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Regulatory, Sarbanes-Oxley compliance reform is coming

It seems that there is much discontent among our leaders in Washington over the state of regulatory compliance, in particular Sarbanes-Oxley compliance, and of risk management in general. Associate Editor Alexander Howard spent a few days in Washington last week and heard from many of those leaders.

They included former SEC Chairman Harvey Pitt; FINRA president and CEO Richard Ketchum; current SEC Commissioner Luis A. Aguilar; Deputy Attorney General Dave Ogden, and former Deputy Attorney General Paul McNulty.

What they had to say was anything but upbeat. There was no backslapping or self-congratulation, as perhaps one would expect of a gathering of lawmakers, regulators and auditors, such as there was at the Compliance Week 2009 conference last week. What they had to say was simple: Regulatory and Sarbanes-Oxley (SOX) compliance is broken, and we need to fix it.

Pitt, the former SEC chairman who oversaw much of the implementation of SOX, said the bill was too reactionary and not well enough thought out. “SOX was hastily and badly drafted,” he said. “If SOX was really effective, would we have seen the subprime crisis in corporate America?”

Many companies embraced SOX not only as a means to compliance, but also to create efficiencies in reporting that could actually generate some return on investment. However, Pitt said, “I believe it’s generally ineffective. Lawyers and companies approach SOX with a ‘check the box’ mentality. Success requires that you get behind the requirements, understand why they’re there and implement the concept, not the literal words.”

FINRA’s Ketchum and the SEC’s Aguilar are both calling for regulatory reform, especially of financial services. “The real problem is that we didn’t have anyone willing to exercise existing authority to look deeply into questionable industry practices — and to just say no when needed,” Aguilar said. “Instead, we seemed to have had decision makers that weakened regulators and otherwise fostered ‘unregulated’ markets.”

Obviously this means that more regulations — and stricter regulations — are coming. Deputy Attorney General Ogden said that prosecuting financial crimes aggressively will receive “renewed emphasis in months ahead.”

Though it could be viewed as “too much” regulation, there is an opportunity to get it right this time, and craft regulations that are tough but fair, and that do not leave U.S. businesses spending all their time in compliance mode.

What would you do? Write me at

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