SEC adopts Dodd-Frank rule on clearing agency conflicts of interest

The rules, approved Thursday, establish governance requirements for all registered clearing agencies regarding board composition, independent directors, nominating committees, and risk management committees, the SEC said in a press release. Clearing agencies must also implement new policies and procedures to reduce the likelihood that conflicts of interest might influence the board of directors.

The regulations were called for under Section 765 of Dodd-Frank. In the past month, the SEC has adopted other Dodd-Frank rules for short sale data transparency and mandating security-based swap execution facilities register with the agency.

The new rules for clearing agencies “promote board independence, consider the views of relevant stakeholders, and reduce the potential for conflicts of interest with respect to the board and senior management,” said SEC Chair Gary Gensler in a statement.

Republican SEC Commissioner Mark Uyeda, in a supporting statement, lauded changes the agency made to the final rules based on comments, including regarding timing of risk management committee evaluations and amending language to clarify the board’s function is oversight, not direct management.

The SEC also extended its proposed compliance date. The final rules must be complied with 12 months after publication in the Federal Register, not including independence requirements for the board and board committees that carry a 24-month deadline.

The SEC’s second Republican commissioner, Hester Peirce, dissented, saying in a statement the rule “micromanages clearing agency governance in a way that is likely to divert board attention from key issues by focusing it instead on an amorphous set of stakeholders.”

The SEC earlier this year proposed other rule changes designed to enhance the risk management responsibilities and resilience of covered clearing agencies.