September 30, 2016

Settling Trades: SEC Proposes T+2!

On Wednesday, the SEC proposed shortening the standard settlement cycle for most market transactions from 3 business days after the trade date to just two – known as “T+2” (here’s the 148-page proposing release). A significant number of European countries already use T+2 – & the SEC’s Investor Advisory Committee is already clamoring for T+1!

Technology keeps enabling further reductions in the settlement cycle. I remember back in the day when moving off of “T+5” was a big deal…

More on “Auditor Independence: SEC Settles 1st Violation Caused By Personal Relationships”

Last week, I blogged about the SEC’s first enforcement action against an auditor – EY – for auditor independence violations due to personal relationships. This blog by Davis Polk’s Ning Chiu raises the question about how this impacts the clients of the auditor (also see this blog). Here’s an excerpt:

EY’s policies require that activities with clients to include a “valid business purpose” with expectations that “meaningful business discussions” will take place and forbade gifts or hospitality that are beyond what is customary. The SEC, however, still faulted the audit firm for ignoring various red flags, such as the fact that two senior EY partners noted back in 2012 that the coordinating partner’s expense spending was double that of the next highest individual but did not investigate, and there was no follow-up responses to the issuer’s questions about the expenses it was billed in 2014.

EY already had policies and procedures assessing their employees’ independence from audit clients, which included training and certification and addressed possible familial, employment and financial relationships that are expressly prohibited under SEC rules. As part of the remedial efforts from both cases, additional procedures have been instituted that will require the audit firm’s engagement team members to ask management of an issuer whether they are aware of any “close relationships” between members of the audit engagement team and any individuals employed by “or associated with” the issuer.

Also note the SEC’s Enforcement Director – Andrew Ceresney – recently gave this speech on auditors & auditing.

Auditor Independence: PwC Settle $5 Billion Lawsuit

Speaking of auditor independence, Francine McKenna has been writing about the $5 billion lawsuit against PwC that was settled recently. Here’s an excerpt from this blog:

Right now I’d like to take an opportunity to document some interesting information about how the financial side of the firms, in this case PwC, works. Because the TBW v. PwC case went to trial, and a verdict could have included an assessment of punitive damages, we witnessed a highly illuminating series of motions and partial disclosures about PwC’s finances and how they manage them. This kind of information has not been made public by any Big 4 firm in a potential “tipping point” case for at least thirty years.

Broc Romanek