Transcript RECENT GOVERNANCE DEVELOPMENTS IN THE UNITED STATES Robert D. Strahota Assistant Director, Office of International Affairs* U.S.

RECENT GOVERNANCE DEVELOPMENTS IN
THE UNITED STATES
Robert D. Strahota
Assistant Director, Office of International Affairs*
U.S. Securities and Exchange Commission
Prepared for
Fourth South Eastern Europe Corporate Governance
Roundtable
March 7, 2003
*The U.S. Securities and Exchange Commission, as a matter of policy, disclaims
responsibility for any publication or presentation by its employees. The views expressed
in this presentation are those of Mr. Strahota and do not necessarily reflect the views of
the Commission, individual Commissioners, or Mr. Strahota’s colleagues on the staff of
the Commission.
SARBANES-OXLEY OVERVIEW
• On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002
(SOX) into law
• SOX is the most important securities legislation affecting public companies and
accounting oversight since the Securities and Exchange Commission (SEC) was
formed in 1934
• While the new law was prompted by problems encountered in the U.S., these
problems are global in dimension
• SOX’ provisions generally make no distinction between U.S. and foreign
issuers who seek to access U.S. capital markets
– The terms “issuer” and “public company” as used in many places throughout SOX
mean an issuer the securities of which are registered under the Securities Exchange
Act of 1934 (Exchange Act), which is required to file reports under the Exchange
Act, or that has filed a registration statement for a public offering of its securities
under the Securities Act of 1933 that has not become effective and that has not been
withdrawn
• SEC’s mandate is to implement SOX fully for all issuers, foreign and domestic,
but it is prepared to consider how it may fulfill this mandate through rulemaking
and interpretive authority in ways that accommodate home country
requirements and regulatory approaches to foreign issuers and accountants
SOX AUDIT COMMITTEE REQUIREMENTS
• Before Enron and subsequent financial reporting abuses arose, the
NYSE, AMEX and Nasdaq markets already had strengthened their
audit committee requirements by requiring at the minimum a
three-person committee comprised entirely of independent
directors with financial sophistication and at least one committee
member required to have accounting/auditing expertise
• In July 2002, the NYSE approved recommendations of its
Corporate Accountability and Listing Standards Committee that
would require domestic issuers to have a majority of independent
directors, strengthen the definition of independent director, and
require that audit committees of NYSE listed companies have the
sole authority to hire and fire the independent auditors
• Before SOX, the markets’ audit committee, independent director
and other corporate governance requirements generally have not
applied to foreign issuers with listed securities
SOX AUDIT COMMITTEE REQUIREMENTS
• SOX defines “audit committee” as:
“a committee (or equivalent body) established by and amongst the
board of directors of an issuer for purposes of overseeing the
accounting and financial reporting processes of the issuer and
audits of the financial statements of the issuer; and …if no such
committee exists with respect to an issuer, the entire board of
directors of the issuer”
• For certain purposes, however, SOX imposes additional requirements
regarding the composition and responsibilities of an “audit
committee”
SOX AUDIT COMMITTEE REQUIREMENTS
• SOX adds Section 10A(m) to the Exchange Act and requires that by April 26, 2003
the SEC, by rule, must direct the national securities exchanges and NASD to
prohibit the listing of securities of any company, including foreign companies, that
do not meet the following requirements:
– Each member of the company’s audit committee must be a director and must
otherwise be independent; :
– The audit committee must be responsible for hiring, retention, compensation and
oversight of the independent auditors
– The audit committee must be responsible for pre-approval or all audit and nonaudit services
– The audit committee must receive reports from the independent auditors
regarding critical accounting polices and practices, discussions that have taken
place with management regarding alternative treatments of financial information
under GAAP, and any accounting disagreements and other material written
communications between the auditors and management
– The audit committee must establish procedures to receive and address
complaints regarding accounting, internal control and audit issues, and to
provide company employees an opportunity to make confidential, anonymous
submissions regarding accounting and auditing matters
– The audit committee must have authority to engage independent counsel and
other advisers; the company must provide adequate funding for the committee
AUDIT COMMITTEE REQUIREMENTS
• Section 10A(m)(1)(b) requires that SEC rules shall provide for an
issuer to have an opportunity to cure any defects that would be a basis
for the U.S. listing prohibition
• “Independence” means that an audit committee member is not an
affiliate (control person) of the issuer or any subsidiary and that the
member receives no consulting, advisory or compensatory fee from
the issuer except is his capacity as a member of the audit committee,
another board committee or the board of directors
• SEC is given authority to exempt from the independence requirement
“a particular relationship with respect to audit committee members, as
the Commission deems appropriate in light of the circumstances.”
