April 21, 2008

Postponed: SEC Open Meeting on XBRL Proposals

Late last Friday, the SEC issued a notice postponing the Open Meeting previously scheduled for this morning. Now, the SEC will consider the use of interactive data in financial statements filed by public companies on May 14th at 10:00 a.m. Even with the postponement, the Staff will still meet its “Spring” deadline to have these proposals considered by the SEC, with expected adoption of implementing rules and a timetable still likely this Fall.

I can’t recall the last time an Open Meeting for a rule proposal was postponed on the business day before the meeting – generally I think that is a pretty extraordinary action. Perhaps the proposals were not quite “ready for prime time.”

Now that the Open Meeting has been moved to May, we are rescheduling our webcast – “XBRL: Understanding the New Frontier” – to July 16th.

Paulson Blueprint: An Orphaned Public Company Regulatory Function

One thing that struck me when reading the Treasury Department’s “Blueprint for a Modernized Financial Regulatory Structure” was that in the long term plans for financial regulation, the SEC’s current responsibilities over corporate disclosure, corporate governance, accounting and similar issues would be left behind in a “corporate finance regulator,” rather than being swallowed up into the Conduct of Business Regulatory Agency (“CBRA”) where most of the SEC’s other functions will go. [When naming this proposed new regulator, the drafters of the Blueprint obviously didn’t think too long and hard about the acronym they were creating, because usually reference to an undergarment in a new agency’s name is to be avoided.] This approach appears to be necessitated by the CBRA’s focus on financial services – the markets and financial intermediaries like brokers, investment advisers and mutual funds – rather than the reason for the existence of all those intermediaries, namely capital-raising for companies and liquidity for their shareholders. Under the Treasury proposals, the “legacy” SEC would continue to perform the function of corporate finance regulator in the optimal regulatory structure (perhaps just called the SC then, since exchanges would be regulated by the CBRA).

While the chances of these long-term proposals coming to fruition may be slim to none at this point, I still think that it is particularly troubling that corporate finance regulation is treated as an afterthought in the Blueprint, only five and half years after corporate governance, disclosure and accounting was front and center following enactment of the Sarbanes-Oxley Act. The proposals are short-sighted in that they largely ignore the fact that issues with respect to corporate finance are often integrally related to the financial services that the SEC regulates, and setting corporate finance regulation off in a tiny, orphaned agency that doesn’t have a “seat at the table” of the proposed “Big Three” regulators is doomed to failure.

To add further insult to injury, the proposals suggest that the Federal Reserve, in consultation with the corporate finance regulator, should be able to mandate additional public disclosures for federally chartered financial institutions that are publicly traded or part of a publicly traded company. The Treasury contemplates that such public disclosures could be included as a separate section of public reports, or embedded within an existing section such as Management’s Discussion and Analysis.

Hopefully, as the Treasury proposals and legislative proposals are hashed out over the next several years, the long term regulatory structure will be crafted around some solid principles of regulatory cooperation that focus on the “big picture,” rather than just regulating for the scandal du jour.

Securities Act Offering Integration

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– Dave Lynn