The Financial Crisis Inquiry Commission issued its report on the financial crisis. The report details the findings of the Commission regarding the causes of the crisis. The Commission was not charged by congress with making recommendations for legislation.
The overall conclusions of the Inquiry Commission are:
- The crisis was avoidable
- Widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets
- A combination of excessive borrowing, risky investment, and lack of transparency put the financial system on a collision course with crisis
- The government was ill-prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets
- There was a systemic breakdown in accountability and ethics
- Mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis
- Over-the-counter derivatives contributed significantly to this crisis
- The failures of credit rating agencies were essential cogs in the wheel of financial destruction
The SEC continued to issue rules to implement Dodd-Frank this week. These include:
- Say-on-Pay: The Commission adopted rules regarding shareholder approval of executive compensation and golden parachute compensation arrangements. Under these rules companies will be required to specify that say-on-pay votes will occur at lest every three years. They will also be required to hold a “frequency” vote at least every six years to permit shareholder to decide how often they want to be presented with the say-on-pay vote. Additional disclosures will also be required regarding “golden parachute” compensation.
- Accredited investors: The SEC proposed rules for the adoption of new standards for accredited investors which would exclude the value of the investor’s primary residence in determining net worth.
- Disclosure by private funds: The Commission proposed rules which would require a registered investment adviser who manages one or more private funds to periodically furnish certain information which would remain confidential. The information is for use by the Financial Stability Oversight Council in monitoring risk to the U.S. financial system.
The Commission also released a staff Study Recommending a Uniform Fiduciary Stand of Conduct for Broker-Dealers and Investment Advisers. The study proposes that the standard be at least as stringent as the current standard for investment advisers under the Advisers Act. Commissioners Kathleen Casey and Torey Paredes opposed the release of the study arguing it does not fulfill the statutory mandate of Section 913 of Dodd-Frank which requires it to evaluate the effectiveness of existing legal and regulatory standards on this subject.