INDEPENDENT REGULATORY REVIEW COMMISSION Notice of Comments Issued [46 Pa.B. 5983]
[Saturday, September 17, 2016]Section 5(g) of the Regulatory Review Act (71 P.S. § 745.5(g)) provides that the Independent Regulatory Review Commission (Commission) may issue comments within 30 days of the close of the public comment period. The Commission comments are based upon the criteria contained in section 5.2 of the Regulatory Review Act (71 P.S. § 745.5b).
The Commission has issued comments on the following proposed regulations. The agency must consider these comments in preparing the final-form regulation. The final-form regulation must be submitted within 2 years of the close of the public comment period or it will be deemed withdrawn.
Close of the Public IRRC Comments Reg. No. Agency/Title Comment Period Issued 3-54 Department of Banking and Securities
Securities Regulations Omnibus Amendment
46 Pa.B. 3420 (July 2, 2016)08/01/16 8/31/16 47-17 Milk Marketing Board
Uniform System of Accounts
46 Pa.B. 3655 (July 9, 2016)08/08/16 9/7/16
Department of Banking and Securities
Regulation # 3-54 (IRRC # 3152)Securities Regulations Omnibus Amendment August 31, 2016 We submit for your consideration the following comments on the proposed rulemaking published in the July 2, 2016 Pennsylvania Bulletin. Our comments are based on criteria in Section 5.2 of the Regulatory Review Act (71 P.S. § 745.5b). Section 5.1(a) of the Regulatory Review Act (71 P.S. § 745.5a(a)) directs the Department of Banking and Securities (Department) to respond to all comments received from us or any other source.
1. Section 102.021. Definitions.—Clarity.
We have two concerns with this section. First, several definitions included in this section of the rulemaking include a reference to the definition as it is defined in the Pennsylvania Securities Act of 1972 (Act) (70 P.S. §§ 1-101—1-703.1). These definitions also include other language added by the Department to explain the full meaning of the terms being defined. In order for a person to understand the full meaning of the definition, that person must read the Act and the regulation together. Similarly, some definitions reference a federal rule ''or successor rule.'' For example, see the definitions for ''accredited investor'' and ''branch office.'' We believe the clarity of the rulemaking would be improved if the definitions included the language from the statutory or federal regulatory definitions instead of simply referencing those definitions.
Second, a commentator has identified terms that are used in the body of the regulation, but are not defined in this section of the rulemaking. We agree that clarity could be improved if definitions for the following terms were added to the rulemaking: auditor's report; aggregate indebtedness; commission (as it relates to compensation); direct participation program; EFD; financial statements; national securities association; national securities exchange; national recognized statistical rating organization; PCAOB; and self-regulatory organization.
2. Section 302.070. Registration exemption for investment advisers to private funds.—Consistency with statutes.
Subsection (e)(2) states that the Department will consider a report filed when the report and fee required under Section 602.1 of the Act (70 P.S. § 1-602.1) are filed and accepted by the Investment Adviser Registration Depository on the Department's behalf. We note that Section 602.1 of the Act references assessments, not fees. Is the citation to Section 602.1 of the Act accurate? If it is, we recommend that the terminology in the regulation be aligned with the terminology of the Act.
3. Section 305.019. Dishonest and unethical practices.—Consistency with statutes.
A commentator has noted that Section 305(a)(ix) of the Act (70 P.S. § 1-305(a)(ix)) was amended in 2014 and suggested that Subsection (b) of the rulemaking be amended to reflect the statutory change. We agree with the commentator and, for consistency with the Act, suggest that the phrase, ''within the previous 10 years'' be added to the end of Subsection (b).
4. Chapter 701. Administrative provisions.—Clarity.
Four new sections are being added to Chapter 701. The sections relate to filing of registration forms, filing of exemption forms, electronic filing, and fees. We have two concerns. First, these sections do not provide specific requirements for the various types of filings. Instead, reference is made to General Instructions that are available on the Department's website and a requirement to comply with those instructions. While this approach provides flexibility to the Department, it circumvents the regulatory review process because it does not provide an opportunity for interested parties to comment on the General Instructions. The General Instructions would be equivalent to a regulation. However, the Department would be able to amend the instructions at any time without initiating a new rulemaking. We recommend that the final-form rulemaking be amended to include specific details related to the subject matters noted above.
Second, § 701.010a(b) includes a reference to the term ''Bureau.'' This is an undefined term. We recommend that it either be defined or replaced with the defined term ''Department.''
Milk Marketing Board
Regulation # 47-17 (IRRC # 3154)Uniform System of Accounts September 7, 2016 We submit for your consideration the following comments on the proposed rulemaking published in the July 9, 2016 Pennsylvania Bulletin. Our comments are based on criteria in Section 5.2 of the Regulatory Review Act (RRA) (71 P.S. § 745.5b). Section 5.1(a) of the RRA (71 P.S. § 745.5a(a)) directs the Milk Marketing Board (Board) to respond to all comments received from the Independent Regulatory Review Commission (Commission) or any other source.
1. Determining whether the regulation is in the public interest.
Regulatory Analysis Form (RAF), Consistency with statute, Reasonableness, Clarity and Implementation procedures
The responses to RAF Questions 26 and 27, imply that the Board intends to set reporting requirements and deadlines in forms, rather than in the regulation. The Board cites 31 P.S. § 700j-307 as its statutory authority. The statute states ''. . . the board shall adopt and enforce all rules, regulations and orders necessary or appropriate to carry out the provisions of this act. . . .'' The cited statutory provision does not mention enforcement of forms.
