SEC chair tackles U.S. credit crisis, IFRS and much more.

• Author: Heffes, Ellen M.
• Position: ACCOUNTING - United States. Securities and Exchange Commission - Interview

When he leaves office--presumably by or before next June, when his term expires--Christopher Cox will be one of the longest-serving chairmen of the U.S. Securities and Exchange Commission. The average tenure of a chairman is two years; he'll have served for nearly four, if he makes it to next June.

In the Q&A that follows, Financial Executive Editor-in-Chief Ellen M. Heffes spoke with Cox in early September about some of the commission's activities during his term and his role generally. She then went back to him closer to press time for an update about the SEC's activities related to the U.S. credit-market crisis.

Q What role is the SEC playing and what do you see for the SEC in the current market turmoil and credit crisis?

Cox: Our role is to protect investors and maintain orderly markets in this crisis. Above all in the current turmoil, the markets and investors need transparency.

Market participants have had a great deal of difficulty in assessing and pricing risk throughout the credit crisis. Illiquid instruments that were recently rated AAA for credit quality, off-balance sheet vehicles that obscured risks, and uncertainty about mortgage-related asset prices in the current environment have worsened the problems that were initially created by poor lending standards and inadequate loan documentation and disclosure.

We have worked on a number of front to improve transparency, including using our new authority under the Credit Rating Agency Reform Act. The commission's proposed new rules governing every aspect of the credit rating agencies' disclosures and monitoring of its [the agencies'] conflicts of interest will be finalized very soon--as soon as the law allows.

The [SEC] Division of Corporation Finance has worked to broaden disclosure by financial institutions, including discussion and analysis by management, particularly with respect to off-balance sheet arrangements and hard-to-value assets.

These additional disclosures are useful to investors who need to understand in real time the financial position of the companies they own.

We have also worked on the accounting front, both in the United States--with the Financial Accounting Standards Board--and with our overseas regulatory counterparts, to deal with such issues as consolidation of off-balance sheet liabilities and the application of fair value standards in the current market turmoil. We have, on several recent occasions, provided real-time guidance to deal with issues such as the accounting treatment of bank support for money market funds.

We have been working in close cooperation with the Commodities Futures Trading Commission and the Federal Reserve to strengthen the over-the-counter derivatives infrastructure, including clearance and settlement, and the establishment of a central counterparty. These markets must be made more transparent and less vulnerable to failures in confidence in the event of financial difficulties at a major financial institution.

Q What resources are the SEC devoting to these efforts?

Cox: First and foremost, of course, the SEC is a law-enforcement agency, and we have devoted an extraordinary level of enforcement resources to hold accountable those whose violations of the law have contributed to the subprime crisis and the loss of confidence in our markets.

We have over 50 pending law-enforcement investigations in the subprime area. Our Office of Compliance Inspections and Examinations...