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GOP Bills Would Exempt Small Banks From Sarbanes-Oxley Section 404(b)

Legislation filed in the House and Senate would exempt banks with less than $1 billion in assets from the Sarbanes-Oxley Act’s auditor attestation requirements. The measures are part of a flurry of GOP bills aimed at easing regulations on smaller lenders.

Republican lawmakers are seeking to exempt smaller banks from the auditor attestation requirements under the Sarbanes-Oxley Act of 2002 .

Two bills that are part of a broader legislative push aimed at easing regulation for community lenders are working their way through the House and Senate.

The Dodd-Frank Act and the JOBS Act both carved out new exemptions from Sarbanes-Oxley’s Section 404(b) , freeing small or newly-public companies from obtaining an auditor’s attestation on management’s assessment of internal controls over financial reporting. Section 404(b) is widely considered the most expensive part of the more-than decade-old governance reform law for companies to comply with. and

The bills would add banks with less than $1 billion in assets to the list of exempt businesses. Similar language is included in H.R. 1523, the “Community Bank Access to Capital Act of 2015” in the House, and S. 812 “CLEAR Relief Act of 2015” in the Senate.

In a March 26, 2015, letter to lawmakers, the American Bankers Association framed S. 812 as one of several bills that “provide incremental relief” in regulation for community banks. Enacting those measures “will help move our nation’s banking supervision policy away from counterproductive, one-size-fits-all rules to more effective tailored regulation,” the trade group said.

The ABA letter came weeks after the Senate Banking Committee held a hearing on lifting regulation for community banks and credit unions. Democrats on the committee, including Sen. Elizabeth Warren of Massachusetts, attacked the effort as a veiled attempt to undo regulations for larger banks, not just community institutions.

Dodd-Frank exempted “nonaccelerated filers,” or those companies with a public float of less than $75 million, from the requirements of Section 404(b) . The rules were published in Release No. 33-9142, Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers .

The JOBS Act later exempted emerging growth companies (EGCs) from the Section 404(b) requirements. The law granted the companies exemptions from some SEC reporting rules until they’ve been public for five years, have more than $1 billion in sales, issue more than $1 million in debt, or see the value of their publicly traded stock exceed $700 million.

H.R. 1523, by Rep. Scott Garrett of New Jersey, would apply to smaller insured depository institutions and depository holding companies, which would be exempt just from Sarbanes-Oxley Section 404(b) . S. 812, sponsored by Sen. Jerry Moran of Kansas, would give the banks an exemption from all of Section 404 .

Garrett’s bill is part of a cluster of measures the congressman sponsored seeking to ease corporate accounting and disclosure requirements. He has also filed H.R. 1525, the “Disclosure Modernization and Simplification Act,” which would order the SEC to cut disclosure requirements in Regulation S-K for EGCs and other smaller filers.