Promoting Transparency in Financial Reporting Act of 2007

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 6513) to amend the Federal securities laws to enhance the effectiveness of the Securities and Exchange Commission's enforcement, corporation finance, trading and markets, investment management, and examination programs, and for other purposes, as amended.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks on this legislation and insert extraneous material thereon.

Mr. Speaker, I yield myself such time as I may consume.

(Mr. KANJORSKI asked and was given permission to revise and extend his remarks.)

Mr. Speaker, I rise today in support of H.R. 6513, the Securities Act of 2008.

This commonsense legislation enjoys broad bipartisan support. H.R. 6513 will also better protect investors, promote greater confidence in our capital markets at a crucial time, as investor anxieties persist because of this ongoing financial turmoil.

Additionally, H.R. 6513 increases the effectiveness of the Securities and Exchange Commission by strengthening its enforcement authority.

The current economic woes have once again highlighted the need for the Congress to vest regulators with the authority they need to keep markets balanced and their participants honest. The Securities Act of 2008 thus provides the commission with many of the important regulatory tools that it has sought as part of its annual authorization requests in recent years.

In particular, the commission's enforcement program will benefit greatly from the provisions authorizing the nationwide service of subpoenas and the imposition of collateral bars. These provisions respectively will allow the commission to allocate its funds more efficiently and prevent bad actors from re-entering other parts of the industry.

Securities Exchange Chairman Cox has expressed a letter of his support for this legislation to implement the commission's recommendations. Chairman Cox has also commended the Financial Services Committee's bipartisan leadership in developing this bill. The North American Securities Administrators Association has also endorsed this bill by noting that now is the time to strengthen securities regulation, given what has happened on Wall Street in recent years.

In addition to updating the Federal securities laws by making numerous technical corrections, this bill improves investor protection in at least three other ways.

First, it provides greater clarity about the commission's authority to impose sanctions on and seek remedies from individuals who violated the law but who are no longer associated with a regulated entity.

Second, the bill conforms the language of the law to existing interpretations about when unlawful margin lending occurs.

Third, this bill helps investors by extending the insurance provided by the Securities Investor Protection Corporation to securities futures held within their portfolio. As a result, this bill enhances the competitiveness of the U.S. markets by advancing portfolio-based margining for the customers of broker-dealers.

Capital flows to the most efficient markets, and because most financially developed countries allow this risk-based, investor protection hedging practice, the U.S. equity markets simply must keep pace to compete in today's global economy by allowing it as well.

As per my earlier unanimous consent request, I am inserting in the Congressional Record a more detailed statement about these three important investor protection measures in order to provide greater legislative history on them.

Before closing, I should note that previously the House has unanimously passed during the 110th Congress several of the provisions contained in this larger reform package. Moreover, this bill has strong bipartisan support, and my colleagues on both sides of the aisle therefore deserve tremendous credit for working together on this legislation. In particular, the gentleman from New York (Mr. Meeks), the gentleman from Illinois (Mr. Roskam), the gentleman from Kentucky (Mr. Davis), and the gentleman from California (Mr. Campbell) have worked diligently on many of these provisions in this bill. I appreciate their prior efforts and their support as cosponsors of this larger legislative package.

The chairman, Mr. Frank, and the ranking member, Mr. Bachus, of the Financial Services Committee, in addition to my ranking member (Ms. Pryce) on the Capital Markets Subcommittee all support this bill.

Our cooperative effort on this bill illustrates that good policy can emerge from this body when ideology and partisanship yield to practicality and the common good.

I would just like to comment that that sentence represents the career, to some extent, of Ms. Pryce. Ms. Pryce is joining us on the floor today, possibly for the last time in her congressional career. She has been my chairman and my ranking member as my career through Congress has occurred. Deborah knows that when I first heard of her intentions to retire, I was greatly saddened, because this body will be losing an individual on either side of the aisle who has been most cooperative, most nonpartisan, and most productive as a legislator of anyone I can remember in my years here in this body.

