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Casey Discusses Harmonization of Regulatory Frameworks

SEC Commissioner Kathleen Casey, speaking at a conference organized by the Federal Reserve Bank of New York and the European Commission, said that regulators are under increasing pressure to harmonize regulatory frameworks and to remove unnecessary impediments to the free flow of capital. She pointed to the recent merger of the New York Stock Exchange and Euronext which led to the creation of a framework of consultation and mutual recognition with the SEC's European counterparts. The SEC is focused on convergence and cooperation in the areas of corporate governance, accounting standards and market supervision, she said.

Corporate governance is a broad and sometimes sensitive area, according to Ms. Casey. She referred to the recent amendments related to executive compensation as an example of the SEC's traditional disclosure-based approach. Ms. Casey acknowledged that executive compensation has been a source of increasing criticism.

Proxy issues have also been controversial since the SEC's beginning, according to Ms. Casey. The SEC is currently considering the proper interpretation of its policy for shareholder proposals that relate to the election of directors under the proxy rules. Ms. Casey hopes the SEC will soon address the uncertainty that resulted from the recent Second Circuit decision which rejected the SEC's interpretation of its rules. In response, the SEC approach should take into consideration the effectiveness, efficiency and clarity of the proxy rules in protecting shareholder interests, she said.

Ms. Casey also reviewed the initiatives underway to make Section 404 more efficient and effective for all issuers. The success of the SEC and the Public Company Accounting Oversight Board will be measured by their ability to alter behavior, she said, which in turn will depend on how the laws are examined and enforced for compliance, and how issuers and auditors view the risk of exercising greater judgment under the new guidance and the revised auditing standard.

The SEC must monitor the results and consider how effective the changes are. The revisions provide an opportunity for the SEC and the PCAOB to demonstrate how the requirements can be implemented to avoid a one-size-fits-all approach, she said, and to bring a more principles-based approach that accommodates companies of different sizes, complexity and governance structures.

Ms. Casey said that progress on the roadmap towards convergence of international accounting standards and the elimination of the U.S. GAAP reconciliation requirement is well underway and within sight. She applauded the talks between PCAOB Chairman Mark Olson and European Union Commissioner Charlie McCreevy on a roadmap for auditing oversight. The convergence of auditing standards will benefit the accounting convergence initiative, in her view.

Ms. Casey also touched on the set of principles outlined by the President's Working Group on Financial Markets with respect to hedge funds. The principles recognize the benefits that private capital pools bring to the markets, she said, while acknowledging the risks they present. The Working Group plays an important role in the dialogue between the European Union and the United States by providing a forum to address financial market issues that cross regulatory authorities within the United States, she said.

Ms. Casey also discussed the SEC's consolidated supervised entity program which was adopted in response to the European Union's Financial Conglomerates Directive. She said the global market realities that led to the creation of that program are also driving the consideration of new approaches for access to the U.S. markets by foreign exchanges and broker-dealers. The SEC is aware of the need to consider new approaches in a changing world, she said. The cooperative approach that was established in connection with the New York Stock Exchange-Euronext merger will assist other developments in this area, according to Ms. Casey.