Chairman Scott Garrett Opening Statement For Hearing Entitled "examining The Agenda Of Regulators Sros, And Standard-setters For Accounting, Auditing, And Municipal Securities"

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Capital Markets and Government-Sponsored Enterprises Subcommittee Chairman Scott Garrett (NJ-05) delivered the following remarks at a hearing entitled, "Examining the Agenda of Regulators SROs, and Standard-Setters for Accounting, Auditing, and Municipal Securities":

Congressman Scott Garrett's opening remarks as prepared for delivery:

For the last six years, one of the primary objectives of this Subcommittee -- and of the full Financial Services Committee -- has been to hold regulators and other governmental bodies accountable to the American public who, lest we forget, ultimately pay the cost and have to contend with rules and regulations issued by Washington

In the last three years, our Subcommittee has received testimony from the heads of a number of offices within the Securities and Exchange Commission, including our most recent hearing in April when we heard from the Chief Economist, Office of Compliance and Inspections, Office of Whistleblower, and the Office of Credit Ratings

These hearings have allowed our Committee take a deeper dive into the regulatory apparatus of agencies so that we can better understand their operations and agenda, and to ensure that they are actually carrying out their statutory missions

Today, I guess we have a bit of a regulatory "Noah's Ark" on the panel in terms of the breadth of issues we'll be able to cover between municipal securities regulation as well as accounting and auditing

I'm particularly pleased that we're able to hear from the PCAOB and FASB today -- it's been a little while since you have testified, and there are a number of areas within your jurisdictions that I think members will be interested in

In the time I have here, let me just highlight a few areas of particular interest I'm looking forward to hearing testimony about today

The first issue is related to enforcement

As members are aware, this Subcommittee has spent a great deal of time examining and criticizing the lack of due process protections that exist for respondents who are the subject of an administrative proceeding at the SEC and other agencies

There are few issues more important to Congress than upholding the rights of Americans to defend themselves when the government brings a charge against them

But in today's enforcement world -- there exists an anomaly in that proceedings initiated by the PCAOB are held in private, and are only made public if they are appealed to the SEC

This contrasts sharply with practices at the SEC or FINRA, where charges against an individual or a firm are made public as soon as they are brought

Even as someone who has long been concerned with government overreach, I can't bring myself to find a good reason for why an enforcement proceeding against an auditor should be treated any differently than a proceeding against a broker-dealer or an investment adviser

It seems that investors have a right to a certain level of transparency -- if an auditor of a company they're invested in has had a serious charge brought against them, that seems like important information

Certainly that auditor should be granted every right possible to defend themselves, but keeping a proceeding quiet makes our markets less transparent and is potentially harmful to investors

The second issue I'd like to discuss is somewhat related to the hearing this Subcommittee yesterday, where we discussed the topic of "materiality" in SEC filings

Companies make decisions on what to disclose based off the question of whether they are material to investors, and as we heard from our witnesses yesterday, the long-held definition of "materiality" has worked well and should not be changed

While it seems that the SEC and FASB are working towards a common definition that would provide certainty to preparers, issuers, and investors, what is less certain is the role that the PCAOB is playing and whether they are coordinating properly with both the SEC and FASB

The third issue -- and I don't think this will surprise anyone -- is cost-benefit analysis

This Committee has made cost-benefit analysis a top priority not just for regulators but for SROs and standard-setters as well

I understand that some of the organizations represented on our panel today have made efforts to improve economic analysis -- and I appreciate that

But the devil is always in the details -- so I'm looking forward to hearing how each of your organizations (or offices) incorporate cost-benefit analysis into either your rulemaking or standard setting.

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