In its quarterly report to Congress, published Wednesday morning, the Special Inspector General of the Troubled Asset Relief Program proposes a new rule that bring an end to the “insulated CEO” by requiring the CEO and other executives to sign an annual certification that conducted due diligence within their organization and can “certify that that there is no criminal conduct or civil fraud” in their company.
“The American people have called for stronger reforms on Wall Street, frustrated by the lack of senior executive accountability at the largest banks,” SIGTARP Christy Goldsmith Romero said in a letter to Congress attached to the quarterly report.
To be sure, Wells Fargo is not headquartered on Wall Street, but rather in San Francisco, but it is believed Goldsmith Romero is using the term broadly to encompass the activities of systemically important financial institutions.
“I have called for Wall Street reform based on the difficulties SIGTARP has faced as a law enforcement agency in proving criminal intent of senior executives at large institutions given how isolated they are from knowledge of fraud in their company,” Goldsmith Romero continued. “This isolation is part of the culture at large institutions, and is something that is unlikely to change absent reform. That is why I am proposing a reform to bring accountability to the ‘Insulated CEO’ and other high-level executives.”
Goldsmith Romero’s proposal would “remove the insulation around Wall Street CEOs and other high-level officials” by requiring the CEO, chief financial and “certain other senior executives” pledge annually that their company is fraud free.
“No longer allowed to stay ‘in the dark,’ a crime and fraud certification forces the CEO to be ‘in the know,’” Goldsmith Romero said. “Crime and fraud cannot be allowed to go unchecked at our largest institutions.”
According to Goldsmith Romero, the proposal is modeled after the annual Sarbanes-Oxley certification, and would “create an incentive for top executives to institute strong antifraud internal controls on lower level executives and managers.”