I wish her well in her retirement. I know it will only be a retirement in terms of leaving the Congress, not leaving active, productive, and contributing life in another form in Ohio or somewhere else. But we will miss you on the committee, on the subcommittee, and in this Congress, Ms. Pryce.

In sum, I urge all my colleagues to vote ``yes'' on H.R. 6513.

Mr. Speaker, I rise today to express further support for the Securities Act of 2008, to explain why this legislation confirms certain existing authorities of the Securities and Exchange Commission, and to provide for the legislative history some background on the facts that informed the drafting of this bill.

In regard to section 3 on Formerly Associated Persons in H.R. 6513, many provisions of the Federal securities laws that authorize the sanctioning of a person who engages in misconduct while associated with a regulated or supervised entity explicitly provide that such

authority exists even if the person is no longer associated with that entity.

Several provisions, however, do not explicitly address this issue, although the intent of earlier Congresses appears to have been that the Securities and Exchange Commission had such authority, and no contrary statutory language or legislative history exists. In fact, the Congress has earlier amended several statutory provisions to ratify and confirm the authority of the Commission to discipline a person formerly associated with a regulated entity for conduct while an associated person, but it did not express intent to provide such authority only for those provisions being amended.

To build on these previous efforts, section 3 of H.R. 6513 amends additional provisions of the securities laws that do not explicitly address this issue. These changes confirm that the Commission may sanction or discipline persons who engage in misconduct while associated with a regulated or supervised entity, even if they are no longer associated with that entity. Accordingly, the amendments would not alter or expand the Commission's current authority. They would only ratify and confirm it.

As a general rule, it is the intent of the Congress that the securities laws, including but not limited to those provisions amended by this section, apply to and provide meaningful remedies for sanctioning persons who engage in misconduct while associated with a regulated or supervised entity, even if the person is no longer associated with that entity.

Also, the Capital Markets Efficiency Act of 1996 inter alia exempted from Federal margin requirements, adopted under section 7 of the Securities Exchange Act of 1934, credit extended, maintained, or arranged to or for a member of a national securities exchange or registered broker-dealer under certain circumstances. In the portion of section 7 that was not substantively amended by the Capital Markets Efficiency Act, the word ``and'' was inserted, which could be read to mean that margin lending would be unlawful only if both elements of the pre-existing prohibitions were violated, when prior to the Capital Markets Efficiency Act violation of either prong was sufficient to make such margin lending unlawful.

Specifically, the first prong, section 7(c)(1)(A), states that margin lending is unlawful if done in contravention of the Federal Reserve Board's rules, and the second prong, section 7(c)(1)(B), states that margin lending is unlawful without collateral or on any collateral other than securities, except in accordance with the Federal Reserve Board's rules. The proposed change would clarify that a violation of either prong remains sufficient to establish a cause of action for improper margin lending. This technical drafting amendment contained in section 7 of H.R. 6513 conforms the statutory language of section 7 of the Exchange Act to existing interpretations that provide that the two clauses represent independent requirements.

Additionally, section 8 of H.R. 6513 would amend the Securities Investor Protection Act of 1970 to extend Securities Investor Protection Corporation insurance to futures positions held in a portfolio margining account under a program approved by the Commission. In paragraph (b)(2)(B)(iii) of this section, the word ``such'' refers to those securities positions described in paragraphs (b)(2)(A) and (b)(2)(B)(ii). The purpose of paragraph (b)(2)(B)(iii) is to extend protection to any person who has a claim against the debtor arising out of sales or conversions of securities described in either paragraph. Any claims for security futures under this section are claims for cash and not for a ``security.'' In addition, ``security futures contract'' as used in this section has the same meaning as ``security future'' as defined in 15 USC 78111 (14).

With this additional legislative history in mind, I will vote for this bill. I urge my colleagues to do the same.

I reserve the balance of my time.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise today in support of H.R. 755, the Promoting Transparency in Financial Reporting Act. And I also would like to thank the gentleman from Georgia for his hard work on this bill. We started nearly 18 months ago, and it is, I think, a true credit to bipartisanship in a way that it is going to help the American people, help small business, and ultimately help to create jobs and give people the opportunity to see clearly into the operation of the financial markets.