• SOX audit committee requirements apply to domestic and foreign
issuers. Congress provided only specific, limited exemption authority
in such provisions. Therefore, it doubtful that Congress intended the
SEC’s general exemption authority under Section 36(a) of the
Exchange Act to be used to grant exemptions
ACCOMODATIONS FOR FOREIGN ISSUERS
• In Exchange Act Release No. 34-47137 (January 8, 2003), SEC
proposed rules that would provide that in the case of foreign issuers:
– Where there are two-tier boards, the audit committee requirement would apply
to the supervisory board
– Non-management employees may sit on the audit committee of a foreign issuer
if the employee is selected or named to the board of directors or audit committee
pursuant to home country legal or listing requirements
– One member of the audit committee may be a shareholder, or representative of a
shareholder or group, owning more than 50% of the issuer’s voting securities, if
the “compensation” part of the independence requirement is satisfied, the
member in question has only observer status, and is not a voting member or the
chair of the audit committee, or an executive officer of the issuer
– One member of the audit committee may be a representative of a foreign
government or foreign governmental entity, if the “compensation” requirement
is satisfied and the member is not an executive officer
STATUTORY AUDITOR EXEMPTION
• An exemption from the independence and auditor oversight
requirements of the proposed rule also would be provided for
boards of auditors or statutory auditors of foreign issuers that
fulfill the remaining requirements of the proposed rule, if:
– those boards operate under legal or listing provisions that are intended to
provide oversight of the outside auditors that is independent of
management;
– their membership excludes executive officers; and
– such board or body, to the extent permitted by law, is responsible for the
appointment and retention of the outside auditor
• A foreign issuer availing itself of any of these exemptions would
be required to disclose its reliance upon the exemption[s] and its
assessment of whether, and if so, how such reliance may
materially adversely affect the ability of its audit committee to act
independently or satisfy other requirements of the proposed rule
ACCOMODATIONS - CONTINUED
• For both U.S. and foreign issuers:
– An instruction to the rules would clarify that audit committee responsibility for
hiring, retention, compensation and oversight of the independent auditors relates
to allocation of this responsibility as between the audit committee and
management and is not intended to conflict with any requirement under the
issuer’s governing law, documents or home country requirements that requires
shareholders to elect, approve or ratify the selection of the independent auditor
– One member of the audit committee need not be independent for 90 days after
effectiveness of an IPO or Exchange Act registration statement
– Membership on a parent companies board will not by itself prevent an otherwise
independent board member from being considered an independent director of a
subsidiary
• The proposed rule would require exchanges to provide companies
with an opportunity to cure any defects in audit committee
requirements before de-listing is considered, and a delayed
implementation date for the rule itself is anticipated
CEO AND CFO CERTIFICATION OF FINANCIAL
REPORTS
• On August 27, the SEC adopted Exchange Act rules required to
implement Section 302 of SOX, which requires a public company’s
CEO and CFO to certify the contents of the company’s quarterly
and annual reports.
• The CEO and CFO must certify that:
– he or she has reviewed the report;
– based on his or her knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading;
– based on his or her knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition and results of operations of the issuer as of, and for, the
periods presented in the report;
CEO AND CFO CERTFICATION CONTINUED
The CEO and CFO
– are responsible for establishing and maintaining "disclosure
controls and procedures" (a newly-defined term reflecting the
concept of controls and procedures related to disclosure) for the
issuer;
– have designed such disclosure controls and procedures to ensure
that material information is made known to them, particularly
during the period in which the periodic report is being prepared;
– have evaluated the effectiveness of the issuer's disclosure
controls and procedures within 90 days of the date of the report;
and
– have presented in the report their conclusions about the
effectiveness of the disclosure controls and procedures based on
the required evaluation
CERTIFICATION - CONT.
