2021 Q1 Newsletter
- The SOX Pro Group is joining the upcoming webinar Baking Flexibility into SOX Planning on Thursday, March 18 at 2:00 p.m. ET
- Change is coming to the SEC, read how Gary Gensler could impact the SEC
- We highlight SOX Pro Group member and Executive Advisor Tim Bogan
Buckle Up—Change is Coming
How Gary Gensler could impact the SEC
After an afternoon of committee hearings, the U.S. Senate Committee on Banking, Housing, and Urban Affairs voted to confirm Gary Gensler as chairman of the U.S. Securities and Exchange Commission (SEC).
The final step is a vote by the full Senate, which is expected in the next few weeks.
The real action in Gensler’s confirmation process was during the Senate Banking Committee hearings. As Senate confirmation hearings go, this one was pretty tame. Yet it was a Senate hearing, and there was no shortage of posturing while lawmakers probed Gensler for his views about the limits and opportunities of the SEC’s regulatory power. In his opening remarks, Gensler said, “The SEC does its job best when there are clear rules of the road and a cop on the beat to enforce them.”
Gensler is a prominent MIT professor, and a finance and policy expert who is known as a tough regulator. He earned that reputation as the Chairman of the U.S. Commodity Futures Trading Commission (2009–2014), a small, underfunded backwater that oversaw the $35 trillion commodity market. This didn’t stop Gensler from going up against Wall Street to rein in the highly lucrative, but lightly regulated, financial derivatives market. Credit default swaps were at the center of the 2008 global financial markets meltdown, which was cleverly captured in The Big Short by Michael Lewis. After Congress passed the Dodd-Frank Act, Gensler’s CFTC wrote 68 new rules and expanded its regulatory reach to include the $400 trillion swaps market.
Under Gensler you can anticipate an active rule-making agenda, especially in the areas of Environmental, Social, and Governance (ESG) disclosure and cryptocurrency. The SEC may reverse some Clayton-era regulations, and refocus enforcement action on corporate issuers.
We shouldn’t assume that Gensler will burn down the house in order to rebuild it. During the confirmation hearing, Gensler repeated his position many times: “I will be grounded in materiality,” he told the confirmation committee. “Investors make the choice about what’s material.”
With this in mind, consider how well-prepared you are for change in these areas:
The pressure is mounting for the SEC to mandate ESG disclosure.
The Biden Administration is likely to use everything it can to advance its climate agenda and social justice agenda, including leaning on the regulatory power of the SEC.
The Biden Administration isn’t alone in calling for ESG disclosures in SEC filings. The SEC is a decade behind Europe, where ESG disclosure is mandatory. The agency received more than 3,000 comment letters that objected to The Modernization of the S-K Act because it did not include climate risk and diversity disclosures, and SEC Commissioners Allison Herren Lee and Caroline Crenshaw voted against the new rules for the same reason.
Already, the SEC has sent a clear signal that some kind of environmental disclosure rule is coming. A week before Gensler’s Senate confirmation hearing, Acting SEC Chair Allison Herren Lee dropped a small grenade and announced that the agency is taking action to update its 2010 guidelines about how publicly traded companies should disclose climate change-related risks.
In response to investors' calls for more transparency about their environmental impact, many companies already disclose more than the SEC requires. If your company isn’t there yet, get ready. Some starting points include The SEC Institute, a source for hands-on accounting workshops; the Sustainability Accounting Standards Board (SASB), a leader in standardized disclosures by industry; and national sponsor Workiva has developed tools to streamline and integrate ESG reporting.
You can count on the SEC to unwind some principles-based rules.
Under Jay Clayton, the SEC moved toward principles-based disclosure. Like many things in life, some of the new rules make sense on paper, but some—like the human capital resource disclosure—have left SEC filers scratching their heads about how to implement them. During confirmation, Gensler signaled a preference for “...clear rules of the road.” It’s possible that the SEC will unwind various principles-based rules implemented during the last Administration. It’s likely that the SEC will approve rules calling for more detailed company disclosures.
Where the SEC goes, the PCAOB follows.
We should also expect the PCAOB’s agenda to reflect SEC priorities. At the very least, a new administration and new leadership at the SEC could reinvigorate the PCAOB and its audit enforcement mandate. An easy win for the PCAOB would be to reverse its late 2020 rule change that diluted auditor independence requirements.
A change in enforcement priorities could impact SOX.
Under Jay Clayton, the SEC recovered a record-breaking amount in penalties and financial remedies, mostly by enforcing regulations on Wall Street and protecting the retail investor. Meanwhile, the House passed The 8-K Trading Gap bill and it’s currently under consideration in the Senate. It’s possible that a Gensler-led SEC will refocus enforcement on insider trading, which has fallen dramatically in the last 10 years, as well as refocus on corporate issuer reporting, audit, and accounting.
Your next steps? This might be the time to brush up on Rule 10b-5 and to partner with your general counsel and take a closer look at your company’s 8-K processes.
Gensler will deal with important issues in trading technology, digital assets, and cryptocurrency.
