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State Board Report

May 2014

Who is setting standards has become one of the themes addressed by SEC Commissioner Daniel Gallagher in his recent public addresses. Speaking to the International Institute for Market Development on April 16 he questioned forcing nations to accept a unitary set of regulatory standards created by international bodies and on March 27 he told Tulane University’s Corporate Law Institute he took issue with third parties attempting to determine what should be in corporate filings. NASBA’s Standards Study Group will discuss these issues at the Regional Meetings.

While Commissioner Gallagher said it is wise to leverage relationships with regulators in other countries in order to avoid duplicative or contradictory regulations among jurisdictions, he added: “This does not, however, mean engaging in the type of so-called ‘regulatory harmonization’ that has come to mean a top-down, forcible imposition of one-size-fits-all regulatory standards on sovereign nations. ‘Harmonization,’ unfortunately, has become a euphemism for forcing nations to accept a unitary set of regulatory standards created by international bodies such as the Group of Twenty, the Financial Stability Board, and the International Organization of Securities Commissions. To be blunt, it is the height of regulatory hubris to assume that not only is there a single regulatory solution to a problem, but that simply by banding together in international forums, we imperfect regulators can find that perfect solution.”

The SEC’s authority to prescribe standards for corporate filings was stressed by Commissioner Gallagher in his March 27 presentation: “The somewhat confusingly-named Sustainability Accounting Standards Board provides a good example of an outside party attempting to prescribe disclosure standards. I say ‘confusingly-named’ because the SASB does not actually promulgate accounting standards, nor does it limit itself to sustainability topics, although I suppose it is in fact a Board. The SASB argues that its disclosure standards elicit material information that management should assess for inclusion in companies’ periodic filings with the commission. I don’t mean to single out the SASB, but it’s important to stress that, with the sole exception of financial accounting – where the Commission, as authorized by Congress, has recognized the standards of the Financial Accounting Standards Board as generally accepted, and therefore required under Regulation S X – the Commission does not and should not delegate to outside, non-governmental bodies the responsibility for setting disclosure requirements. So while companies are free to make whatever disclosures they choose on their own, so to speak, it is important to remember that groups like SASB have no role in the establishment of mandated disclosure requirements.”

On May 1 the SASB announced Former SEC Chairman Mary Schapiro will serve as vice chair of the SASB’s Board of Directors. The SASB describes itself as an independent organization that establishes and maintains industry-specific standards for use in disclosing material sustainability issues in annual filings to the SEC and it is “accredited to set standards by the American National Standards Institute.”

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