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The SEC’s role is different from those of securities regulators in other countries. While we sit at the centre of the US economy’s financial regulatory process, we are just one of several agencies concerned with financial regulation, and there are both overlaps and gaps in the collective oversight responsibility.
There is also a parallel system of state financial regulators with whom the SEC often works, and there is state corporate law, which actually is the foundation for most corporate governance decision-making in the United States.
In addition, Congress zealously guards its oversight responsibilities. The SEC's mandate can be expanded or restricted by statute, and often is. And the court system often has the final word on SEC regulations, as well.
Within the Commission itself, the Commissioners represent both major political parties and, thus, differing regulatory philosophies. But, SEC's view is that give-and-take among Commissioners, and consideration of differing views produces rules that are well-thought-out and more effective in practice.
The SEC is subject to a number of checks and balances. And so the SEC's regulatory agenda is anchored both in investor protection mission — which includes effective investor engagement — and a deep respect for what Bismarck called “the art of the possible”.
According to Ms Schapiro the effective governance is an imperfect art; the rules of engagement are case specific and can vary dramatically from company to company, while yielding satisfactory results. Given the diversity of approaches, the SEC’s focus is on variables through which the SEC can have a beneficial impact on engagement — where the quality of communication and the level of responsiveness in the board-shareholder dialogue can be increased.
The communication is the first pillar of effective engagement. For this reason, one of the first regulatory changes the SEC made when Ms Schapiro became Chairman was to increase disclosure about the qualifications of directors and director nominees; compensation consultants’ fees and conflicts of interest; and about the relationship between a company's overall compensation policies and its risk profile.
Say-on-pay, which is already improving the quality of communications, and the increased disclosures first present in last year’s proxy statements, demonstrates the potential this focus possesses.
The Commission is considering how to provide guidance on how the federal securities laws should regulate the activities of proxy advisory firms.
In regard to the beneficial ownership, Ms Schapiro mentioned that next year, the SEC plans to begin a broad review of its beneficial ownership reporting rules. The SEC thinks it’s important to modernise its rules, and it is considering whether they should be changed in light of modern investment strategies and innovative financial products.
Issues that the SEC will consider including:
The Dodd-Frank Act has provided the Commission with new statutory authority to shorten the 10-day filing deadline for 13D, as well as to regulate beneficial ownership reporting based on the use of security-based swaps. And, earlier this year, the SEC received a petition for rulemaking recommending amendments to Regulation 13D-G.