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Senate Patches the SEC FOIA Loophole

September 22, 2010 - by Donny Shaw

About a week after the Dodd-Frank financial reform bill was signed into law, government transparency watchdogs found a heinous provision in the bill that seemed to allow the Securities and Exchange Commission (SEC) to deny Freedom of Information (FOIA) requests for information pertaining to an “examination, surveillance, or risk assessment” of banks and other financial comapnies. A group of groups ”" target="_blank">wrote to the bills’ sponsors, Sen. Chris Dodd [D, CT] and Rep. Barney Frank [D, MA-4], saying that the provision was “undermining the bill’s overarching goals of more transparency and accountability” and asking that they pass another bill to remove it.

Dodd and Frank agreed, and yesterday, by unanimous consent, the Senate passed a bill to undo the provision. The bill, S.3717, would remove the most offensive chunks of text from Dodd-Frank, including the two sections saying that the SEC “shall not be compelled to disclose” a whole bunch of important information about their regulatory activities. Furthermore, the bill passed by the Senate addresses SEC Chairman Mary Schapiro’s concern that existing FOIA exemption for sensitive information regarding financial institutions may not be broad enough to cover all the entities the SEC will be regulating under Dodd-Frank by expanding the definition of “financial institution” to mean any entity that the SEC regulates. Simple.

This is important work and it’s a good to see the Senate acting swiftly. The SEC has, at best, a mediocre track record at being a rigorous, independent regulator, including some high profile failures that surfaced in during the 2008 financial crisis (e.g. Madoff). They need to be more transparent, not less. The jury’s still out on whether or not Dodd-Frank will indeed increase public transparency at the SEC. But as soon as the House follows up on the Senate’s action and passes legislation to remove the FOIA exemption, it at least will no longer be making the situation worse.

Pictured above is Senate Judiciary Chairman Sen. Patrick Leahy [D, VT], the chief sponsor of the loophole-fix bill.

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