Home -> Law Blog Directory -> Corporate & Securities Law Blogs -> Institutional Shareholder Services -- Corporate Governance Blog

Corporate & Securities Law

: Institutional Shareholder Services -- Corporate Governance Blog

Obama Unveils Regulatory ReformsSubmitted by: Ted Allen, Publications

President Barack Obama today unveiled a series of proposals as part of a ?sweeping overhaul? of the U.S. financial regulatory system.

While the administration did not go far as some market observers had expected, the president?s proposals would significantly expand the authority of the Securities and Exchange Commission and other regulators.

The proposals, many of which require Congressional approval, include giving the Federal Reserve more authority to oversee bank holding companies and non-bank firms, the creation of a new Financial Services Oversight Council to identify emerging systemic risks, and the establishment of a new Consumer Financial Protection Agency to regulate mortgages and other financial products.

To reduce risks to the financial system, ?large, interconnected? financial firms identified as ?Tier 1 financial holding companies? would be subject ?to more stringent capital, activities, and liquidity standards, and more exacting prudential supervision,? according to a White House summary of the proposals.

The president also called for requiring hedge fund advisers to register with the SEC and for ?comprehensive regulation? of all over-the-counter derivatives, including credit default swaps. Originators of securitized products would be required to retain a 5 percent stake.

The White House also said the SEC should ?continue its efforts to tighten the regulation of credit rating agencies? and ?ensure that firms have robust policies and procedures that manage and disclose conflicts of interest.?

The administration did not propose to combine the SEC and the Commodity Futures Trading Commission (CFTC), as some agency officials had endorsed. However, the administration did direct the two agencies to prepare a report by Sept. 30 with their recommendations to Congress on harmonizing their regulation of similar financial instruments.

Recalling the role that short-term incentives and other compensation practices played in causing the global financial crisis, the White House highlighted several principles and reforms that were announced by the Treasury Department on June 10. ?Executive compensation--unmoored from long-term performance or even reality--rewarded recklessness rather than responsibility,? the president said in his speech today.

?Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value and to prevent compensation practices from providing incentives that could threaten the safety and soundness of supervised institutions,? the White House said in its regulatory reform report.

The administration reiterated its support for ?say on pay? legislation to require public companies to offer an annual non-binding vote on the compensation for senior executives. ?While such votes are non-binding, they provide a strong message to management and boards and serve to support a culture of performance, transparency, and accountability in executive compensation,? the White House noted.

The Obama administration again said it would support legislation to enhance the independence and authority of compensation committees.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on June 17, 2009 (boomark / email).