CCH Financial Reform News Center

PCAOB Standing Advisory Group to Discuss Audits of Brokers under Dodd-Frank Act

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

As a sign of the coming rulemakings at financial regulators if the Dodd-Frank Wall Street Reform and Consumer Protection Act becomes law, the Public Company Accounting Oversight Board (PCAOB) has announced that its Standing Advisory Group (SAG) will meet July 15, 2010 to consider, among other things, the auditing standards that the PCAOB will need to adopt in order to handle audits of broker-dealers, as mandated by the Dodd-Frank Act. To begin this process, the PCAOB Office of Chief Auditor issued a Briefing Paper on Broker-Dealer Audit Considerations http://pcaobus.org/News/Events/Documents/07152010_SAGMeeting/Broker_Dealer.pdf) for the SAG meeting. The Dodd-Frank Act has passed the House of Representatives, but the Senate will not consider the Act until at least July 12, 2010.

Supreme Court Rejects Tenure Provisions of PCAOB

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The Supreme Court ruled 5 to 4 on June 28, 2010, that the tenure provisions of the Public Company Accounting Oversight Board (PCAOB), which was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002, are incompatible with the Constitution’s separation of powers.

PCAOB Internal Report Reveals Significant Challenges to International Inspections Program

This story appeared in Jim Hamilton's World of Securities Regulation.

An internal report transmitted to the SEC reveals that the PCAOB’s international inspections program faces significant challenges, including accountability, delays in conducting inspections, and inconsistent documentation. These challenges were compounded by widely-reported audit failures outside the U.S., coupled with internal concerns regarding the manner in which international inspections were being performed, causing the Board to reassess its non-U.S. inspection program. The report was prepared by the Board's Office of Internal Oversight and Performance Assurance.

House Passed Legislation Bringing Auditors of Brokerage Firms with Purview of PCAOB; Enhancing Foreign Regulatory Information Sharing

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Closing a statutory loophole revealed by the Madoff scandal, the House has passed legislation authorizes the PCAOB to flexibly examine the auditors of broker-dealers. Thus, the Wall Street Forum and Consumer Protection Act, HR 4173, would bring auditors of broker-dealers under the PCAOB oversight regime. The Board can inspect the auditors of broker-dealer financial statements; and will have investigatory, examination and enforcement authority over the auditors of broker-dealers. In addition, brokers and dealers would be brought into the Board’s funding scheme by paying a fee allocation in proportion to their net capital compared to the total net capital of all brokers and dealers that are not issuers, in accordance with the rules of the Board. The Act also authorizes the Board to refer an investigation concerning a broker or dealer’s audit report to the relevant self-regulatory organization. Moreover, the Board is authorized to share with the SRO all information and documents received in connection with an investigation or inspection without breaching its confidential status.

SEC Enhances Proxy Disclosure, Adviser Custody Rules

This story appeared in Jim Hamilton's World of Securities Regulation.

The SEC adopted rule and form changes intended to enhance the information provided in proxy solicitations and in other forms filed with the SEC. Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made. In addition, the SEC adopted rule changes designed to substantially increase the protections for investors who turn their money and securities over to investment advisers.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

Supreme Court Oral Argument in PCAOB Case Centers on SEC Control of the Board and Presidential Removal Powers

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Supreme Court oral arguments in the case deciding the PCAOB’s constitutionality focused on the SEC’s pervasive control over the Board and the President’s control over the SEC. The case, brought by an audit firm, is before the Court on a grant of certiorari of a split panel ruling of the DC Circuit Court of Appeals that the PCAOB’s creation was constitutional because, under the Appointments Clause of the Constitution, Board Members are inferior officers of the United States who do not have to be appointed by the President and can be appointed by the SEC, as is currently required by Sarbanes-Oxley. (Free Enterprise Fund and Beckstead & Watts v. PCAOB, Dkt. No. 08-861).

House and Senate Draft Legislation Would Expand PCAOB Jurisdiction

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The Madoff fraud revealed that the Public Company Accounting Oversight Board lacked the power it needed to examine the auditors of non-public broker-dealers. House and Senate draft legislation would close this loophole and bring the auditors of non-public broker-dealers under the PCAOB oversight regime. The legislation would thus provide the Board with authority over the auditors of all brokers-dealers, not just the auditors of public broker-dealers, who would have 180 days to register with the PCAOB.

House Financial Services Committee Passes Legislation Reforming SEC, PCAOB and SIPC Oversight

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The House Financial Services Committee has passed legislation reforming the SEC to strengthen its powers, better protect investors, and efficiently and effectively regulate the securities markets. The failures to detect the Madoff and Stanford Financial frauds demonstrated deep deficiencies in the existing securities regulatory structure. The Act doubles the authorized funding for the SEC over the next five years and provides dozens of new enforcement powers and regulatory authorities. Thus, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police the markets. The Investor Protection Act, HR 3817, also authorizes the SEC to collect user fees from advisers to cover the costs of compliance examinations and investigations.

House Leader Circulates Draft of SEC Reform and Investor Protection Legislation

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Draft legislation that would impose a uniform fiduciary standard on brokers and advisers, eliminate mandatory arbitration of brokerage disputes, and enhance the SEC’s authority to impose sanctions on and seek remedies from individuals who violated the securities laws but who are no longer associated with a regulated firm has been circulated by Rep. Paul Kanjorski, Chair of the House Subcommittee on Capital Markets. Broadly, the legislation would enhance investor protection, strengthen capital market competitiveness, make the SEC a more effective agency, and make the PCAOB and the SEC more accountable to the capital markets