• The CEO and CFO also must certify that they have disclosed to the
company’s auditors and to the audit committee of the board of
directors (or persons fulfilling the equivalent function):
– All significant deficiencies in the design or operation of internal
controls (a pre-existing term relating to internal controls regarding
financial reporting) which could adversely affect the issuer's ability
to record, process, summarize and report financial data and have
identified for the company's auditors any material weaknesses in
internal controls;
– Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal
controls; and
– Whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
PRO FORMA (NON-GAAP) FINANCIAL
INFORMATION
• SOX directs the SEC to issue final rules by January 26, 2003,
providing that any public disclosure or release by an issuer of “pro
forma financial information” in any periodic or other report filed
with the SEC or in any other public disclosure or release, shall be
presented in a manner that:
– Is not false or misleading; and
– Reconciles with the financial condition and results of
operations of the issuer under generally accepted accounting
principles (GAAP)
• On January 15, in Exchange Act Release 34-47226, SEC adopted
rules under Section 401(b) that apply to the public disclosure or
release of information that includes a “non-GAAP financial
measure”
• Under new Regulation G, the two statutory requirements above
will apply when an issuer discloses or releases material
information that includes a non-GAAP financial measure
NON-GAAP FINANCIAL MEASURES
• A “non-GAAP financial measure” is a numerical measure of a
company’s financial performance that:
– Excludes amounts, or is subject to adjustments that have the effect of
excluding amounts, that are included in the comparable measure calculated
and presented in accordance with GAAP in the statement of income,
balance sheet or statement of cash flows (or equivalent statements) of the
company; or
– Includes amounts, or is subject to adjustments that have the effect of
including amounts, that are excluded from the comparable measure so
calculated and presented
• Statistical and operating measures are not covered
• More detailed requirements apply to the use of non-GAAP
financial measures included in filings with the SEC, including
filings by foreign issuers on Form 20-F
• Non-GAAP measures used by a foreign issuer would have to be
reconciled to the GAAP used in the preparation of the issuer’s
primary financial statements
LIMITED EXEMPTION FOR FOREIGN ISSUERS
• Regulation G includes a limited exemption for foreign issuers where:
– The securities of the issuer are listed or quoted on a securities exchange or interdealer quotations system outside the United States;
– The non-GAAP financial measure and the most comparable GAAP financial
measure are not calculated and presented in accordance with US GAAP; and
– The disclosure is made by or on behalf of the issuer outside of the United States
or included in a written communication that is released by or on behalf of the
issuer outside the United States
• The exemption is available even if one or more of the following circumstances are
present:
– a written communication is released in the United States as well as outside the
United States, so long as the communication is released in the United States
contemporaneously with or after the release outside the United States and is not
otherwise targeted at persons located in the United States;
– foreign journalists, U.S. journalists or other third parties have access to the
information;
– the information appears on one or more web sites maintained by the issuer, so
long as the web sites, taken together, are not available exclusively to, or targeted
at, persons located in the United States; or
– the information is submitted to the Commission under cover of a Form 6-K
DISCLOSURE OF CHANGES IN FINANCIAL
CONDITION AND OPERATIONS
• SOX Section 409 amended the Exchange Act to require public
companies to disclose “on a rapid and continuous basis such
additional information concerning material changes in the financial
condition or operations of the issuer …as the Commission determines
by rule, is necessary or useful for the protection of investors and the
public interest.
