Opening Remarks Regarding the Adoption of Final Rules for Conflict Minerals
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
August 22, 2012
Earlier this year, in discussing regulations under Title VII of the Dodd Frank Act, I highlighted the 5 W’s – who, what, where, when, and why. I continue to think that these basic inquiries can be useful guides for regulators, helping us to focus on the questions we need to answer when adopting regulations and guidance. This is equally true for the regulations under Title XV before us today.
Here, we have been tasked with establishing a disclosure regime where none previously existed.
One of the major challenges at the Commission for implementing a disclosure regime for reporting information about the use of conflict minerals is that it did not have the benefit of having the relevant information already gathered in house.
Here, however, Congress answered the “who” question for us. As we state in our release, the rule before us today applies to every registrant that files under Section 13(a) and 15(d) that uses conflict minerals that are necessary to the functionality or production of a product manufactured or contracted by that registrant to be manufactured, with no exemptions.
I think it is reasonable and appropriate that the rules before us contain no exemptions for any category of issuer. Of course, that decision is informed by the other W’s that follow the “who”, in particular the why—the reason why we are undertaking this rulemaking. As we state in our release, Section 1502 of Dodd-Frank is not simply a disclosure obligation for issuers, but a comprehensive legislative scheme that contemplates coordinated action by a number of federal agencies aimed at making public information about conflict minerals from the Democratic Republic of the Congo and adjoining countries. The information disclosed under the new rule will be filed on EDGAR and available to investors and the public. To me, a determination not to exempt any issuer is a critical first step in establishing this system. Information that these issuers will publicly disclose will consequently inform all of the actors in this coordinated system as they carry out their statutory mandates and make market, humanitarian, and other decisions that they choose to make.
Nearly all of the data that the Commission has considered in this rulemaking process consists of information provided to the agency through the pre-comment and comment process, including the roundtable convened last fall. The comment process has been quite helpful in this rulemaking, providing us with critical information, in particular data we received relating to the costs of our proposal. Given the nature of this rulemaking and its subject matter, it has been a complex and lengthy endeavor. I applaud the staff for recognizing the many challenges it has faced and for working long and hard to address them. Throughout the release, the staff has described its efforts to strike an effective balance in drafting the rules. These rules take into account the market for identifying conflict minerals as it presently exists, and as we understand it is developing, based on the comments and the data filed with us. I believe that the rules we are considering will elicit the information that Congress mandated to be disclosed in order to serve the system that Congress designed. Likewise, based on our analysis of the empirical data we received, we are covering those issuers that Congress mandated that we cover. On the other hand, the rules also provide flexibility for issuers to address the challenges that exist for identifying conflict minerals in the market today. In particular, I am pleased to recognize the staff’s continued coordination with the other actors who appear in Section 1502, as well as organizations such as the OECD, in order to study this market so that we can use the best data available to inform the decisions we are making today and our future decisions, as well.
Finally, I want to say a word about the cost-benefit analysis in this release. Discussion continues both internally at our agency and externally in a variety of contexts about the way the Commission conducts its cost-benefit analysis in rulemakings. The Commission’s decision-making reflects its best efforts to find the regulatory solution that achieves Congress’ intent, protects investors and, at the same time, seeks to minimize costs. That is the essence of robust cost-benefit analysis in rulemaking. As I said earlier this year in our Title VII rulemaking, regardless of my own personal feelings about the critiques of our cost-benefit analysis, today’s release again shows that we have taken those critiques very seriously.
The staff from our Divisions of Corporation Finance and Risk, Strategy and Financial Innovation and the Office of the General Counsel have provided a thorough and thoughtful analysis of the costs and benefits of the alternatives we considered and our decision points. They have identified, analyzed and carefully considered quantifiable data submitted to the agency. The data collected indicates that there will indeed be significant costs imposed by implementing these disclosure requirements. But I believe that the discretion we have exercised to address those costs is important and necessary to ensure that our rule covers the information the statute requires but without imposing unnecessary burdens.
I would like to thank my counsel, Lesli Sheppard. Again, my thanks go to our staff, particularly those in the Division of Corporation Finance, Risk Fin, and GC. Their hard, excellent, and collaborative work is reflected in this release, and I support their recommendation.