The week in GRC: Boards seek more cyber-risk oversight, and NYC plans to divest from fossil fuels
– The Financial Times reported that, according to research conducted by the Institute of Chartered Secretaries and Administrators in conjunction with the FT, four fifths of FTSE 350 corporate secretaries surveyed believe their company’s exposure to cyber-risk is increasing, the same proportion as a year ago. Nine tenths say they are boosting spending to mitigate the risk, but nearly a third (31 percent) say they review their exposure to cyber-risk only once a year, while a quarter say they conduct a review at least every three months.
The EU General Data Protection Regulation, which comes into force in May and which the UK government says it will continue to implement after Brexit, requires organizations to undertake data-protection impact assessments for the riskiest uses of personal data.
– Hong Kong Exchanges & Clearing CEO Charles Li said the exchange is considering rule changes aimed at increasing trading, according to Bloomberg. Rebates to market makers, simplified rules for using collateral across multiple positions and the removal or reduction of stamp duty charges are among measures being considered, Li said, adding that some of the changes will require approval from the securities regulator or government.
– The Wall Street Journal said Apple defended its record of providing parental controls and other protections for children who use its iPhones and other devices, after a pair of prominent investors called on the company to take more steps to curb the ill effects of smartphones. Apple said its mobile software includes extensive parental controls governing different types of content and applications, noting that it started offering some of them as early as 2008.
The company’s statement didn’t directly comment on a letter sent to Apple by Jana Partners, an activist investor, and CalSTRS, which urged Apple to develop new software tools to help parents control and limit phone use. They also asked the company to assist in studying the impact of overuse of smartphones on mental health.
Jana and CalSTRS responded to Apple’s statement, saying, ‘We’re pleased by Apple’s continued recognition of its social responsibilities and commitment to customer satisfaction, including its attention to this issue, and by its commitment to offer parents more helpful tools and options in the future, and we look forward to a constructive discussion with it.’
– Federal Reserve Bank of Minneapolis president Neel Kashkari would like the largest US banks to have to keep more cash on hand, according to CNBC. The Minneapolis Fed has been studying the issue of how to prevent situations like the one that led to the financial crisis in 2008, and Kashkari said it is nearly ready to release recommendations it has gleaned from public symposiums. ‘Basically, we need to double the capital requirement of the biggest dozen banks in America,’ he said.
– The WSJ reported that South Korean regulators said they have started on-site inspections of the country’s large commercial banks, marking a change of approach in authorities’ efforts to clamp down on crypto-currency speculation in one of Asia’s hottest bitcoin markets. South Korea’s lead securities regulator said it is inspecting six of the country’s biggest financial institutions to monitor their compliance with anti-money laundering (AML) obligations related to crypto-currency trading. ‘We’re reviewing all possibilities under the current law to take action,’ said Choi Jong-ku, head of South Korea’s Financial Services Commission.
– Two of Europe’s leading derivatives exchanges have called for a rethink of the EU’s new rules under Mifid II for futures exchanges, arguing that Brexit will cause a breach between the UK – Europe’s largest financial market – and the rest of the continent, according to the FT. The new rules will no longer bind the UK after it leaves the bloc in March 2019, sparking an industry debate over whether the new regulatory framework will become unworkable.
Jeff Sprecher, CEO of Intercontinental Exchange, has called for a review of the Mifid II futures rules, and has been joined by Markus Ferber, an influential EU parliamentarian. Nasdaq’s Stockholm exchange has also called for a more unified approach.
– The WSJ reported that efforts to overhaul US AML laws are gathering steam, as large banks, anti-corruption groups and law-enforcement authorities coalesce around the idea of creating a national database of corporations and their true owners. The financial services industry’s support for the plan, which would require new and existing corporations to register with the Financial Crimes Enforcement Network, could be key. The database measure is part of a draft bill backed by representatives Steve Pearce, R-New Mexico, and Blaine Luetkemeyer, R-Missouri.
– CNBC reported that Warren Buffett appointed Gregory Abel and Ajit Jain to the Berkshire Hathaway board as vice chairs, hinting that one of them is most likely to be his heir at the helm of the firm. Buffett said this is ‘part of a movement to succession over time.’ Abel will be vice chair of non-insurance businesses, while Jain was named vice chair of the insurance operations. The company’s board of directors also voted to increase the number of directors from 12 to 14. Berkshire Hathaway said Buffett and partner Charlie Munger will continue in their respective roles as chair/CEO and vice chair and be in charge of significant investment decisions for the company.