• The SEC implemented Section 409 by amending its Form 8-K
disclosure requirements to require public companies to furnish to the
SEC releases or announcements disclosing material non-public
information about completed annual or fiscal periods within five
business days of their release
• Public disclosure of such information orally, telephonically, by Web
cast, broadcast or similar means will not require a filing if such
presentation occurs within 48 hours of a related release or
announcement that is submitted on Form 8-K, the presentation is
broadly accessible to the public and if a Web cast, it is published on
the company’s Web site
ENHANCED MD&A DISCLOSURE
• In January 2002, SEC reminded companies of the related party
disclosure requirements of FAS No. 57, and indicated that where
related party transactions are material, Management’s Discussion and
Analysis (MD&A) should include a discussion of those transactions to
the extent necessary to an understanding of the company’s financial
statements
• In May 2002, SEC proposed MD&A disclosure for the most recent
fiscal year and interim period about:
– Critical accounting estimates a company makes in applying its
accounting policies; this requires qualitative and quantitative
disclosure
– Initial adoption by a company of an accounting policy that has a
material impact on its financial presentation – requires qualitative
disclosure
• These pre-SOX MD&A changes and proposals, respectively, would
apply to the MD&A of foreign issuers required in Form 20-F
registration statements and annual reports
MD&A DISCLOSURE ABOUT OFF-BALANCE
SHEET ARRANGEMENTS AND AGGREGATE
CONTRACTUAL OBLIGATIONS
• On January 27, 2003, in Exchange Act Release 34-47264, the SEC
adopted further MD&A amendments to implement SOX Section
401(a) requiring the SEC to require disclosure of the above types of
information in annual and quarterly reports filed with the SEC
• These requirements apply to a foreign issuer’s MD&A disclosures
• For purposes of these requirements, contractual arrangements include:
– Certain guarantee contracts
– Retained or contingent interests in assets transferred to an
unconsolidated entity
– Derivative instruments that are classified as equity; and
– Material variable interests in unconsolidated entities that conduct
certain activities
OTHER RULES; AVAILABILITY
• Pursuant to SOX, on January 23, 2003, in Exchange Act Release
No. 47235, the SEC adopted rules relating to:
– Disclosure of whether a public company’s audit committee
includes at least one director who is an “audit committee
expert,” as defined by SEC rules, and if not, why not (SOX
Section 407); and
– Disclosure of whether the public company has a code of ethics
for senior financial officers (SOX Section 406)
• As adopted, each of these rules applies to domestic and foreign
issuers. In the case of foreign issuers, the rules clarify that the
expertise required of the audit committee expert relates to the
issuer’s home country GAAP rather than U.S. GAAP
• All of the SEC’s rule proposals and final rules are publicly available
on the SEC’s Web site, www.sec.gov under Proposed Rules and
Final Rules, respectively
ADDITIONAL SOX PROVISIONS AFFECTING
SEC REPORTING ISSUERS
• Requires an issuer’s financial statements filed with the SEC to reflect
all material correcting adjustments identified by a registered public
accounting firm in accordance with generally accepted accounting
principles or the rules of the SEC
• Provides that if there is a material restatement of an issuer’s reported
financial results due to the material noncompliance of the company, as
a result of misconduct, the CEO and CFO shall reimburse the issuer
for any bonus or incentive or equity-based compensation received
within the 12 months following the filing of the financial statements
subsequently required to be restated
• Prohibits personal loans to executive officers and directors of the
issuer, subject to limited exceptions
• Each of these provisions applies to domestic and foreign reporting
issuers
SOX ATTORNEY’S OBLIGATION TO REPORT
ILLEGAL ACTS
•
•
In compliance with Section 307 of SOX, on January 29, 2003, in
Exchange Act Release No. 47276, the SEC issued rules that set
forth minimum standards of professional conduct for attorneys
appearing and practicing before the SEC in any way in the
representation of issuers.
The standards require an attorney to report “evidence of a material
violation of securities laws or breach of fiduciary duty or similar
violation by the company or any agent thereof” to the chief legal
counsel and the chief executive officer of the company (or the
equivalent); and if they do not respond appropriately to the
evidence, require the attorney to report the evidence to the audit
committee, another committee of independent directors, or the full
board of directors
ACCOMODATIONS FOR FOREIGN ATTORNEYS
• As adopted the rules exclude “non-appearing foreign attorneys,”
which are defined as attorneys who
– Are admitted to practice outside the United States;
– Do not hold themselves out as practicing, or giving legal advice regarding,
U.S. law; and
– Conduct activities that would constitute appearing and practicing before the
SEC only (i) incidental to a foreign law practice; or (ii) in consultation with
U.S. counsel
• Based upon many adverse comments received regarding the effect
of the proposed rules on attorney client privilege, the final rules do
not include a mandatory “noisy withdrawal” provision. Instead,
the SEC is seeking further comment on that issue and also on a
proposed new alternative, whereby the company would be
required to disclose its counsel’s withdrawal to the SEC as a
material event
CHANGES IN INTERNAL ACCCOUNTING
CONTROL REQUIREMENTS
• SOX Section 303 strengthens Exchange Act’s Section 13(b)(2)
internal accounting control requirements by making it unlawful for
any officer or director or person acting under the direction thereof to
fraudulently influence, coerce, manipulate or mislead any independent
accountant engaged to audit the financial statements of an issuer for
purposes of rendering the financial statements materially misleading
• On October 18, 2002, SEC proposed two rules to implement Section
303. The first rule tracks the language of Section 303. The second
rule lists as examples of intimidation:
– Bribes or promises of future emoluments, including audit and non-audit
services;
– Threatening to cancel audit or non-audit services
– Issuance of misleading legal advice to an auditor
– Seeking to remove an audit partner
– Blackmail
– Physical threats
CHANGES IN INTERNAL ACCOUNTING
CONTROL REQUIREMENTS
• SOX requires the new Public Company Accounting Oversight
Board (PCAOB) to adopt rules that will require the independent
auditor to describe in its audit report the scope of its testing of the
internal control structure and procedures of the company, and to
present (in such report or in a separate report):
– The findings of the auditor from such testing
– An evaluation whether the internal control structure and procedures achieve
substantially the principal internal accounting control requirements of
Exchange Act Section 13(b)(2)
• This requirement differs from the independent auditor’s current
obligation under GAAS to evaluate internal controls of the
company for purposes of planning the scope of the audit.
