Speech by SEC Commissioner:
Welcoming Remarks at the International Institute
for Enforcement and Market Oversight
Comissioner Roel C. Campos
U.S. Securities & Exchange Commission
November 4, 2002
Good morning. It is a great pleasure to welcome you to our 2002 International Institute for Enforcement and Market Oversight.
During this week, you will cover many important issues and topics. From this morning's first presentation on the interelationship of enforcement, surveillance and inspections to Friday's closing panel on anti-money laundering, we've done our best to present an institute program that is unrivaled in quality and content.
One topic that is certain to be discussed throughout the week is the Sarbanes Oxley Act of 2002. I am very pleased to see that there will be a specific panel on this act on Friday. I would like to spend a few moments discussing the act this morning because I think it highlights the importance of greater international cooperation among securities regulators.
President Bush signed the Sarbanes-Oxley Act into law on July 30. For the U.S., this is the most important securities legislation affecting public companies since the SEC was formed in 1934. The reforms in the Act are broad ranging, including provisions affecting the governance of the accounting profession, disclosures by public companies, corporate governance and enhanced criminal penalties for securities fraud. While the new law was prompted by problems encountered in the U.S., these problems are global in dimension. As a result, numerous other jurisdictions are considering regulatory reform patterned after our own.
For example, last month, the technical committee of IOSCO adopted three very important statements on:
- Principles of auditor oversight;
- Principles of auditor independence and the role of corporate governance in monitoring auditor independence; and
- Principles for ongoing disclosure and material development reporting by listed entities.
If you read these statements and the Sarbanes-Oxley Act, as I hope you will, you will see that they cover much common regulatory ground. The statements are important testimony to the value of regulators working together to solve common problems through professional bodies, such as IOSCO.
Perhaps the best example of the importance of cooperation among regulators is the important role that IOSCO and the International Accounting Standards Board have played in the development of high quality, internationally acceptable accounting standards. Just last Wednesday, a milestone was reached when the IASB and our Financial Accounting Standards Board issued a memorandum of undertanding that commits these two bodies to a long-term collaboration project on accounting standards convergence. The goal is to eliminate most of the main differences between international financial reporting standards and US GAAP by 2005.
Similarly, with The Sarbanes-Oxley Act, we have begun the process of reaching out to foreign issuers, regulators, and markets to obtain their views regarding the cross-border issues raised by the act. We are committed to continuing this process.
While we will not always share the same vision on every issue, there is much we can learn from one another, and much that requires us to work together. The cooperative spirit that has served us so well in the past must be our guiding principle as we marshal our collective resources to meet the challenges that lie ahead.
As we at the SEC continue our reform of our disclosure and auditing processes, we need to consider how any changes we make will affect foreign as well as domestic issuers and investors. The Sarbanes-Oxley Act generally makes no distinction between U.S. issuers and foreign private issuers listed in the united states. It applies equally to all who seek to access U.S. capital markets.
We intend to implement fully the Sarbanes-Oxley Act for all companies, foreign and domestic. That is our mandate. And, as we write our rules to implement the act, foreign companies can expect that many of the new rules will apply to them. But we are prepared to consider how we can fulfill the mandate of the act through our rulemaking and interpretive authority in ways that accommodate the home country requirements and regulatory approaches of the home jurisdiction of our foreign registrants and potential registrants. As we proceed with implementing the act, we will therefore also seek a better understanding of any conflicts that may exist, as well as their potential resolution.
In the case of the scope and integrity of disclosure, I believe that Sarbanes-Oxley calls for us to continue our long-standing policy. Basic disclosure standards have been and will be generally the same for U.S. and foreign issuers that access our markets. I believe that this approach is commonly accepted as part of the international capital markets.
There are a number of provisions of the Sarbanes-Oxley Act that go beyond disclosure. The act introduces Federal law and the Commission into a number of areas of corporate governance and internal corporate activity in ways that are new. Examples include requirements for an audit committee of independent directors for listed companies and prohibitions on loans extended or arranged by a company to its officers and directors.
The audit committee provisions in particular could have a potentially broad impact on internal corporate governance practices of reporting companies. For example, the Act includes provisions designed to strengthen the role of audit committees. By April 26, 2003, we must adopt rules directing U.S. markets to adopt their own standards prohibiting listing securities of any issuer that is not in compliance with new standards of audit committee responsibility and independence. Under these standards, an issuer's audit committee must be composed of independent directors and must be directly responsible for the appointment, compensation and oversight of the issuer's audit firm.
SROs have gone further in their proposals. A majority of all directors must be independent and the compensation committee must be comprised of independent directors.
Many foreign jurisdictions do not require issuers to have audit committees, although some are studying their possible use. Also, some countries, such as Germany, require that employees, who would not be viewed as "independent" under the Act, serve on the supervisory board, whose responsibilities include audit oversight functions.
We are aware of the fact that requirements such as these can come into conflict with internal corporate structures and legal requirements in home jurisdictions of foreign private issuers. Some of the requirements for audit committees under Sarbanes-Oxley may go beyond or conflict with local requirements. More subtly, some of the abuses addressed by the Sarbanes-Oxley Act may be addressed in other jurisdictions in different ways from those required or mandated by the act.
We have begun the process of dialogue with foreign issuers and regulators, and we expect that to continue. It is important for foreign jurisdictions to begin assembling the case that in their particular regulatory framework there is equivalency in dealing with the concerns Of Sarbanes-Oxley. Clearly, if a case can be made that there is equivalency of regulation, we will have to take it into account and, at a minimum, consider another protocol. A very important part of our rulemaking processes involves the comment process. It is not only required by U.S. law, but also is a crucial element in allowing us to get our rules right. It is a public and transparent process that allows communication between the Commission and all interested parties. In the case of proposed rules implementing the Sarbanes-Oxley Act in particular, I urge foreign regulators to comment on our rule proposals and to let us know when our proposals conflict with local law or local stock exchange requirements, or where problems that proposals are intended to address are addressed in alternative ways in other jurisdictions. We cannot promise that our final rules will always accord with your concerns, but we do promise to listen, and carefully evaluate them.
In closing, I would like to leave you with one final thought about the purpose of this institute: we at the SEC are committed to working with you to develop strong securities markets.
From our perspective, this institute is not an end in itself; rather, it is an important first step in the essential process of international cooperation in securities regulation:
- It is a step toward developing stronger relationships between our agency and yours;
- A step toward addressing the issues that all markets -- large and small -- face on a daily basis;
- A step toward building markets of integrity around the world.
Our markets are different in many respects. Accordingly, our regulatory systems should never be expected to be uniform.
But at the same time, our regulatory goals are similar: encouraging the development of transparent markets that operate fairly, with integrity, and maintaining the highest standards of investor protection. The better our cooperation as regulators, the better we can protect investors throughout the world. The better our understanding of common problems, the better our ability to respond quickly with the best solutions.
Thank you and best wishes for a successful week.