How to Read a Reg

While it is routine for the old hands in compliance, the need to sit down and read a new regulation for the first time can be daunting. Since things never seem to slow down in the compliance world, we are never at a loss for new regulations. But when the new regulation is published in the Federal Register and the clock is running, it can be difficult to know where to start.

It helps to know how the Federal Register document is organized. All documents published in the Federal Register are organized in precisely the same format. The Federal Register service requires a uniform format. If a regulator submits a document that doesn't meet the Federal Register requirements, it won't be published. So for each regulation or announcement published in the Federal Register, you know where to look for the information you need.

Each daily Federal Register publishes documents in alphabetical order by agency. For example, the Federal Deposit Insurance Corporation documents will precede any published by the Federal Trade Commission because "deposit" comes before "trade" in the alphabet system. Look for your agency by name rather than by type of publication or type of regulator.

At the beginning of each document is a series of titles and headers. First comes information that identifies the agency. This is followed closely by the citation to the part of the Code of Federal Regulations that is affected. Then comes a docket number and statement describing the nature of the action.

The headers are followed by a summary paragraph which states the key points in the publication. For smaller regulatory actions, such as a change to the HMDA LAR or a revision to the CTR, the summary paragraph usually includes all the key points - because there aren't many. But in a more expansive regulatory action, such as a review and revision of an existing regulation or publication of a totally new one, the summary paragraph will only hit the highest of the high points. So don't count on the summary paragraph to tell you everything you need to know.

After the summary paragraph is information about commenting or implementation, including the date by which comments are due or the effective date, addresses for submitting comments, and the names of persons in the agency to contact. These are the people who have worked directly on the document being published. They are also assigned the responsibility of answering your questions, so feel free to call them. Also, keep their numbers with the regulation in question because these are the names and phone numbers of the specialists.

After this introductory material is the important stuff - the explanation of the new regulation or changes, titled "Supplementary Information," and the text of the new regulation itself. (Insiders often refer to the Supplementary Information as the "Federal Register document.") Needless to say, these are the two most important parts of the document. This is where your studying must be focused.

In addition to the two core components of the publication are several other essays or reports under the title "Regulatory Analysis." These are triggered by the federal laws that require regulatory agencies to analyze the impact of any action on small businesses and to submit an analysis of the paperwork burden the rule will impose. These are usually placed between the Supplementary Information and the text of the regulation.

These regulatory analyses are often not worth the time you could spend trying to understand the economists explanations about the impact on small business or how the number of paperwork hours was calculated. However, these can be a tool when you have concerns about a proposal.

Industry commenters raised serious concerns about the burden estimate when the CRA regulation was changed. In preparing their analysis, the agencies had counted only the time it would take to actually submit the report. They did not count the time that would have to go into systems redesigns, changes to procedures, and the collection and compiling of information that was necessary in order to have data to report. Thus, the number of hours estimated by the agencies for compliance was ridiculously low. Industry commenters challenged the numbers and, in the process, provided a reality check for the agencies.

There can also be opportunities to provide information that contradicts the analysis of impact on small businesses. If the analyst's assumptions were in error or off target, this is an opportunity to correct them.

You will spend most of your time on the Supplementary Information and the regulatory text. But where to start? And how?

How you approach a new regulation may depend on what you need to know and how fast you need to know it. It may also depend on how you learn best. There is no best way to approach this. Everyone has their own techniques.

Some people scan the regulatory text before reading the background document. This gives them a framework to understand the Supplementary Information better. Others like to read the Supplementary Information before taking even a peek at the regulation. This approach sets the expectations for understanding and absorbing the new regulation.

My personal preference varies, depending on the nature of the publication. For a totally new regulation, I like to read the regulation text to get a quick idea of what is going on. Then I read the Supplementary Information, and finally go back to the regulation text again. This gives me a framework for reading the Supplementary Information. It may also raise some questions so that when I read the Supplementary Information, I am targeted to look for answers. In short, it helps with the concentration.

