The U.S. House Committee on Financial Services convened on June 26, 2025, to discuss the implications of the Sarbanes-Oxley Act (SOX) and the rising costs of compliance in today's capital markets. A key focus of the meeting was the significant financial burden placed on companies as they navigate the complexities of compliance, particularly under Section 404(b) of SOX.

One witness highlighted that the transition to 404(b) compliance has more than doubled their audit costs, skyrocketing from $650,000 to $2.2 million over a few years. This dramatic increase raises concerns about the sustainability of going public for smaller companies, which may reconsider their decisions due to the financial strain. The witness emphasized that losing Emerging Growth Company (EGC) status had less impact than the compliance requirements of 404(b), underscoring the need for a reassessment of these regulations.

The discussion also touched on the convoluted classification system for companies, with one commissioner noting that even the SEC struggles to navigate the complexities of determining a company's reporting status. Calls for harmonizing standards across different regulations were made, suggesting that simplifying these processes could alleviate some compliance burdens.

Another critical topic was the influence of proxy advisory firms, particularly the duopoly of Institutional Shareholder Services (ISS) and Glass Lewis. Witnesses expressed frustration over inaccuracies in proxy reports and the lack of regulatory oversight, which can lead to misinformation affecting shareholder votes. The potential conflicts of interest in the ESG scoring process were also highlighted, raising questions about the integrity of these advisory services.

As the committee deliberated, concerns were raised about proposed changes that could dismantle the Public Company Accounting Oversight Board (PCAOB), which plays a vital role in ensuring the accuracy of audits. Witnesses warned that eliminating PCAOB funding could erode investor confidence in audited financial statements, potentially destabilizing the market.

The meeting underscored the urgent need for a comprehensive review of compliance costs and regulatory frameworks to support companies while maintaining investor protections. As the landscape of capital markets evolves, the implications of these discussions could shape the future of corporate governance and accountability.