For years, the big banks and Wall Street CEOs set the rules of the road and stacked the deck to guarantee themselves billions in bonuses, all at the expense of their investors. The Restoring American Financial Stability Act would give investors better protections, give shareholders more of a voice, and grant the SEC more authority. The bill would also provide tough new rules for transparency for credit rating agencies to protect investors and businesses.
Democrats are working to restore responsibility and accountability in our financial system to give American confidence that there is a system in place that works for them, not the banks. Transparency will help to prevent future meltdowns and give American investors and businesses access to the information they need to make financial decisions that work for them.
New Requirements and Oversight of Credit Rating Agencies
· New office, new focus at SEC: The bill would create an Office of Credit Ratings at the Securities Exchange Commission (SEC) with its own compliance staff and the authority to fine agencies. The SEC would be required to examine Nationally Recognized Statistical Ratings Organizations at least once a year and make key findings public.
· Disclosure: The bill would require Nationally Recognized Statistical Ratings Organizations to disclose their methodologies, their use of third parties for due diligence efforts, and their ratings track record.
· Independent information: The bill would require agencies to consider information in their ratings that come to their attention from a source other than the organizations being rated if they find it credible.
· Conflicts of interest: Compliance officers would be prohibited from working on ratings, methodologies, or sales.
· Encouraging whistleblowers: The bill would create a program within the SEC to encourage people to report securities violations, creating rewards of 10 to 30 percent of funds recovered for information provided.
· Liability: Investors would be allowed to bring private rights of action against ratings agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source.
· Right to deregister: The SEC would be authorized to deregister an agency for providing bad ratings over time.
Giving Shareholders a Say on Pay and Creating Greater Accountability
· Vote on executive pay: Shareholders would be given a say on pay with the right to a yearly non-binding vote on executive pay. This would provide shareholders a powerful opportunity to hold accountable executives of the companies they own, and a chance to disapprove where they see the kind of misguided incentive schemes that threatened individual companies and, in turn, the broader economy.
· Nominating directors: The SEC would be authorized to grant shareholders proxy access to nominate directors. And, Directors would have to win by a majority vote, even in uncontested elections.
· Independent compensation committees: As a condition of being listed on an exchange, a company’s compensation committee would be required to include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing.
· No compensation for misinformation: The bill would require public companies to set policies that would allow them to take back executive compensation if it was based on inaccurate financial statements that do not comply with accounting standards.
· SEC review: The bill would direct the SEC to clarify disclosures relating to compensation, including requiring companies to provide disclosure or charts that compare their executive compensation with stock performance over a five-year period.
Reducing Risks Posed by Asset-Backed Securities
· Skin in the game: The bill would require companies that sell products like mortgage-backed securities to retain at least five percent of the credit risk, unless the underlying loans meet standards that reduce riskiness.
· Better disclosure: The bill would require issuers to disclose more information about the underlying assets and to analyze the quality of the underlying assets.