When a final rule is published, I often do the opposite. If already familiar with the proposed regulation, the important thing to pick up on is what has been changed and why. The Supplementary Information lays all this out. Then reading the regulation itself is shaped by the background.

The Supplementary Information begins with an explanation of the reasons and statutory triggers for the action. In the case of a regulatory revision it will quickly explain the reasons for the change. It's a quick statement of what they are up to and why. This can be useful in briefing your management or compliance committee. So look here for something to quote when someone asks you what on earth this is all about.

In a new proposal, the document will explain the agency's analysis of the statute and legislative history. This becomes the rationale for what they decided in terms of the regulation. The legislative history - records of hearings, committee reports, and statements made on the floor - provides the agency with some indication of the goals of Congress. When there are choices about how to proceed with a rule, the choice should be the one most consistent with what Congress intended.

Often when a new rule is proposed or the proposal is to change an existing rule, the agency will ask for comments on specific topics. These may be posed in the text or set out as questions. The questions are generally an indication of where the agency is having difficulty making a decision and needs additional information.

In a final regulation, the document should contain a fairly detailed analysis of the comments including what commenters suggested on each issue and how and why the agency decided what it did. Usually, the agency will identify the source of comments, such as trade groups, industry members, or consumer organizations.

While the comment analysis may not be useful to understanding the rule itself, it gives guidance to the lay of the land. Particularly for topics where consumers and industry are at odds, the comments of each are a map to the debates of the future. Consumer comments which make clear what consumers do or don't want can provide guidance on customer service issues and policy decisions.

Whether the rule is proposed or final, the document should explain the issues that the agency considered and the reasoning behind the decisions. This information can be useful in a variety of ways. First, it tells us how solid or precarious the agency's position is. Second, it explains why the agency chose one approach and rejected others. Finally, it gives us clues to how those advocating alternative approaches may react.

As you read the Supplementary Information, it discusses specific sections of the regulation. Flip back to the regulatory text and highlight these sections. When you later read the regulation, this will call your attention to the sections that got the most attention from commenters and from the agency. Hopefully, it will also trigger your memory and help you to understand the section's significance quickly.

There is still another use for the information contained in the discussion of comments and suggestions by commenters. The information is a valuable resource for marketing and product development. In effect, it is free marketing research. The wise institution will heed what consumers stated in their comments to improve products and services.

Then there is the regulatory text. Usually the entire text is printed. However, there are occasions, such as a Regulation Z update, when only the changes are printed. Printing only part of the text uses a system of symbols (referred to by insiders as Chinese copy) to indicate deletions, changes and additions. In order to make any sense of this, you have to have the existing or prior regulation out beside what has been printed in the Federal Register.

The regulation itself is the most important part of the publication, but not the easiest to read. For proposals, you want to read carefully enough to identify where you anticipate problems in implementation or where language is ambiguous. You want enough clarity to know how to comply and enough room to make business choices.

As you read the regulation, think about what has to be done to comply with the requirement. Think about what products are affected, what procedures must be changed and who must be trained.

When regulations are being written, the authors are driven primarily by statutory requirements. The approach is shaped by the act that generates the regulatory activity. During the comment period, industry members have the opportunity to match reality with theory by sharing information about how things actually are done. Comments on what will be burdensome, what will require system changes, and - often most important - what your customers ask for can be invaluable in shaping a final rule into a livable one. Since you have to go through this process anyway to implement the final regulation, why not go through it for the proposal and share your concerns?

ACTION STEPS

Pull out a recent Federal Register publication. The new rule on identity theft alerts will do nicely.
Look at the key components identified in this article and check them off on the document.
Review the Supplementary Information and pull out suggestions made by consumer advocacy groups. Then consider whether your institution is responding to these concerns.
Use the Supplementary Information to mark sections in the regulatory text that got special attention. Give them special attention when you read the regulatory text.
Then read the regulatory text. Consider how the sections you have marked should be considered.
Use what you learned in the Supplementary Information to help with briefings and training