In the post-Enron financial era, transparent reporting has become an increasingly important component of promoting a healthy corporate environment. Financially stable and accountable corporations are essential for expanding the U.S. business sector, promoting investor confidence, and strengthening the economy.

However, it is important to examine ways in which such accountability and reporting standards can become both more efficient and more transparent. A cumbersome, costly system will only reduce our competitiveness in a connected world economy and ultimately cost us jobs.

I regularly hear complaints from business owners and executives in Kentucky about the costs and complexities of financial reporting requirements mandated by the Federal Government. As a former small business consultant, I know firsthand the difficulties faced during the time-consuming and costly processes of accounting and financial disclosure. Unfortunately, financial reporting remains an arduous task with too many opportunities for error and for manipulation. Reassessing outdated accounting standards and improving the ability of the average investor to understand and utilize financial documents are essential to the livelihood of American business and the protection of America's investors.

Requiring annual congressional testimony by the Securities and Exchange Commission, the Financial Accounting Standards Board, and the Public Company Accounting Oversight Board stresses that simplification, cost reduction, and transparency in accounting standards and financial reporting are public priorities. H.R. 755 will help hold the SEC, FASB, and PCAOB, as well as Congress, accountable for making progress on these important issues. H.R. 755 will give Congress a way to measure progress on the efforts of these organizations over the next 5 years and ensure they are working to streamline and to modernize the process of financial reporting.

As stated in the bill, we would like to direct attention to several areas of interest: first, we would like to reassess outdated and complex accounting standards; improve the understandability, consistency, and overall usability of the existing accounting and auditing literature; develop principles-based accounting standards; and encourage the use and acceptance of interactive data or extensible business reporting language, also known as XBRL; and, finally, to promote disclosures in plain English. I think it would be great ultimately for investors not to need a CPA and a lawyer to understand their own financial statements or the reports that they receive from companies they invest in.

H.R. 755 isn't intended to imply that these organizations have yet to move towards these goals. In fact, there are many examples of progress already. Each organization has already taken strides to improve financial reporting and the implementation of the Sarbanes-Oxley Act, and I applaud these efforts.

For example, in December, 2006, PCAOB proposed new standards for auditing of internal controls designed to focus auditors on the most important issues. The proposed standards eliminate unnecessary audit requirements and, most importantly, provide guidance on how to adjust the audit for a smaller, less complex company. I appreciate the willingness of the PCAOB to respond to feedback from Congress and the investment community.

Another example is the SEC's encouragement of the use of interactive data. Interactive data uses ``tags'' for key facts in financial statements so investors can quickly extract and analyze information in an easily understandable format. The SEC recently announced the expansion of the voluntary test program, which already includes two dozen companies representing more than $1 trillion of market value. Participating companies are rewarded with expedited reviews of SEC filings. In turn, the test group will help the SEC to decide how interactive data can be of most use to investors. These kinds of public and private partnerships will ultimately serve the American people best and keep our markets robust and strong.

Many have criticized the burden and cost of Sarbanes-Oxley, and particularly section 404, on small public companies. It is critical that we strike the right balance between requiring financial reporting to bolster investor confidence and keeping our markets open to both domestic and foreign investment. H.R. 755 will help Congress maintain an active and essential role in this balancing act.

Modernizing reporting processes, increasing transparency, and reducing the costs of financial reporting will help ease the regulatory burden on businesses and strengthen the ability of individual investors to make educated financial decisions. To quote SEC Chairman Chris Cox, this process is going to be ``a long one, but it is worth it to make sure that the capital markets remain strong and vibrant.''

The Promoting Transparency in Financial Reporting Act will hold the SEC, FASB, and PCAOB, as well as Congress, accountable for making progress on these important issues.

Let's pass this bill as a first step towards creating a process for continuous improvement that will simplify our financial reporting regulatory framework.

