TheCorporateCounsel.net

On Friday, Corp Fin posted an updated “Financial Reporting Manual” to include a new section — Topic 4: Independent Accountants’ Involvement — as well as other changes. So it looks like the Staff has finished its overhaul of what used to be called the “Accounting Training Manual,” a process that commenced at the end of ’08.

Yes, the PDF version of the Manual still bears that legend “For Division of Corporation Finance Staff Use Only” and includes a disclaimer about the informal nature as guidance, even though the SEC now makes the Manual publicly available. But the HTML version does not…

Deutsche Bank’s Internal Investigation: Shareholder Engagement, Austin Powers Style

Recently, it has been reported that Deutsche Bank is conducting an internal investigation regarding potential improper surveillance (see the articles in the WSJ and NY Times). What caught my eye was that an activist shareholder appeared on the list of “targets.”

Allegedly, DB hired private investigators to pose as vacationers renting the shareholder’s house in order to spy on him. This raises some important questions: What are the ethical obligations of a company? Is this an isolated or widespread problem? Are corporate-shareholder hostilities on the rise? Did the investigators get their rental deposit back?

In his IR Café, Dick Johnson provides analysis about the ethical implications of this type of investigation. Here is an excerpt:

My point on ethics and personal responsibility is this: In the heat of battle, when the company is under attack and the world looks like “Us vs. Them,” be careful. Go back to your core principles: telling the truth, obeying the law, treating others as you would want to be treated, whatever convictions shape your outlook on life. Seek guidance in places like the NIRI Code of Ethics: Although codes won’t offer a specific rule for something like hiring a private eye, they do provide principles.

And consider how any action you take might appear in the harsh light of public disclosure a year or two later. Your responsibility to decide on your actions isn’t erased because you’re part of a larger corporate staff. Taking a stand just might save the company from serious reputational damage. And, down the road, it might keep you out of a headline that says “… Fires Two in (Whatever) Probe.”

The United Kingdom’s Financial Services Authority: Death Row?

In the US, the Securities & Exchange Commission has been under fire for its role in the financial crisis. I count the SEC Chair as having testified on the Hill four times in just the past two weeks alone. But I don’t think abolishing the SEC is really on the table. Compare that with the potenial fate of the UK’s Financial Services Authority (just as the FSA is pushing harder). Here is some commentary from Neil Macleod of Fried Frank:

On 20 July, the opposition Conservative Party, which is currently viewed as likely to win the next UK election (which must be held by next June), and so likely to form the next government, published its proposals to reform the structure of UK financial regulation.

The most striking proposal is that Conservatives will abolish the Financial Services Authority (the “FSA”) and the current tripartite structure under which regulatory responsibilities are divided between the Treasury, the Bank of England and the FSA. At the same time, they will increase the powers of the Bank of England. The Bank will be responsible for macro-prudential regulation – i.e., monitoring and controlling risks to the financial system as a whole. The regulation of all banks, building societies and other significant institutions, including insurance companies, will also be transferred to the Bank. Many of the remaining functions presently exercised by the FSA will be transferred to a new Consumer Protection Agency.

The reasoning behind these proposals is that the Conservatives view the FSA as having failed to identify or prevent the problems in the UK banking system. They also consider that there was a failure in the coordination between the tripartite authorities, and that there was a lack of effective procedures to deal with failing banks.

The Conservatives therefore propose that any institution whose regulation requires prudential judgment will be regulated by the Bank of England. Those small firms such as insurance and mortgage brokers, stockbrokers and small asset managers whose regulation is not mainly concerned with prudential judgment, but primarily concerned with protecting consumers, will be overseen by the new Consumer Protection Agency.

The Conservatives have said that they will consult on which regulatory authority should take on the FSA’s various other responsibilities, including markets and securities regulation, the registration of individuals and the FSA’s listing authority responsibilities.

The reaction to the proposals has been mixed. Whilst many have welcomed the idea of transferring banking regulation back to the Bank of England, others have pointed out the disruption that these proposals are likely to bring to the industry. There is also concern that the FSA will become a lame duck regulator if it is widely viewed as being likely to be abolished.

– Broc Romanek