More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
The Securities and Exchange Commission (SEC) approved Wednesday a rule that directs national securities exchanges to adopt listing standards for public company boards of directors and compensation advisors.
The new rule, required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires exchange listing standards to address:
- The independence of the members on a compensation committee;
- The committee’s authority to retain compensation advisors;
- The committee’s consideration of the independence of any compensation advisers; and
- The committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation advisor.
Once an exchange’s new listing standards are in effect, a listed company must meet the standards in order for its shares to continue trading on that exchange, the SEC says.
“This rule will help to enhance the board’s decision-making process on executive compensation matters, particularly the selection, engagement and oversight of compensation advisors, and will provide more transparency with respect to conflicts of interest of consultants engaged by boards,” said SEC Chairman Mary Schapiro, in a statement.
Section 952 of Dodd-Frank requires the SEC to direct the exchanges to adopt certain “listing standards” relating to the independence of the members on a compensation committee, the committee’s authority to retain compensation advisors, and the committee’s responsibility for the appointment, compensation and work of any compensation adviser.
The SEC says it also amended its proxy disclosure rules to require new disclosures from companies about their use of compensation consultants and conflicts of interest.
The new rule and amendments will take effect 30 days after publication in the Federal Register. As the SEC explains, no later than 90 days after effectiveness, each exchange that lists equity securities must propose listing standards that comply with the new rule. The new listing standards must be approved by the Commission within one year of the new rule becoming effective.