More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
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.