UK & US: Financial Services Regulatory Reform

Reform of the regulatory framework for financial services is being considered in the UK and USA. In the UK, the Financial Services Authority has published the results of its internal review concerning the manner in which it regulated Northern Rock. This makes many recommendations for improving the way in which the FSA supervises firms. These recommendations are in addition to those being considered as part of the review of the way in which the tripartite authorities - the Bank of England, the FSA and Bank of England - cooperate to ensure financial stability.

In the US, SEC Chairman Cox has stated (in press release 2008-53, March 29):

"Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility. Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides. The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets".

Postscript (25 April 2008): The US Treasury's "Blueprint for a modernised financial regulatory structure" is available here.

Postscript (28 April 2008): The FSA has now published its internal report titled "The supervision of Northern Rock: A lessons learned review".

UK: Auditing Practices Board: ISA (UK and Ireland) 600 - "Using the Work of Another Auditor"

The APB has issued a revision of ISA (UK and Ireland) 600, 'Using the Work of Another Auditor', which will apply to audits of financial statements for periods commencing on or after 6 April 2008. According to the APB's press release:

"The main effect of the revision is to add a new requirement that in an audit of group financial statements the principal auditor should document any review that it undertakes, for the purpose of the group audit, of the audit work conducted by other auditors. This reflects a new requirement in Schedule 10, paragraph 10A, of the Companies Act 2006, implementing a provision of the European Statutory Audit Directive".

Morocco: New Corporate Governance Code

The Moroccan National Commission on Corporate Governance has recently published a Code of Good Corporate Governance Practices. A copy in English has been posted on the ECGI website (the French language version is, however, authoritative).

UK: Corporate governance, M&S style - an update

On March 10, Marks and Spencer announced that Sir Stuart Rose would become executive chairman. As noted in an earlier post, this announcement caused much disquiet amongst shareholders although M&S's largest institutional shareholder, Brandes Investment Partners, publicly announced its support. M&S has since taken the unusual step of writing to all of its shareholders in order to explain its proposals. The letter explains how M&S will further strengthen the company's corporate governance in order "to mitigate the governance concerns [the proposals] might otherwise engender":

(a) The proposed arrangements will apply only to July 2011.
(b) Two new executive directors and a new independent director will be appointed.
(c) Shareholders will have an annual vote on Sir Stuart's reappointment, starting in 2008.
(d) Appointing Sir David Michels, an independent director, to the post of Deputy Chairman.
(e) The duties of the Executive Chairman and Deputy Chairman will be clearly specified.

It is perhaps surprising that M&S felt the need to state point (e). Clearly specifying the duties of all directors should be the norm, regardless of the governance structure adopted.

The Netherlands: Phillips' AGM: Shareholders reject proposed bonus package

The Annual General Meeting of Royal Philips Electronics was held last week in Amsterdam. At the AGM, according to a report in the Financial Times:

For the first time in Dutch corporate governance history, a majority of shareholders objected to a proposal that would give directors of the consumer electronics giant share options even if the company underperformed. The executive bonus package was rejected by 57 per cent of the votes at the agm and received the strong backing of both the group's foreign investors as well as local Dutch shareholders.