Recently issued SEC staff guidance addresses concerns that have been raised about proxy advisory firms by emphasizing that the investment adviser that retains and pays a proxy advisory firm is uniquely positioned to monitor the proxy advisory firm and is required to actively oversee the firm if it wants to benefit from the firm’s services to discharge its fiduciary duty. As a result of the greater oversight exercised by all of their investment adviser clients, the proxy advisory firms will presumably respond by enhancing their policies, processes and procedures, as well as the transparency of these policies, processes and procedures. In turn, the corporate community may indirectly benefit to some degree.
Posts Tagged ‘SEC’
Over the last few years, Congress and Securities and Exchange Commission (SEC) were put under pressure to seriously consider regulating proxy advisory firms. Financial industry and government leaders have voiced concern that proxy advisory firms exert too much power over corporate governance to operate unregulated. The SEC as well as the Congress have investigated and debated the merits of proxy advisory regulation. The U.S. House of Representatives held a hearing on the matter in June of 2013, and the SEC followed this hearing with a roundtable discussion in December of 2013. On June 30, 2014, the Investment Management and Corporate Finance Divisions of the SEC issued a bulletin outlining the responsibilities of proxy advisors and institutional investors when casting proxy votes. As of yet, no binding regulation has been promulgated, despite repeated calls for it.
Today’s [July 23, 2014] reforms will fundamentally change the way that most money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system in a crisis. Together, this strong reform package will make our financial system more resilient and enhance the transparency and fairness of these products for America’s investors.
Today [July 23, 2014], the Commission considers adopting long-considered reforms to the rules governing money market funds. I commend the hard work of the staff, particularly the Division of Investment Management and the Division of Economic and Risk Analysis (“DERA”), who worked tirelessly to present these thoughtful and deliberate amendments. It is well known that the journey to arrive at the amendments considered today was a difficult one, and I can confidently say that this has been, at times, perhaps one of the most flawed and controversial rulemaking processes the Commission has undertaken.
Where do we go from here? As we mark another milestone in regulatory reform with the fourth anniversary of the enactment of the Dodd-Frank Act, it strikes us that although most studies required to be undertaken by the Act have been released and final rules have been promulgated addressing many of the most important regulatory measures, we are still living with a great deal of regulatory uncertainty and extraordinary regulatory complexity.
The fourth anniversary of the passage of the Dodd-Frank Act provides an opportunity to reflect on why the Act was passed, how the SEC has used the Act to promote financial stability and protect American investors, and what remains to be completed. The financial crisis was devastating, resulting in untold losses for American households and demonstrating the need for strong and effective regulatory action to prevent any recurrence.
Legal and economic issues involving mandatory public disclosure have centered on the appropriateness of either Securities and Exchange Commission (SEC) rules or the D.C. Circuit review of SEC rule-making. In this longstanding disclosure universe, the focus has been on the ends of investor protection and market efficiency, and implementation by means of annual reports and other SEC-prescribed documents.
In 2013, these common understandings became obsolete when a new system for public disclosure became effective, the first since the SEC’s creation in 1934. Today, major banks must make disclosures mandated not only by the SEC, but also by a new system developed by the Federal Reserve and other bank regulators in the shadow of the Basel Committee on Banking Supervision and the Dodd-Frank Act. This independent, bank regulator-developed system has ends and means that diverge from the SEC system. The bank regulator system is directed not at the ends of investor protection and market efficiency, but instead at the well-being of the bank entities themselves and the minimization of systemic risk. This new system, which stemmed in significant part from a belief that disclosures on the complex risks flowing from modern financial innovation were manifestly inadequate, already dwarfs the SEC system in sophistication on the quantitative aspects of market risk and the impact of economic stress.
The SEC provided the “who” but not much else in its final rule regarding cross-border security-based swap activities (“final rule”), released at the SEC’s June 25, 2014 open meeting. Although most firms have already implemented a significant portion of the CFTC’s swaps regulatory regime (which governs well over 90% of the market), the SEC’s oversight of security-based swaps means that the SEC’s cross-border framework and its outstanding substantive rulemakings (e.g., clearing, reporting, etc.) have the potential to create rules that conflict with the CFTC’s approach. The impact that the SEC’s regulatory framework will have on the market remains uncertain, but the final rule at least begins to lay out the SEC’s cross-border position.
In our paper, Carrot or Stick? The Shift from Voluntary to Mandatory Disclosure of Risk Factors, we investigate public companies’ disclosure of risk factors that are meant to inform investors about risks and uncertainties. We compare risk factor disclosures under the voluntary, incentive-based disclosure regime provided by the safe harbor provision of the Private Securities Litigation Reform Act, adopted in 1995, and the SEC’s subsequent disclosure mandate, adopted in 2005.
As the debate continues over whether and how to punish companies for unlawful conduct, U.S. federal prosecutors continue to rely significantly on Non-Prosecution Agreements (“NPAs”) and Deferred Prosecution Agreements (“DPAs”) (collectively, “agreements”). Such agreements have emerged as a flexible alternative to prosecutorial declination, on the one hand, and trials or guilty pleas, on the other. Companies and prosecutors alike rely on NPAs and DPAs to resolve allegations of corporate misconduct while mitigating the collateral consequences that guilty pleas or verdicts can inflict on companies, employees, communities, or the economy. NPAs and DPAs allow prosecutors, without obtaining a criminal conviction, to ensure that corporate wrongdoers receive punishment, including often eye-popping financial penalties, deep reforms to corporate culture through compliance requirements, and independent monitoring or self-reporting arrangements. Although the trend has been robust for more than a decade, Attorney General Eric Holder’s statements in connection with recent prosecutions of financial institutions underscore the dynamic environment in which NPAs and DPAs have evolved.