2019

Reporting on climate risk increasing but still needs more financial impact analysis

Jun 05, 2019

On June 5, 2019, The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published a second status report providing an overview of the extent to which companies in their 2018 reports included information aligned with the core TCFD recommendations published in June 2017.

The TCFD surveyed disclosures of over 1,100 firms from diverse sectors with broad geographical representation (142 countries).

It found that: (i) disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors; (ii) more clarity is needed on the potential financial impact of climate-related issues on companies; (iii) of companies using scenarios, the majority do not disclose information on the resilience of their strategies; and (iv) mainstreaming climate-related issues requires the involvement of multiple functions.

The FSB has asked the TCFD to deliver another status report to the FSB in September 2020. The TCFD will undertake further work during the course of the next year to promote and monitor adoption of the TCFD recommended disclosures. It is also considering additional work to: (a) clarify elements of the TCFD’s supplemental guidance, (b) develop process guidance around how to introduce and conduct climate-related scenario analysis, and (c) identify business-relevant and accessible climate-related scenarios.

Please click for the press release and the status report on the FSB website.

SEC amends auditor independence rules related to loan provisions

Jun 18, 2019

On June 18, 2019, the Securities Exchange Commission (SEC) issued a final rule, “Auditor Independence with respect to Certain Loans or Debtor-Creditor Relationships.”

The final rule amends the auditor independence rules by refocusing “the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period.”

The final rule is effective 90 days after its publication in the Federal Register. For more information, see the press release and final rule on the SEC’s Web site.

SEC amends the single issuer exemption for broker-dealers

Jun 11, 2019

On June 11, 2019, the SEC issued a final rule, “Amend­ment to Single Issuer Ex­emp­tion for Bro­ker-Deal­ers.” The final rule clar­i­fies the scope of an ex­ist­ing ex­emp­tion under which a bro­ker-dealer is not re­quired to “engage an in­de­pen­dent public ac­coun­tant to certify the bro­ker-dealer’s annual reports filed with the Com­mis­sion if, among other things, the se­cu­ri­ties busi­ness of the bro­ker-dealer has been limited to acting as broker (agent) for a single issuer in so­lic­it­ing sub­scrip­tions for se­cu­ri­ties of that issuer.”

For more in­for­ma­tion, see the final rule on the SEC’s Web site.

SEC issues concept release on harmonizing securities offering exemptions

Jun 18, 2019

On June 18, 2019, the Securities Exchange Commission (SEC) issued for comment “Concept Release on Harmonization of Securities Offering Exemptions.”

The concept release seeks public comment on “several exemptions from registration under the Securities Act of 1933 that facilitate capital raising.” As a result of significant changes over the years to the overall framework for exempt offerings, the SEC is asking for feedback on “possible ways to simplify, harmonize, and improve [that] framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.”

Comments on the concept release should be submitted no later than 90 days after the document’s publication in the Federal Register. For more information, see the press release and concept release on the SEC’s Web site.

SEC issues new and amended requirements for security-based swap dealers and broker-dealers

Jun 21, 2019

On June 21, 2019, the Securities Exchange Commission (SEC) issued a final rule, “Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation Requirements for Broker-Dealers.”

According to the SEC’s press release, the final rule:

  • Establishes “minimum capital requirements for security-based swap dealers [SBSDs] and major security-based swap participants [MSBSPs] for which there is not a prudential regulator (nonbank SBSDs and MSBSPs). They also increase the minimum net capital requirements for broker-dealers that use internal models to compute net capital (ANC broker-dealers).  In addition, they establish capital requirements tailored to security-based swaps and swaps for broker-dealers that are not registered as an SBSD or MSBSP to the extent they trade these instruments.” 
  • Establishes “margin requirements for nonbank SBSDs and MSBSPs with respect to non-cleared security-based swaps.”
  • Establishes “segregation requirements for SBSDs and stand-alone broker-dealers for cleared and non-cleared security-based swaps.”
  • Amends “the Commission’s existing cross-border rule to provide a means to request substituted compliance with respect to the capital and margin requirements for foreign SBSDs and MSBSPs, and provide guidance discussing how the Commission will evaluate requests for substituted compliance.” 

