Publicly Held Community Banks and the Securities and Exchange Commission


  • The SEC should use its authority to permanently exempt smaller public companies like community banks from the pay-versus-performance disclosure requirements of the Dodd-Frank Act.
  • Small publicly held banks and bank holding companies should be exempt from the internal control attestation and audit requirements of Section 404(b) of Sarbanes-Oxley Act as well as some of the reporting requirements of the Securities Exchange Act of 1934. The market capitalization threshold for exemption should be raised to at least $350 million.
  • ICBA supports the SEC’s proposal to amend the “smaller reporting company” (SRC) definition so that reporting companies with market capitalizations of up to $250 million would qualify. The Treasury Department’s recent report on Capital Markets also supports broadening the eligibility for status as a SRC and as a non-accelerated filer to include entities with up to $250 million in public float as compared to the current $75 million.
  • ICBA opposes the SEC’s proposed amendments to the proxy rules that would require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees.


Exemptions Under the Dodd-Frank Act

ICBA supports sound corporate governance practices for public companies, which are essential to maintaining investor confidence. However, the corporate governance provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act disproportionately burden community banks, community bank holding companies and other small issuers. The SEC should use the authority expressly delegated to it by Congress to permanently exempt community banks. For instance, the SEC should completely exempt smaller reporting companies like publicly held community banks from the pay versus performance rules which require companies to disclose the relationship between executive compensation and the company’s total shareholder return. These disclosure requirements would be burdensome for publicly held community banks and would provide little practical utility to investors. ICBA also believes that Institutional Shareholders Services, which provides proxy advisory services and consulting to publicly held companies, should be more transparent and should disclose all potential conflicts. ICBA supports legislation in the House that would require the registration of proxy advisory firms with the SEC and the disclosure of proxy firms’ potential conflicts of interest and codes of ethics.

Universal Proxy Access

The SEC has proposed amendments to the proxy rules to require proxy contestants to provide shareholders with a proxy card that includes the names of both management and dissident director nominees (a universal proxy card). In addition, the proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards. ICBA believes that such access would facilitate the election of dissident and special interest directors and make it more difficult for publicly held commercial banks and other companies to recruit high quality directors.

SOX 404(b) Exemption

ICBA supports legislation that would increase the SOX 404(b) exemption to at least $350 million of market capitalization for banks and bank holding companies. The 2002 failures of Enron and WorldCom raised public and investor concern about corporate governance and executive compensation, resulting in the Sarbanes-Oxley Act of 2002. The most notable provision of the Act is Section 404(b) which requires an outside auditor to attest to the internal controls of a publicly held company. ICBA has advocated for an exemption from this requirement for community banks because of the unwarranted burden and expense it creates. Implementation of Section 404(b) for small issuers was repeatedly deferred until the Dodd-Frank Act created a permanent exemption for issuers with market capitalization of less than $75 million. ICBA is pleased with this outcome but believes that the market capitalization threshold should be set at a higher amount—at least $350 million. Community banks are already subject to substantial supervision and regulation by the banking regulators and should not be subject to the internal attestation requirements of SOX 404(b). Furthermore, ICBA supports the SEC’s proposal and the Treasury Department’s recommendation to amend the “smaller reporting company” definition so that smaller reporting companies with market capitalizations of up to $250 million would qualify. If implemented, these rules would scale the SEC disclosure requirements so that smaller reporting companies would be allowed to file less financial and other information in their quarterly and annual SEC reports.

Staff Contact: Chris Cole