The US is moving forward with a series of comprehensive financial reforms in a new bill, “The Wall Street Reform and Consumer Protection Act of 2009”. In 1,279 pages, the new bill pulls together a total of six reform proposals which had been introduced individually over the course of recent months.
Subject to final amendments, the bill aims to “provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes.”
Here are some of the key points of immediate interest to shareholders:
Proxy Access
- Clarification that the Securities & Exchange Commission (SEC) has the authority to issue proxy access rules;
Executive Compensation
- Advisory shareholder votes on on executive compensation, including golden parachutes;
- US listing rules to require the establishment of fully independent compensation committees;
- Enhanced independence standards for compensation consultants;
- Risk/Reward – financial institutions disclose to the regulators the structures of all incentive-based executive compensation arrangements;
- Regulators empowered to prohibit financial institutions from creating incentive-based payment arrangements, or any feature of any such arrangements, which in the view of regulations will encourage risky behaviours;
Credit Rating Agency Reform
- Regulation
- Creation of an SEC office to oversee credit rating agencies;
- Establishment of a Credit Ratings Agency Advisory Board to advise the SEC on rating agency rules;
- Removal of references to ratings in regulations, federal agencies to determine suitability of reliance on ratings in regulations;
- Conduct
- Credit rating agencies’ boards to be comprised of at least one-third independent directors serving non-renewable five year terms;
- Credit rating agencies’ directors pay not to be linked to the business performance of the agency;
- Clarification of the parameters for suing credit rating agencies for “knowingly or recklessly violating the securities laws;”
- Comprehensive disclosure requirements covering the type and number of credit ratings an agency has provided to the entity being rated, the fees charged, aggregate earnings from the rated entity over the prior two years; and
- Disclosure of modelling assumptions and methodologies.