Schapiro urges more risk-based oversight

In her first public speech since becoming chairman of the Securities and Exchange Commission, Mary Schapiro today said risk-based oversight of broker-dealers and investment advisers needs to be strengthened.
Speaking at the “SEC Speaks” conference in Washington, sponsored by the Practising Law Institute of New York, she listed initiatives she will take to try to restore confidence to the agency, which has been badly damaged by questions about not detecting massive fraud at Bernard L. Madoff Securities LLC of New York as well as not detecting problems connected with subprime-mortgage assets which led to the credit crisis.
Mr. Madoff has been reported to have cost investors as much as $50 billion in an alleged Ponzi scheme that could be the largest in history.
Highlighting initiatives she plans to pursue as priorities, Ms. Schapiro listed “strengthening risk-based oversight of broker-dealers and investment advisers, and improving the quality of audits for non-public broker-dealers, and promoting the safe and sound custody of customer assets by any broker-dealer or adviser.”
The quality of credit ratings must be improved “by addressing the inherent conflicts of interest credit-rating agencies face as a result of their compensation models, and limiting the impact of credit ratings on capital requirements of regulated financial institutions,” she said.
The SEC should reduce systemic risk in markets by promoting and regulating centralized clearing houses for credit default swaps, Ms. Schapiro said.
In addition, shareholders should have greater say on corporate boards and how executives are paid, she said. Ms. Schapiro announced steps she will take immediately to enable the SEC to move more quickly in enforcement cases.
She announced that this week, she is ending a two-year pilot program put in place by past SEC Chairman Christopher Cox under which enforcement staff had to get special approvals from the commission to impose civil penalties for public companies found to have engaged in securities fraud. Also, Ms. Schapiro is ending the prior practice of requiring investigations to be approved by all five commissioners.
“These special procedures have introduced significant delays into the process of bringing a corporate penalty case” and have sometimes resulted in reductions in penalties, she said.
The SEC will review the way it handles tips and whistle-lower complaints, and it will soon form an investor advisory committee representing both large institutional investors and small individual investors to “ensure that the commission hears firsthand about the issues most concerning to investors,” Ms. Schapiro said.