Specifically, the response to RAF Question 26 states:
We are in continuing communication with the regulated community to consider any alternatives to the proposed regulations and our implementation of them. We believe the proposed regulation is the least burdensome acceptable alternative. We also believe that establishing categories of costs in new section 149.46, and fleshing them out in the reporting process, rather than attempting to be overly specific at this stage of the process, we are complying with our obligation to establish the uniform system of accounts, without imposing unnecessary and potentially burdensome detail in the regulations. Section 149.46 does allow the agency to require the cooperatives to include any of the information that dealers are required to provide.
Additionally, the response to RAF Question 27 states directly that ''new regulation 149.46 allows the agency to establish reporting requirements and deadlines in reporting forms which the Board will issue.''
We note that a regulation establishes a binding norm between the regulated community and the Board. A regulation is developed in accordance with the RRA which provides for public notice, public comments, standing committee comments, Commission comments, agency consideration of those comments, and to the greatest extent possible, resolution of objections and the reaching of consensus on any concerns raised in comments. The RRA provides an open process with specific requirements for information and criteria to be considered in determining whether the regulation is in the public interest. Forms developed by the Board staff would not meet these requirements. Furthermore, Board staff could amend the requirements and deadlines in forms without notice, input from interested parties, or consideration of the requirements in the RRA, including costs imposed on the private sector, adverse effects on competition, reasonableness and clarity.
Accordingly, we question the Board's authority to enforce requirements and deadlines that are set forth in forms. Clear cost categories and associated requirements, including reporting deadlines, should be set forth in the regulation so that the public, standing committees and the Commission can evaluate them so that they have the full force and effect of law and the regulated community understands the requirements imposed on them by the Board.
Based on discussion with Board staff, it is our understanding that the Board does not intend to set reporting requirements in forms. However, since the forms were not included with the proposed rulemaking, the regulated community, standing committees and the Commission did not have an opportunity to evaluate the information on the forms in relation to the review criteria contained in the RRA at 71 P.S. § 745.5b.
Therefore, we recommend that the final-form regulation clearly set forth the reporting requirements and deadlines for cooperatives. Furthermore, the associated forms must be submitted with the final regulation. Finally, the RAF and preamble should be updated to clearly reflect that forms will not be used to usurp or add regulatory requirements, but will be used to implement reporting required by the regulation.
2. Accurate and reliable cost figures—Clarity; Feasibility; Implementation procedures
The comments of the Pennsylvania Association of Milk Dealers and the Pennsylvania Institute of Certified Public Accountants include and support testimony provided to the Board on March 23, 2016, by Mr. Carl Herbein, a Certified Public Accountant. We note this testimony occurred prior to submittal of the proposed regulation and that amendments were made to the regulation by the Board after March 23. The testimony alleges that the regulation will not provide sufficient detail to bring about accurate and reliable cost figures.
To the contrary, the Pennsylvania Association of Dairy Cooperatives commented that the regulation will more accurately reflect current accounting and business practices. We ask the Board to review the requirements in the regulation and explain in the final-form regulation submittal how the regulation will produce accurate and reliable cost figures.
3. Section 149.46. Cooperative cost centers.—Consistency with statute; Economic impact; Reasonableness; Clarity.
Paragraph (a)(9) General and administrative.
This paragraph ends with the phrase ''. . . based on an allocation method acceptable to the Board.'' This phrase is vague. Since the regulation does not prescribe an allocation method acceptable to the Board, the regulated community cannot know how to comply with the regulation. We recommend deleting the phrase ''based on an allocation method acceptable to the Board'' from the regulation and specifying the allocation method in the final-form regulation.
Subsection (b)
The first sentence includes non-regulatory language that fails to establish a binding norm between the Board and the regulated community. The phrase ''and any other information required by the Board'' would permit the Board to expand reporting requirements outside of the regulatory process without notice. The sentence also includes the phrase ''in accordance with reporting forms issued by the Board which will include instructions and reporting deadlines.'' The regulated community should be able to determine reporting deadlines by reading the regulation. Therefore, we recommend that this sentence be revised to remove the non-regulatory language and add the reporting deadlines.
Similarly, the second sentence is not clear. It does not provide specific requirements for compliance by the regulated community, but only states the cooperatives' requirements ''may also include the information that dealers are required to provide.'' We also recommend deleting this sentence. As noted above, the complete list of reporting requirements should be set forth in the body of the regulation.
Subsection (c)
This subsection limits cost allocations to milk marketing activities for their producers, but concludes with the phrase ''unless otherwise directed by the Board.'' This phrase would empower the Board to amend the requirements of this subsection outside of the RRA. If the Board wants to change the requirements in the regulation, it must do so by amending the regulation. We recommend deleting the phrase ''unless otherwise directed by the Board.''
4. Generally Accepted Accounting Principles (GAAP).—Clarity.
Three commentators stated the regulation should include language to require compliance with GAAP. We agree.
5. Regulatory Analysis Form.
As stated above, 1 Pa. Code §§ 305.1(b)(1) and 307.2(c)(1) require the agency to submit a completed RAF. We have three concerns:
• The response to RAF Question 22 states the reporting form for the costs related to new section 149.46 is still being developed and the current version is attached (''Cooperative 60c Reporting Form''). We did not find a form attached to the proposed regulation.
• The responses to RAF Questions 19 and 23 show an estimate of an initial cost of $15,000 for the regulated community and $9,200 thereafter. One commentator believes the cost is understated; whereas another commentator states they are willing to bear the estimated costs. We ask the Board to review the cost estimates and explain further how the estimates were developed.
• RAF Questions (15), (16) and (17) ask the agency to identify affected entities, including small businesses, to list them and to estimate the impact on them. We ask the Board to directly address small businesses in these responses.
GEORGE D. BEDWICK,
Chairperson[Pa.B. Doc. No. 16-1625. Filed for public inspection September 16, 2016, 9:00 a.m.]
