S. 3055: Corporate Governance Fairness Act

This bill, titled the Corporate Governance Fairness Act, proposes amendments to the Investment Advisers Act of 1940 in order to regulate proxy advisory firms, which provide analysis and recommendations for proxy voting to investors. The main aspects of the bill include:

Registration of Proxy Advisory Firms

Proxy advisory firms would be required to register as investment advisers under the Investment Advisers Act of 1940. This means they would be subject to the same regulatory requirements that govern traditional investment advisers.

Definition of Proxy Advisory Firm

The bill establishes a formal definition of proxy advisory firms, specifying that they are entities engaged in the business of providing proxy voting research, analysis, ratings, or recommendations. However, firms earning less than $5 million in a fiscal year can opt not to register, although they can choose to be classified as proxy advisory firms if they wish.

Periodic Inspections

The bill mandates the Securities and Exchange Commission (SEC) to conduct periodic inspections of registered proxy advisory firms. This is intended to ensure compliance with regulations and to review the firms' practices regarding client communications and conflict of interest policies.

Record Keeping and Availability

Proxy advisory firms would be required to keep detailed records and make them available to the SEC upon request. They must provide any necessary documentation to facilitate inspections and evaluations by the SEC.

Conflict of Interest Assessments

The SEC would need to assess the conflicts of interest within proxy advisory firms and the measures they take to avoid making false or misleading statements to clients. Detailed reports evaluating these aspects must be submitted to the Senate and House committees on banking and finance.

Reporting Requirements

The SEC is tasked with submitting an initial report within two years of the bill's enactment, evaluating the effectiveness of current conflict of interest policies and any additional protections for investors. Subsequent updates to this report must occur at least every five years, examining whether existing regulations adequately protect investors’ interests and rights.

Overall Objectives

Through these measures, the bill aims to enhance the accountability and transparency of proxy advisory firms. It seeks to provide better protections for investors who rely on these firms for guidance in voting on corporate matters.

Relevant Companies

• PROX - A proxy advisory firm that would need to register and comply with new regulations under this bill.
• ILT - Another firm that provides proxy advisory services with potential regulatory impacts.