April 27. 2011 | Elizabeth Dunseith

The SEC Continues to Respond to Dodd-Frank Act

This past summer, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which responded to calls for further regulations around the financial sector.  As mentioned in my last post, one of the changes that resulted from the legislation was the permanent exemption of non-accelerated files to be SOX compliant.  In addition, the SEC has released several new proposed guidelines in response to the Act.

One of the proposals relates to incentive based compensation for Officers and other key personnel.  In light of recent scandals, the SEC is calling for stricter regulations and more transparency regarding the compensation plans Officers receive.  Losses incurred by the Company as a result of aggressive risk-taking or inappropriate management may reduce the amount of compensation received by the Officers and other key individuals.

Another proposed rule worth highlighting is the revision to the reliance on credit risk rating.  The over-reliance on credit ratings by financial institutions played an important role in the financial crisis we are experiencing.  Investors began depending on the rating and overlooking other, more telling information about a company's current financial status.  The proposal includes removing all references or requirements to rely on National Recognized Statistical Rating Organization (NRSRO) credit risk ratings and allows the fund's board or its designee to determine the risk based on several subjective factors.  Concerns have been raised that this may lead to additional areas of risk as a result of the subjectivity and lack of defined guidelines.  What are your thoughts?

These are just two of the new proposed rules the SEC has released in recent months.  For more releases, refer to the SEC official website http://www.sec.gov/spotlight/dodd-frank.shtml

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