Tuesday, November 18, 2008

SEC Chairman Speaks at FEI Conf. on Future Of Int’l Standards, Cooperation

In a keynote address at FEI’s Current Financial Reporting Issues Conference earlier today, SEC Chairman Christopher Cox spoke of the future of international standards – including SEC’s recently released proposed roadmap on International Financial Reporting Standards – and highlighted other aspects of international regulatory cooperation. Some things Cox reviewed were familiar, including the principles the SEC will rely on to decide whether to permit – or require – U.S. companies to file financial reports with the SEC in IFRS instead of U.S. GAAP, and the scale of international cooperation on enforcement matters.

One major new point I do not believe Cox has stated previously concerned his views on international regulation vs. international cooperation. [NOTE: BNA's Malina Manickavasagam points out in an article Nov. 19 that Cox had previously commented on IOSCO's role in a Nov. 8 2007 speech at an IOSCO conference.] His remarks at the FEI conference were timely in light of the recently completed G-20 economic summit, in which it had been reported prior to the summit (but not formally recommended during the summit) that some countries were in favor of forming a global or supranational regulator, particularly in light of the global financial market crisis. (See U.S. Does Not Support a Global Crisis Regulator by Mark Landler in the Nov. 6 NYT.)
Cox told the FEI conference: “My experience over the last three years in the leadership of the International Organization of Securities Commissions has convinced me of both the value of close international consultation and the inadvisability of IOSCO's becoming a global securities regulator.”

Drawing a distinction between convergence of regulations vs. one single regulatory body, he noted, “Securities regulations can and should be converged to a far higher degree than we have already attained. But it is unrealistic to think we could or should make them identical, because of differences in national laws, economic conditions, and objectives. These differences are healthy and normal. It is entirely reasonable for a nation to view its responsibility to its own citizens and markets as paramount. The Securities and Exchange Commission is responsible for the protection of American investors, and it will never compromise that mission. Nor should any other national regulator. One of the reasons for the remarkable success of IOSCO is that it understands this very well.”

He added: “There is yet another reason that global consultative bodies should not aspire to become global regulators. As we have learned to our misfortune time and again, international agencies often are forced to regulate to the lowest common denominator. Of necessity, they must yield to the average rather than the highest standards of their members in order to achieve consensus. Worse, the tensions that every national regulator is bound to reconcile — of factions and stakeholders, not to mention of parliaments, legislatures, and executive authorities — are multiplied a hundredfold in international bodies. These are concerns that should be considered seriously before assigning the function of global systemic risk “czar” or any similar responsibility to an international body.”

Cox commented on the important role of the U.S.: “While the United States has some obvious and correctable regulatory gaps, we have also set the highest regulatory standards for our markets of any country on earth. We should use the power of those markets to help raise world standards — which is the aim of our nascent mutual recognition initiative. The flight to quality that is currently underway is but the latest reminder that in the long run, countries can only win the global competition for capital by protecting investors with stronger, more transparent markets. It is not mere coincidence that the world's largest capital market, by far, also has the world's highest standards.”

FEI was honored to have Chairman Cox speak at our 27th annual CFRI conference, and members of the SEC staff (Chief Accountant Conrad Hewitt, Deputy Chief Accountant Jim Kroeker, Corp Fin Director John White), IASB Chairman Sir David Tweedie, FASB Chairman Robert Herz and members of FASB staff (Technical Director Russell Golden, Project Director Pat Donoghue and Valuation Fellow Kristofer Anderson), and many other distinguished speakers. See also the interview of Chairman Cox by Executive Editor Ellen M. Heffes in this month's issue of Financial Executive Magazine: SEC Chair Tackles U.S. Credit Crisis, IFRS and Much More. NOTE: If you are not an FEI member you will be prompted to create a free online login account to read articles in our magazine.

I hope to provide additional highlights from the conference later this week, meantime check out the reporting done by Francine McKenna, author of the Re:The Auditors blog, and if you have a subscription to BNA, see the articles by Steve Burkholder IASB, FASB Heads Stress Need for BoardsTo Cooperate During Current Global Crisis and Denise Lugo Controllers Say No to Adopting IFRSWithout More Accounting Convergence. In CFO.com, see IFRS Requires a Soft Touch by Marie Leone, Wrinkles in the IFRS Roadmap by Sarah Johnson and David McCann, and SEC: IFRS Early Adoption Will Cost $32 Million by Sarah Johnson and Marie Leone. NOTE: In a session I attended at the FEI conference yesterday, panel moderator Eric Smith of Credit Suisse noted his company estimated it would cost $200 million and take 18 months to implement IFRS in the U.S.

Additional reporting from the conference can be found in SEC’s Cox Urges Global Regulators to Cooperate More by Emily Chasan of Reuters, and SEC Publishes IFRS Roadmap by Michael Cohn in WebCPA. (If I see links to other publications I will add them to this post or a future post.)
I was excited to finally meet McKenna (having gotten to know her virtually through our blogs); pictured with me here (below) at the FEI conference are Re: The Auditor's Francine McKenna on the left and BNA Managing Editor Susan Webster on the right.

Cox concluded his remarks today: “No organization more than FEI has better understood the imperatives of the global capital markets. Your work in recent months, both as an organization, and individually in your many professional capacities, has made it crystal clear that you understand the dangers of taking a parochial view of the markets and our economies. And your leadership in working toward clear and consistent international standards for financial reporting has made you valuable allies of the SEC. As we continue our important work of protecting investors, maintaining fair and orderly markets, and promoting capital formation, we are proud to have you as our partners.”

We hope you like the FEI blog’s new and improved format. We have also expanded our blogroll on the right to provide you with more resources, and we are now a member of the Forbes Business and Finance Blog Network. As always, we welcome your comments on the blog, either by posting them, or if you prefer a less public dialogue (or to get on our email list) send an email (request) to: blogs@financialexecutives.org.

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