I would like to thank in particular Ranking Member Bachus, Chairman Frank, and Chairman Kanjorski for their support and my friend from Georgia for his hard work on this to bring this to the floor now.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 755) to require annual oral testimony before the Financial Services Committee of the Chairperson or a designee of the Chairperson of the Securities and Exchange Commission, the Financial Accounting Standards Board, and the Public Company Accounting Oversight Board, relating to their efforts to promote transparency in financial reporting.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks on this legislation and to insert extraneous material therein.

Mr. Speaker, I rise in support of H.R. 755, and I yield myself such time as I may consume.

(Mr. SCOTT of Georgia asked and was given permission to revise and extend his remarks.)

Mr. Speaker, this Promoting Transparency in Financial Reporting Act is a bipartisan bill that the House considered last year and passed on a voice vote. The legislation, however, failed to become law during the 109th Congress; and as a result, we now must consider these matters anew in the 110th Congress.

H.R. 755 has a simple premise, Mr. Speaker. For the next 5 years, it would require annual testimony before the House Financial Services Committee by those entities most involved in establishing and implementing our Nation's financial reporting system. These parties include the Securities and Exchange Commission, the Financial Accounting Standards Board, and the Public Company Accounting Oversight Board.

Since the 1930s, the Securities and Exchange Commission has required public companies to file financial reports like income statements and balance sheets. Today, companies also rely on the generally accepted accounting principles developed by the Financial Accounting Standards Board to prepare these reporting documents. This independent accounting standard-setter came into existence in the 1970s. The tidal wave of accounting scandals at the start of this decade led Congress to reassess our Nation's financial reporting system and adopt further reforms in the Sarbanes-Oxley Act. Among other things, this landmark law created the Public Company Accounting Oversight Board. This body establishes the auditing standards used to examine public company accounting statements. It also registers and inspects the auditors of public companies.

Even without this legislation, the Financial Services Committee is already working to examine accounting and auditing issues and the work of each of these parties. Earlier this month we approved an oversight plan for the 110th Congress. Several of the action items in that plan address accounting issues. For example, the oversight plan calls for the committee to review the efforts of the Financial Accounting Standards Board to improve financial accounting standards. It also calls for us to study the progress being made on establishing international accounting standards. The plan further calls for the committee to examine the work of the Public Company Accounting Oversight Board as it implements the auditing improvements made by the Sarbanes-Oxley Act. This legislation, therefore, builds on what we had already planned to do in the 110th Congress and what other sessions of Congress should plan to do.

These proposed annual hearings over the next 5 years will help us to reassess complex accounting standards. It will help us improve the understandability of financial statements, and it will encourage the acceptance of interactive data. Even though it seems highly likely that the parties subject to this legislation would testify before the Financial Services Committee on these matters if asked, this bill will make certain that the committee remains focused on these important issues in the immediate future.

In addition, the adoption of H.R. 755 will help to encourage our regulators and standard-setters to fulfill their own roles and initiatives to achieve greater transparency, promote greater uniformity, and reduce complexity in financial reporting not only at home but also around the world.

In recent years, our financial reporting standards have become more and more complex and complicated, especially as we have sought to address more difficult issues like the accounting treatment of derivatives and hedging instruments. This complexity has created difficulties not only for the companies that operate in the United States or that access our capital markets but also the investors and advisers who read and use financial statements.

For our Nation to remain competitive, we need to have robust capital markets. For our capital markets to be strong, we need to have transparent, clear, and understandable financial reporting. We also need to ensure that the entities responsible for accounting and auditing issues continue to work smoothly together. H.R. 755 will help us to stay focused on achieving these important and desirable goals.

In conclusion, Mr. Speaker, I want to commend the hard work of the gentleman from Kentucky (Mr. Davis), who is the primary sponsor on this bill. And I want to commend Mr. Davis for introducing this measure, and I am proud to work with him as the lead cosponsor over these last years. And, hopefully, this time will be the charm.

This bill is aimed at ensuring that individuals have access to the information that they truly need to make better investment decisions. And I urge support for H.R. 755.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

This is, as we mentioned, a very important bill that will certainly increase the confidence of the American people in our financial systems and make it smoother and with less complexity.

