“We reviewed the comments that we received on the RPT consultation paper that was put out a few months ago,” an SEC official told the Business Times. He said that based on these comments, SEC is drafting the rules. He said that this paper is based on the OECD publication on ‘Related Party Transactions and Minority Shareholder Rights’ in 2012.
This publication has said that around the world, the potential to abuse related party transactions covering both equity and non-equity transactions are viewed as an important policy issue. “Several jurisdictions have sought to put in place management and approval processes to minimise the negative potential. While the introduction of IFRS (and therefore LKAS 24 for Related Party Transactions) around the world has introduced an important standard for transparency, it is alone not sufficient. Therefore several jurisdictions have introduced requirements for ongoing disclosure of material transactions,” SEC’s RPT consultation paper says. It says that in approving related party transactions, great emphasis has been placed on boards’ approval, the tendency being for this task to be given to a committee of independent board members. There are often continuing questions about how to ensure effective independence of board members from controlling shareholders.
The paper has suggested that companies get their Audit Committee approval for all related party transactions. Directors are required to have access to knowledge and expertise to obtain appropriate professional and expert advice. “A director having material personal interest must not be present while the matter is being considered and must not vote on the matter,” the consultation paper said.