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House committee approves bills tightening proxy firm regulation, SEC cost assessment

The House Financial Services Committee on Thursday passed separate bills that would tighten regulation of proxy-voting advisory firms and require the Securities and Exchange Commission to assess costs and benefits of its proposed regulations.

HR 5311 — the Corporate Governance Reform and Transparency Act passed by a 41-18 vote. HR 5429 — the SEC Regulatory Accountability Act passed by a 34-25 vote.

The two bills now go to the full House for a vote, which hasn't been scheduled, said Sarah Rozier, the committee's communications director, who provided the vote tallies.

HR 5311 would require proxy-advisory firms to “to permit companies receiving proxy advisory firm recommendations access in a reasonable time” to comment on them “to the person(s) responsible for developing the recommendation,” the bill states.

Among other provisions, the bill would require the proxy advisory firms to “employ an ombudsman to receive complaints about the accuracy of voting information used in making recommendations” and resolve complaints “prior to voting on the matter to which the recommendation relates.”

HR 5429 would require the SEC “to asses the costs and benefits, both qualitative and quantitative, of intended regulations and propose or adopt regulation only on a reasonable determination that the benefits on the intended regulation justify the costs of the regulation,” the bill states.

The Council of Institutional Investors opposes both bills.

Kenneth A. Bertsch, CII executive director, said in a statement the bills “would undermine critical U.S. investor protections.”

“HR 5311 would impose onerous requirements on proxy advisers that could weaken public company corporate governance and the fiduciary duty of proxy advisers to investor clients.” In particular, Mr. Bertsch noted, “giving companies the right to review and seek changes in proxy-adviser reports could chill the independence of proxy advisers and unduly delay their reports.”

HR 5429 “would shackle” the SEC “by requiring it to review thousands of rules on a regular basis,” the CII statement said. “While such reviews sound reasonable,” Mr. Bertsch said, “they would soak up resources the SEC needs to ensure fair, transparent and healthy financial markets, and paralyze the SEC's rulemaking capacity.”