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14 May. 2010 | Comments (0)

If you have been following the debate on the financial regulatory reform bill in the Senate, [See Wall Street Journal coverage here.] you are probably starting to realize that change is coming. In the past two days alone, the Senate approved amendments that would remove the SEC certification of rating agencies and have the SEC create a self-regulatory body to assign credit rating agencies to assign initial ratings. If those actions aren’t proof that Congress is serious about following through on its promise to reform Wall Street to avoid another financial crisis like that of 2008-2009, then maybe you should take a look at the recent survey results released by KPMG LLP, the audit firm that operates Audit Committee Institute A separate survey commissioned by ACI also listed uncertainties of economic/legislative environments as a No. 1 concern among directors this year. [Read that report here.] Of the 126 C-level executives mostly from Fortune 1000 companies interviewed in March, 94 percent expressed a level of concern about the impact reform legislation could have on their business. One-quarter of them were “extremely” concerned. When asked to list their top three concerns the results were:
  • Cost of compliance (68 percent)
  • Government intervention in business (52 percent)
  • Difficulty planning while awaiting reform passage (42 percent)
“A perception among these top executives that reforms are potentially a net positive suggests an acceptance that the old rules are out and a new playbook is coming from Congress,” said Henry R. Keizer, vice chair- audit for KPMG LLP.  “It's likely this is an acknowledgement that some amount of regulatory reform is appropriate to further restore trust in the financial system.” The net positive that Keizer alludes to is the survey results that found executives believe the financial regulatory reform [See my April 29 blog post] would “help grow the economy” (50 percent) and would “help restore trust in the capital markets” (33 percent). Nearly half of respondents believe reform has the potential to be a “net positive” for their business depending on what form it takes. Also, among executives who identified themselves as “greatly concerned” about reform’s impact, 47 percent see it as a net positive. Interesting to note was the response to the question about whether the executives believed reform would reach beyond financial services. Ninety-two percent do not believe regulatory reform will stop with financial services.

Financial Reform Crystal Ball

With all that said, you’re probably wondering what the final version of the bill will look like after it is reconciled with the House package that passed back in December. Well, good thing that two partners in the banking practice of Ropes & Gray LLP (Mark V. Nuccio and Alan G. Priest) took the time to prognosticate on the main parts of the massive legislation. In an article on Boardmember.com, (Financial Reform Debate Begins in the Senate, May 10), Nuccio and Priest  list the top eight proposals in the financial reform legislation and give their forecast on passage of each. 1.)    Executive compensation and corporate governance: Forecast – Highly likely 2.)    Regulating the supersized: Forecast – Highly likely 3.)    Hedge fund adviser registration: Forecast – Highly likely 4.)    The “Volcker Rule (force banks to spin off proprietary trading business):” Forecast – Favorable 5.)    Consumer protection: Forecast – A lock 6.)    Costs shifting (no bailout fund): Forecast – Strengthening and government fund buffer eliminated 7.)    SEC self-funding: Forecast – Highly likely 8.)    Counterparty risk (derivatives regulation): Forecast – Increasing
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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