Box 348, Commerce Court West
R. Kelly Shaughnessy
December 23, 2002
Mr. Jonathan G. Katz,
Dear Mr. Katz:
Re: Proposed Disclosure Rules under Section 404 and 407 of the Sarbanes-Oxley Act of 2002
We are writing at this time to express the Canadian banking industry's concerns with the Securities and Exchange Commission's proposed rule, "Disclosure Required by Sections 404, 406, and 407 of the Sarbanes-Oxley Act of 2002 (the "Act"). In particular, the Canadian banking industry has concerns with the proposals relating to Section 404, "Management assessment of internal controls" and Section 407, "Disclosure of audit committee financial experts". While the Canadian banking industry supports the intention of U.S. authorities to restore investor confidence in companies listed on the U.S. markets, we would like to express our specific concerns on these issues.
With regard to Section 404, we recommend that the implementation date be deferred to allow adequate time to implement the procedures required to produce the internal control report. Additionally, if the Public Company Accounting Oversight Board plans to issue rules which are different than the proposed SEC rules on internal controls, then the SEC should consider deferring the effective date for the proposed rules to ensure full coordination on this issue.
With regard to the disclosure requirements of Section 407, we request that the degree of individual responsibility, obligation or liability for persons designated as a "financial expert" be clarified in the rules. We would also request that the definition of "financial expert" be broadened to include people with experience with public companies with securities listed on a foreign securities exchange and not necessarily limited to experience with a U.S. public reporting company.
Furthermore, we do not believe that the disclosure of the name, the independent status of the financial expert, or the quarterly disclosure of this information is necessary. It is our view that annual disclosure is sufficient and that the implementation date for this proposed rule be delayed until the beginning of the 2004 fiscal year, given the new procedures that will be required to fulfil the internal control reporting obligations and that the Public Company Accounting Oversight Board may issue different rules on the same matters.
Finally, we do not believe it is necessary to extend either of the Section 404 or 407 disclosure rules to co-registrants. Our smaller members find these prescriptive compliance requirements to be a significant additional burden, as they are already subject to comprehensive governance standards in their own jurisdiction.
Thank you again for the opportunity to respond to these proposed rules. Please do not hesitate to contact me if you require any further information or assistance regarding this matter.
Original Signed by Kelly Shaughnessy