Gensler’s confirmation hearing came on the heels of Congressional hearings into the market volatility created by retail investors, the Robinhood app, and the company GameStop.
Gary Gensler is the guy you want to study the intersection of rapidly innovating markets, the technologies that enable them, and to update market oversight accordingly. He is an important influencer in fintech and is respected by the major players in the cryptocurrency industry. As a professor in the MIT Sloan School of Management, Gensler teaches about blockchain and digital currencies, conducts research, and writes about the policy implications of fintech innovation. He sits on the New York Federal Reserve’s Fintech Advisory Council and testifies before Congress about digital currency policymaking and regulation.
During the confirmation hearing, Gensler agreed with senators that market oversight needs to be updated, and that “market oversight should be technology-neutral, and stay true to the core of the SEC’s mission.”
He also has signaled his willingness to address the regulatory issues brewing in cryptocurrency. “If we think the crypto world is going to be part of the future, it needs to come inside of public policy envelope,” Gensler said in a 2018 Bloomberg interview. “Regulatory clarity and greater oversight could lead to greater mainstream adoption.”
Member Spotlight: Tim Bogan
This series spotlights SOX Pro members, their career paths, and some fun facts about them.
Name: Tim Bogan
Company: LendingClub (NYSE: LC)
Title: My current title is Chief Banking Integration Officer (we acquired Radius Bank in early February). Formerly, I was Chief Risk Officer.
How long at your current company: Almost seven years—which is an eternity in the fintech world
I was inspired to go into accounting & finance because I like problem-solving and this field is all about how best to solve business problems. I have been in this field over 30 years now, and I selected my major in college like most people did at that time: Pick something, and if you don’t like it, change your major. I selected the first major on the list, which was in alphabetical order, and accounting was at the top. Although, I was very close to selecting astronomy, which was number two on the list! Who knew then that I would grow to love this field? Occasionally, I look up at the stars at night, and I am grateful that I didn’t pick astronomy. I am terrible at finding the North Star.
What is your favorite part of your job?
I work with all areas of the company, including our Board. I have had four positions at LendingClub, each of them because of my accounting and finance background. I am a CPA and that has given me additional career mobility. I have been our Chief Audit Executive, Chief Compliance Officer, Chief Risk Officer, and my current role is to integrate the bank we just purchased. I love the ability to fill different roles. I also am fortunate that I have had many mentors at my firm. No matter what your level of seniority, I realize that having a mentor and being a mentor are wonderful gifts.
How has COVID-19 impacted your company and role?
Like many companies, we have been working remotely for almost a year now and hope to start returning people to the office later this year. We purchased Radius Bank during this COVID period, and had to work remotely with that company and the banking regulators. It was interesting to see how the regulators all use different video tools (some use Zoom, some use WebEx, and some use Microsoft Teams). It was also interesting to see how working remotely can be done effectively for almost all positions, something that we did not think possible when we ran our Business Continuity Planning scenarios back in 2019. Most importantly, COVID has helped many companies and many people realize they are resilient, and this will be important as we transition back to a post-COVID business environment.
What influences or inspirations have helped you in life and in work?
I have a great family that has always supported me and my career goals. That solid foundation is quite important for those that are just starting their careers. I am getting close to retiring so my focus is how to help that next generation of colleagues.
If I wasn't working in SOX, you might find me...
I lived in Hawaii. PwC transferred me there early in my career. So you will find me running along the beach…aloha!
How has the SOX Pro Group helped you professionally?
I have been involved with the SOX Pro Group since basically the beginning. It has evolved and expanded as our field has evolved and expanded. I find the dialogue amongst the members the most helpful, as it helps put into perspective the challenges we all face.
Who would you swap places with for a day and why?
My dog Leia! She has the best life. She gets up late, eats breakfast, and then spends the day at the dog park with her dog walker and then sleeps for a few hours. I want that life!
Hometown: Westfield, Massachusetts
Undergrad alma mater: Boston College
First job as a teen: Flipping pizzas at Papa Gino’s until they decided that I was better suited to bussing tables.
Favorite food: Pizza, of course!
Last book I read: I wish it was something thought-provoking, but it is actually a book on gardening. Here in California, we have amazing weather, and I am determined to get a great vegetable garden this year. The book is The $64 Tomato and its message is that it’s cheaper and less stressful to go to the supermarket to buy your veggies!
Last show I binge-watched: The Queen's Gambit. I have never played chess and find the mathematical aspect of the game really interesting.
2021 State of the SOX & Internal Controls Market Survey
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Baking Flexibility into SOX Planning
Learn how SOX teams can become more agile to a changing scope of risk, what items to consider in their 2021 SOX plan, and how technology can be leveraged to iron out bumps along the way.
Forum Question of the Month
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Amplify Event Series: Audit, Risk, & Compliance Day
Join peers from across the globe on April 27 for a one-day event on Risk Agility—Made Simple, presented by Workiva. Each session is designed specifically for risk and compliance professionals.
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