flexibility Analysis. The analysis included (1) a statement of the need for, and objectives of, the rule; (2) a discussion of significant issues raised by public comments; (3) a discussion of small entities subject to the rule; (4) projected reporting, recordkeeping, and other compliance requirements; and (5) a discussion of agency action to minimize effects on small entities.

(iii) Agency actions relevant to sections 202–205 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. §§ 1532–1535

As an independent regulatory agency, SEC is not subject to the requirements of the Act.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

On November 26, 2021, SEC published a proposed rule. 86 Fed. Reg. 67383. SEC responded to comments in this final rule.

Paperwork Reduction Act (PRA), 44 U.S.C. §§ 3501–3520

SEC determined that this final rule affects information collection requirements under the Act. SEC states that it submitted these requirements to the Office of Management and Budget (OMB) for review, and the title for the affected collection of information is: “Regulation 14A (Commission Rules 14a-1 through 14a-21 and Schedule 14A)” (OMB Control Number 3235‑0059). SEC estimates that this rule will decrease the burden hours associated with Regulation 14A collection of information by 318,640 hours. SEC further estimates that this rule will decrease the professional costs associated with Regulation 14A collection of information by $31,864,000.

Statutory authorization for the rule

SEC promulgated this final rule pursuant to section 2 of title 7; section 5521 of title 12; sections 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 8302 of title 15; and section 1350 of title 18, United States Code, as well as Public Laws 111-203 and 112-106.

Executive Order No. 12866 (Regulatory Planning and Review)

As an independent regulatory agency, SEC is not subject to the Order.

Executive Order No. 13132 (Federalism)

As an independent regulatory agency, SEC is not subject to the Order.

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