Where securities regulation is headed after US election
Darrell and I had an interesting conversation with a securities regulator the other day regarding where legislation is headed as fallout to the financial crisis. (This is a topic of great interest to us and at times I find myself providing armchair observations.) Read a summary of the conversation:
Following the U.S. election, changes will be focused on the financial sector (no surprise) and also include large corporations who rely on the wholesale or public debt market to finance their operations.
The degree to which an entity relies on the debt markets to finance operations (eg. General Electric or the large automotive companies) is a key consideration in determining the disclosure required of these organizations. If the company’s counter parties are pillars of financial institutions and if the reliance is significant enough that the company would not be able to fund itself, if for some reason it was unable to roll over its debt, the impact would be considered systemic in terms of the ripple effect on the economy. Companies fitting this profile will be impacted by new disclosure legislation.
We can anticipate fairly draconian requirements in the coming months – a whole new wave of requisite disclosure that we’ve never seen before. It will certainly mean additional filings as well as new/more information needing dissemination to the market.
Included in this, we can anticipate the need for much greater detail surrounding the content, risk and backing of investment products.
And companies will need to be much more upfront about their own risk exposure and appetite along with details on how they’re managing this risk.
What policy makers have learned from the past is the need to get enough of the right information into the market to gain a perspective on trends and that means an insistence on information being disclosed in a compatible manner.
The goal of the enhanced disclosure is to not only protect investors and the economy at large, but also to promote a more responsible approach to managing companies, which was clearly lacking in the financial sector over the past several years.
The challenge of course for most companies is balancing the escalating demands for timely disclosure against the risks of disclosing inaccurate or incomplete information. Along with the increased disclosure requirements will come the need for retooling existing disclosure controls & procedures and determining whether manual processes, technical solutions or perhaps a combination of both will best help to protect organizations from increased compliance risk.
No matter if McCain or Obama wins today, change is a foot!
Related posts:
- Canadian securities regulators launch XBRL voluntary filing program
- Securities Litigation & Enforcement – 2008 Review
- Task Force to Modernize Securities Legislation in Canada Releases 65 Recommendations
- CEO/CFO Certification requires new technology solutions
- Disclosure Liability – are you at Risk?
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