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Donaldson Calls for Cross-Border Cooperation and High Regulatory Standards

In remarks to the International Organization of Securities Commissions, SEC Chairman William Donaldson acknowledged that the U.S. has been at the forefront of the recent scandals related to corporate accounting, mutual funds and stock exchanges, resulting in a loss of investor confidence. In response, the SEC undertook a sweeping reform agenda that is the most active since the agency's creation. As the SEC moves to address the challenge of rebuilding investor confidence, Donaldson said it must also work on a parallel track to address emerging global issues.

Donaldson said the statistics related to investing opportunities abroad are impressive, with cross-border equity flows reaching $320 billion in recent years, up from less than $15 billion in 1990. The value of international securities offerings in 2002 was nearly $1.2 trillion, he said. In the U.S., more than 1,300 foreign companies are listed on U.S. stock exchanges, which is triple the number that was listed in 1991.

Donaldson said the size of companies also has grown, as has the number of companies listed on the world's stock exchanges. This serves as a vehicle for capital formation and wealth creation, he said, but also creates an imperative for rules and standards for companies that promote the transparency and integrity underlying a country's economy. Donaldson said that facilitating the rapidly growing global aspirations of investors must be a high priority for regulators.

Donaldson outlined a number of initiatives the SEC has taken to elevate the standards of the U.S. markets. The SEC will soon vote on proposals to improve the governance and financial transparency of all U.S. self-regulatory organizations, he said. The SEC is still reviewing proposed reforms to the national market system, but anticipates that new rules will be available shortly.

The IOSCO meeting agenda included issues relating to the future of global self-regulation, the role of stock exchanges in the 21st century and shareholder rights in a global capital market. By focusing on these issues, Donaldson said that IOSCO is helping to accelerate progress toward a global marketplace. Cross-border cooperation is perhaps the best method for building support for high regulatory standards, in his view..

Donaldson referred to the convergence project underway between FASB and the IASB. The project holds tremendous potential for investors and for companies on a global basis, he said. Donaldson added that it appears that good progress is being made to bring the systems closer together. The SEC staff is considering the steps it must take to eliminate the reconciliation from international financial reporting standards to U.S. GAAP, he reported. FASB will look to IFRS where appropriate, Donaldson said. The SEC is pleased with the "highest common denominator approach" that it has observed.

Cooperation is also critical on the issues relating to the oversight of foreign audit firms by the PCAOB, Donaldson said. The PCAOB is seeking a collaborative approach to developing its oversight role with respect to non-U.S. audit firms, he advised. Cooperation is also fundamental to regulating the global marketplace, Donaldson said. In the past year, the SEC has strengthened its cooperation with the Committee of European Securities Regulators and other counterparts.

The investment of time and effort to establish the right rules, and to build support for complying with them, is not without costs, Donaldson said. However, he feels that it will pay long-term dividends and will enhance integrity within companies, as well as inspire confidence among customers and investors around the globe.