US proposes creation of its own “FSA”, new shareholder rights

According to the Chinese calendar, 2010 will be the Year of the Tiger. It will also be the “the year of regulation” for the financial world. Adding to the reading pile is US Senate Banking Committee Chairman Chris Dodd’s mammoth proposals to overhaul the US financial regulatory system. Spread over 1,100 pages, the proposals woiuld not only strip the US central bank, the Fed, but also offer shareholders sweeping new corporate governance powers.

What’s proposed?

The draft bill proposes the creation of a new “super regulator” to sweep away what Dodd has called “the alaphabet soup” of current regulatory agencies. From a shareholder and corporate governance perspective, the “Accountability and Executive Compensation” proposals cover:

  1. An annual, non-binding vote on director pay
  2. An annual, non-binding vote on Golden Parachute policy
  3. Listing rules to require independent compensation committees
  4. Creation of independence standards for compensation committee consultants
  5. Authority for compensation committees to retain compensation consultants
  6. Authority for compensation committees to retain independent legal advice
  7. Enhanced compensation disclosures
  8. Issuers to develop “clawback” policies

As currently drafted, the Bill would significantly strengthen the Securities and Exchange Commission (SEC)  through new “self-funding” proposals which would see the Commission keeping the fees it collects to fund its operations.  The SEC expects to collect $1.5 billion in fees for the next fiscal year whereas the Obama administration has proposed an SEC budget of just over $1 billion for the same fiscal year.

At the same time, the SEC’s accountability to Congress would be increased through the creation of the “Office of the Investor Advocate”. The Investor Advocate would be charged with producing an annual report for Congress highlighting the 20 most significant problems faced by investors in in relation to financial services regulation, how long each issue has been on the list and what steps the regulators have taken to resolve investor concerns.


Summary of the Discussion Draft >>

Full Text of the Discussion Draft >>

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