21 January 2009

Schapiro outlines future SEC regulatory reform initiatives

Mary Schapiro gave a brief overview about the actions she intends to undertake when she will take office as the new SEC chair, putting into question CRAs and IFRSs, and outlining regulatory reforms.

Mary Schapiro gave a brief overview about the actions she intends to undertake when she will take office as the new SEC chair, putting into question CRAs and IFRSs, and outlining regulatory reforms.

 

Speaking at confirmation hearing before the Senate Banking Committee, Mrs Schapiro said that there is an obvious need for a modernization of the regulatory structure and regulatory reforms.

 

Regulatory gaps have to be closed, and regulators will have to focus on systemic risks. All systemically important products, including CDSs, and financial institutions have to be covered. Schapiro also supports the creation of a clearing house mechanism for CDSs, including a strong oversight of the clearing houses. She also called for federal oversight of insurance companies. If the SEC has to be enlarged or a new institution has to be established is yet undecided.

 

For Credit Rating Agencies the funding scheme seems to be one of the predominant problems.

 

Mrs Schapiro underlined that to her opinion the “ratings” given by the agencies are “more than just an opinion”. That said, also the dependence on ratings has to be decreased. The core of the problem, however, is the issuer paying model, she said. There are a lot of interesting ideas in the market, she said referring in particular to the creation of a PCAOB type of model for regulatory oversight body and other alternative compensation models for ratings.

 

Schapiro said she will “proceed with great caution” in regard to International Financial Reporting Standards. Although a single set of standards are beneficial, she has some serious concerns on the roadmap. IFRS standards are not as detailed as US GAAP standards and there is a lot left to interpretation, she said. Even if adopted there is still a lack of consistency around the world, she said. Finally, she is highly concerned about the independence of the IASB Board and the oversight of their processes.

 

“I will take a big deep breath and look at this entire area carefully”, she said and underlined that she does not feel bound by the existing roadmap.

 

On Hedge Funds, Schapiro calls for greater transparency and supports proceeding again with the registration of these funds. Registration, transparency and appropriate disclosure are the absolute minimum, she said.

 

Further information of the hearing - including video

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