And I want to also thank the leadership of the Financial Services Committee, Chairmen Barney Frank and Kanjorski, for their excellent leadership on this very, very important and timely issue. And, again, I want to commend the hard work of my colleague Mr. Davis in providing leadership on this.

Mr. Speaker, I have no further requests for time, and I yield back the balance of my time.

I yield myself such time as I may consume.

Please let me begin by thanking my chairman for those very, very kind, overly kind remarks. I will miss working with him and on this committee. It has been a wonderful experience for me, and working in a bipartisan, nonpartisan way with Chairman Kanjorski and others on the committee has been an experience that I will always value. So, thank you, sir.

Mr. Speaker, I rise in support of H.R. 6513, the Securities Act of 2008. This legislation before us today is a commonsense, bipartisan bill developed by Chairman Kanjorski, Chairman Frank, Ranking Member Bachus, and myself.

The bill enhances investor protection, capital market competitiveness, makes the SEC a more effective agency, and the legislation makes our regulation and standards setter, the SEC, more accountable to the capital markets.

H.R. 6513 would enact components of the Securities and Exchange Commission's legislative requests submitted to Congress in both 2007 and 2008. The bill also amends the Securities Investor Protection Act, or SIPA, to allow investors to hold all equity-related positions in a single portfolio margin account. The SIPA amendment creates a clear pathway for regulators to follow in order to realize the state-of-the- art portfolio-based margining system for customers of broker-dealers.

The SIPA amendment would enhance the competitiveness of U.S. markets and eliminate inefficiencies in our current regulatory regime that put U.S. firms and customers at a competitive disadvantage internationally.

Mr. Speaker, this bill also includes bills passed by the House last year under suspension, including H.R. 755, introduced by Representative Geoff Davis, benefiting investors by increasing the usability of financial reports and ensuring that financial regulators are committed to meaningful and clear disclosures; H.R. 2868, by Representatives Meeks and Fossella, allowing U.S. exchanges to create listing tiers for smaller companies. This is a welcome tool to promote our capital markets as well as attract and retain investment capital in the United States. And H.R. 3505, by Representative Peter Roskam, which makes technical corrections to the Federal securities laws, making sure our securities laws are unambiguous, grammatically correct, and current.

The SEC endorsed this legislation, as did the North American Securities Administrators Association and a large coalition of U.S. exchanges. In this time of tumult in our marketplaces in this country and elsewhere, it is appropriate legislation.

In closing, Mr. Speaker, I want to thank Kevin Edgar, Todd Harper, and Jason Pitcock from the Capital Market Subcommittee staff; Peter Roberson, Deborah Silberman, and Lawranne Stewart from Chairman Frank's staff for all their hard work on this legislation, as well as Peter Freeman from my staff.

I urge my colleagues to support the Securities Act of 2008. I thank the chairman once again for his kind words.

I yield back the balance of my time.

Mr. Speaker, I object to the vote on the ground that a quorum is not present and make the point of order that a quorum is not present.

Mr. Speaker, I rise in support of H.R. 755, Promoting Transparency in Financial Reporting Act of 2007.

H.R. 755 is a simple, but important measure. It requires the Securities and Exchange Commission, the Financial Accounting Standards Board, and the Public Company Accounting Board to provide annual testimony by their respective chairpersons or designees of the chairperson starting next year and for five subsequent years to the Committee on Financial Services on their efforts to reduce the complexity of financial reporting to provide a more accurate and clear financial information to investors, including:

Reassessing complex and outdated accounting standards; improving the understandability, consistency, and overall usability of the existing accounting and auditing literature; developing principles-based accounting standards; encouraging the use and acceptance of interactive data; and promoting disclosures in plain English.

In view of the different accounting standards being used in the private sector and government, it is clear that we need to have information that is reliable and credible. Financial information that does not meet rigorous and acceptable standards sends the wrong signals to investors as well as to the public about the real the financial condition of a business.

As we have witnessed over the past several years, the quality of financial information can make the difference between the true value of a company and what the public perceives to be its condition. H.R. 755 is an important first step towards making sure that the information being reported to investors and to the public is believable. As such, I ask my colleagues to join me in supporting this bill.