For more information, see the press release and final rule on the SEC’s Web site.

Senator Rubio and colleagues propose legislation that could result in delisting Chinese companies from U.S. Exchanges

Jun 05, 2019

On June 5, 2019, U.S. Senators Marco Rubio (R-FL), Bob Menendez (D-NJ), Tom Cotton (R-AR) and Kirsten Gillibrand (D-NY) introduced the Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges Act (the Equitable Act), which would (i) increase oversight of Chinese and other foreign companies listed on American exchanges and (ii) delist firms that are out of compliance with U.S. regulators for a period of three years.

The Equitable Act would serve to resolve the longstanding conflict over the inability of the Public Company Oversight Board to examine the work of Chinese auditors that report on the financial statements of US listed Chinese companies.

There are presently over 156 Chinese companies traded on US exchanges with a market capitalization of over $1.2 trillion, including widely held Alibaba Group Holdings (NYSE: BABA).

The PCAOB has long been blocked by China from inspecting Chinese accounting firms (including the Chinese member firms of the Big Four).  China argues that allowing the US to enforce US laws on Chinese soil against Chinese persons violates its national sovereignty and risks disclosure of state secrets. US investors suffer because fraud prone Chinese companies are not subject to the same regulatory oversight as other companies that trade on US exchanges. 

The Rubio proposal is modelled after an earlier proposal by Representative Mike Conaway of Texas who introduced legislation late in the last session of Congress that effectively expired with the new Congress in January. 

The proposal effectively says that Chinese companies will be kicked off US exchanges in three years if a breakthrough in PCAOB inspections does not take place.

Re­view the press release on Senator Rubio’s web­site and a related posting to the China Accounting Blog.

Summary report on the EC consultation on updating the non-binding guidelines on non-financial reporting

Jun 12, 2019

On June 12, 2019, the European Com­mis­sion (EC) has published a report sum­mariz­ing the responses to the draft sup­ple­ment to its non-bind­ing guide­lines on non-fi­nan­cial reporting with specific reference to cli­mate-re­lated in­for­ma­tion.

In most cases the con­sul­ta­tion revealed a dif­fer­ence of opinion between on the one hand report preparers and on the other hand su­per­vi­sory and en­force­ment au­thor­i­ties and users of reported in­for­ma­tion. In general, preparers argued for fewer rec­om­mended dis­clo­sures, while non-gov­ern­men­tal or­gan­i­za­tions and su­per­vi­sory and en­force­ment au­thor­i­ties supported most of the proposals contained in the con­sul­ta­tion document and in some cases suggested that they be strength­ened in various ways. Investors and financial sector companies were generally sup­port­ive of the proposed dis­clo­sures as far as investee companies were concerned, but also argued that they them­selves would find it difficult to meet the ex­pec­ta­tions expressed in the con­sul­ta­tion document until dis­clo­sure by investee companies improved.

Please click to access the full report on the EC website.

Technology and Cyber Security Incident Reporting

Jan 30, 2019

In January 2019, the Office of the Superintendent of Financial Institutions (OSFI) released the advisory "Technology and Cyber Security Incident Reporting", which sets out OSFI’s expectations for federally regulated financial institutions (FRFIs) with respect to the reporting of technology and cyber security incidents affecting FRFI operations.

The advisory describes characteristics of incidents that should be reported to OSFI, in addition to initial notification and subsequent reporting requirements.

The advisory comes into effect on March 31, 2019.  In the meantime, FRFIs are expected to continue reporting any major incidents according to previous instructions communicated by their Lead Supervisors. Effective March 31, 2019, this Advisory supersedes any prior instructions for technology and cyber security incident reporting.

Review the press release and advisory on the OSFI's website.

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