• This requirement is in addition to the independent auditor’s
obligation under SOX to attest to management’s report and
assessment of the internal control structure and procedures for
financial reporting
AUDIT FIRM ROTATION VS. AUDIT PARTNER
ROTATION
• SOX makes it unlawful for an accounting firm registered with
PCAOB to provide audit services to an SEC reporting company if the
lead (or coordinating) partner (having primary responsibility for the
audit), or the audit partner reviewing the audit, has performed audit
services for the company in each of the company’s 5 previous fiscal
years
• SOX directs the U.S. Comptroller General to study and review the
potential effects of requiring mandatory audit firm rotation and to
report to Congress within one year
NEW INDEPENDENCE STANDARDS
SOX provides that beginning 180 days after the commencement of the
PCAOB’s operations, registered public accounting firms will be
prohibited form performing the following non-audit services for their
audit clients contemporaneously with the audit:
• Bookkeeping or other services related to the accounting records or
financial statements of the client
• Financial information systems design and implementation
• Appraisal or valuation services, fairness opinions, or contribution-inkind reports
• Actuarial services
• Internal audit outsourcing services
• Management functions or human resources
• Broker or dealer, investment adviser, or investment banking services
• Legal services and expert services unrelated to the audit, and
• Any other service the PCAOB determines is impermissible
NEW SEC AUDITOR INDEPENDCE RULES
• Pending PCAOB action, on January 22,2003, the SEC has adopted
similar independence standards in Exchange Act Release No. 3447265. These standards:
• Revise the rules related to non-audit services that, if provided to an
audit client, would impair an accounting firm’s independence
• Require that certain partners on the audit engagement team rotate after
no more than five or seven consecutive years, depending on the
partner’s involvement in the audit, and include a cooling-off period;
and
• Establish rules that an accounting firm will not be independent if
certain members of management of the issuer have been members of
the accounting firm’s audit engagement team within the one-year
period preceding the commencement of audit procedures
ACCOMODATIONS FOR FOREIGN
ACCOUNTANTS
• The rules, as adopted, address several concerns raised in both foreign
and domestic comments on the proposed rules
• The partner rotation requirement will apply to partners that serve the
client at the parent level. Partners serving a company’s subsidiary will
be subject to rotation only if they are lead partners and the
subsidiary’s revenues constitute 20% or more of the consolidated
assets or revenues of the parent
• The cooling-off period will apply to the lead and concurring partners
and to any member of the audit engagement team, unless exempted,
who provides more than 10 hours of audit, review or attest services
• The restrictions on employment will apply only with regard to key
positions at the company level, and not to subsidiaries or affiliates
• Tax services, which are permitted under SOX, will not be prohibited
despite their definition under local law as legal services, which are
prohibited under SOX
SOX ESTABLISHES A PUBLIC COMPANY
ACCOUNTING OVERSIGHT BOARD
• PCAOB’s purpose is to oversee the audit of public companies
(defined in the same manner as issuers, above)
• PCAOB is a non-governmental body with corporate powers
• PCAOB will have five full-time members, one of whom is designated
chairperson, appointed by SEC after consultation with the Chairman
of the Board of Governors of the Federal Reserve System and the
Secretary of the Treasury; no member may serve more than two 5-year
terms; removal permitted only for good cause
• Only two of the Board members may be CPAs and if one of such
members is the chairperson, he or she may not have been a practicing
CPA for at least five years prior to appointment
• Board funding is to come primarily from annual issuer support fees
and registration fees; FASB also will be funded in this manner
PCAOB’S DUTIES
• PCAOB’s duties are to:
– Establish or adopt, or both, by rule, auditing, quality control, ethics,
independence and other standards relating to the preparation of audit reports for
public companies
– Enforce compliance with SOX, the Board’s rules, professional standards, and
the securities laws relating to the preparation and issuance of audit reports and
the obligations and liabilities of accountants with respect thereto, by registering
