Community banks appeal for SOX relief

WASHINGTON, DC – The American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) have asked the Securities and Exchange Commission (SEC) to relieve small public community banks from the burdensome requirements of Section 404 of the Sarbanes-Oxley Act (SOX).

Testifying to the SEC Committee on smaller companies at a public hearing held at the Columbia Law School in New York, the banking trade organisations said internal control requirements were too expensive for community banks, which are already under extensive regulation by other federal agencies. They said banks with less than $1 billion in assets should not be subject to the Securities and Exchange Act and SOX.

"Publicly held community banks with less than $1 billion in assets should be exempt from Section 404 requirements. Banks have been subject to the internal control attestation requirements of the Federal Deposit Insurance Improvement Act (FDICIA) since 1991.

"Those [FDICIA] requirements exempt banks with assets of less than $500 million because federal banking regulators recognise that internal control reporting and attestation requirements for community banks would be unduly burdensome, particularly since these banks are subject to the full scope of banking laws and regulations. The banks are already required to have an adequate internal control structure in place, and are subject to regular safety and soundness examinations," said William Loving, chief executive of Pendleton County Bank, who testified on behalf of ICBA.

"Not only are they burdensome, many of the new SOX disclosure requirements are unnecessary for smaller companies and provide few benefits to investors. To stay current, our shareholders do not need the kind of instantaneous access to information that an institutional investor may need for a Fortune 500 company," he said.

Generally, the SEC requires companies with over $10 million in assets and over 500 shareholders to register as a public company with the Commission, as required by the Securities and Exchange Act. Once registered by the SEC, a public company is subject to all reporting requirements, including those under SOX.

ICBA recommended that the 500-shareholder requirement be increased to 3,000 and increase the de-registration threshold from 300 shareholders to 1,800 shareholders to reflect the increased size of companies.

Daniel Blanton, testifying on behalf of the ABA, said if community bankers do not get some relief from Section 404 requirements, they will have to reduce community investments.

"The SEC should consider the amount of regulation and verification already done by other federal agencies. The burden to comply with Section 404 was unbelievable in our banks, with some having staff work for 20 hours a day. We think the call reports we file quarterly are a significant disclosure that should be taken into account by the SEC. Moreover, call report filing is being improved so that banks' call reports will be available to investors immediately," said Blanton, who is also chief executive of Georgia Bank Financial Corporation. OpRisk

Correction: In last month's technical feature (pp28–34), figure 5 was missing. We are reproducing it below. Apologies for the error. Please go to www.operationalriskonline.com to see the rectified feature in full.