public accounting firms and (if the PCAOB and SEC decide to do so) associated
persons of registered firms
– Conduct inspections of disciplinary proceedings concerning and, where justified,
impose appropriate registered public accounting firms
– Conduct investigations and sanctions upon registered public accounting firms
and associated persons of such firms
– Set the budget and manage the operations of the Board and the staff of the Board
– Perform such other functions as the Board (or the SEC by rule or order)
determines as necessary or appropriate in accordance with the PCAOB’s
statutory mandate
PCAOB’S AUTHORITY
• PCAOB has authority directly, or by acceptance of standards proposed by others, to
establish audit standards, related attestation standards, quality control and ethics
standards to be used by registered public accounting firms in audits of public
companies, including:
– Audit work paper retention requirements
– Concurring or second partner review requirements
– Internal accounting control testing procedures
– Reporting requirements to the PCAOB for registered public accounting firms
• PCAOB is required to establish a mandatory inspection program for registered
public accounting firms and associated persons, which will be more comprehensive
than, and will replace the peer review program conducted for SEC Practice Section
members of the AICPA under oversight of the former Public Oversight Board
• PCAOB has comprehensive authority to investigate, require testimony and
documents from, and sanction registered public accounting firms and associated
persons for violations of SOX, securities laws and professional standards, including
failure to reasonably supervise associated persons and failure to cooperate with an
investigation; SEC may assist PCAOB investigations, including issuance of
subpoenas to third persons not otherwise within the Board’s jurisdiction
SEC OVERSIGHT OF PCAOB
• SEC oversight of PCAOB is similar in many respects to the SEC’s
oversight of the National Association of Securities Dealers under
the Exchange Act
• SEC is responsible for the planning for, establishment and
administrative transition to the PCAOB’s operation, and must
determine by April 26, 2003 that the Board is organized and has
the capacity to carry out the Act’s requirements
• SEC’s oversight authority includes: authority to approve and
amend Board rules; receiving notice of Board investigations;
authority to inspect and sanction the Board, including censure and
removal of members; review of Board disciplinary actions; and
oversight of the Board’s budget and funding process
• Nothing in SOX affects the SEC’s existing authority with respect
to the federal securities laws and accounting, auditing and
independence standards, including its authority to take
enforcement action against accountants directly
DISCLOSURE OF PROXY VOTING POLICES AND
VOTING RECORDS BY INVESTMENT
COMPANIES
• On January 31, 2003, in Investment Company Act Release 25922,
the SEC adopted rules that require registered management
investment companies to:
– provide disclosure about how they vote proxies relating to
portfolio securities they hold;
– require disclosure of the policies and procedures that they use
to determine how to vote proxies relating to portfolio securities
– file with the SEC and make available to shareholders the
specific proxy votes that they cast in shareholder meetings of
issuers of portfolio securities.
REGULATION OF CREDIT RATING AGENCIES
• On January 24, the SEC issued a report pursuant to SOX Section 702
regarding the role and function of credit rating agencies in the
operation of the securities markets
• The report addresses:
– the role of credit rating agencies in the evaluation of issuers of securities,
including the importance of that role to investors and the functioning of the
securities markets;
– impediments to the accurate appraisal by credit rating agencies of the financial
resources and risks of issuers of securities;
– any barriers to entry into the business of acting as a credit rating agency, and any
measures needed to remove such barriers;
– any measures which may be required to improve the dissemination of
information concerning such resources and risks when credit rating agencies
announce credit ratings; and
– any conflicts of interest in the operation of credit rating agencies and measures
to prevent such conflicts or ameliorate the consequences of such conflicts
• Within the next 30 days, the SEC also plans to issue a concept release
soliciting public comments on credit rating agency regulation