– The SEC is accelerating work on its own version of the US Department of Labor’s fiduciary rule, according to the WSJ. The SEC’s effort would affect all brokerage accounts – not just those for retirement funds – and may ban brokers from calling themselves financial advisers unless they accept a strict duty of loyalty to clients. The commission hopes to vote to propose its rules by the second quarter of 2018, according to people familiar with the matter. It would be a first step toward creating consistent federal standards for all brokerage accounts.
– According to Reuters, the European Securities and Markets Authority (Esma) unexpectedly delayed until March the publication of data meant to specify which stocks will be subject to limits on trading in dark pools. ‘The current quality and completeness of the data does not allow for a sufficiently meaningful and comprehensive publication of double-volume cap calculations,’ Esma said, adding that it expected to be able to publish the data in March.
Under Mifid II, double-volume caps will require dark pools to suspend trading in stocks for which, on average, more than 8 percent of daily trading was transacted in the dark over the past 12 months. The aim of the caps is to push more trading onto fully transparent exchanges.
– Bloomberg reported that Canadian regulators plan to revise capital requirements for the nation’s banks, drafting rules that are more risk-sensitive and stricter than those set by global regulators. The Office of the Superintendent of Financial Institutions’ Carolyn Rogers announced the changes, saying Canadian banks would have until the fourth quarter to comply with a risk model that’s tougher than the capital standards announced in December by the Basel Committee on Banking Supervision.
– The SEC appointed Richard Best as regional director of its Atlanta office. Best will succeed Walter Jospin, who is leaving the agency at the end of the month. Best previously served as director of the SEC’s Salt Lake office, supervising the agency’s enforcement program in the state.
– Boards are seeking greater insight into cyber-security risks in the wake of the recent breach at Equifax, according to the WSJ. The hacking attack on the credit-reporting firm was a defining moment for directors, technology and corporate governance experts say. Some boards are increasing cyber-security oversight and considering how to delegate responsibilities among directors. Others are pushing for more meetings with corporate security chiefs.
– New York City filed a multi-billion dollar lawsuit against BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell, citing their ‘contributions to global warming’, as it said it would divest fossil fuel investments from its $189 billion public pension funds over the next five years, Reuters reported. ‘Safeguarding the retirement of our city’s police officers, teachers, firefighters and city workers is our top priority, and we believe their financial future is linked to the sustainability of the planet,’ comptroller Scott Stringer said.
‘Reducing greenhouse gas emissions is a global issue and requires global participation and actions,’ Exxon said. ‘Lawsuits of this kind – filed by trial attorneys against an industry that provides products we all rely upon to power the economy and enable our domestic life – simply do not do that.’ Chevron also said the lawsuits serve only special interests. ConocoPhillips declined to comment, and neither BP nor Shell could be reached immediately.
– According to the WSJ, US employers are paying out more money than ever to resolve legal fights over their treatment of workers. Settlements from the 10 biggest class action lawsuits reached a record $2.72 billion last year, Seyfarth Shaw reported. That figure is up sharply from $1.75 billion in 2016 and represents the highest amount since the law firm began tracking these workplace cases in 2003. Many 2017 settlements involved wage-and-hour violations such as insufficient pay, alleged employment bias or underfunded pension plans, according to the firm’s report.
– Activist hedge fund Jana Partners’ campaign against Apple could be a sign the investor is trying to get on the good side of index funds such as Vanguard, State Street and BlackRock, which are increasingly concerned with ESG issues, legal experts told TheStreet. Jana Partners, run by Barry Rosenstein, teamed up with CalSTRS to target Apple over what they describe as children’s’ overuse of smartphones.
‘Index funds are very focused on ESG for the 2018 proxy season,’ Shane Goodwin, chief of the Columbia Law School shareholder activism research project, told TheStreet. ‘[An activist] needs the top three index funds if it is going to win its campaign. Is Barry [Rosenstein] trying to rebrand himself as constructivist in the boardroom?’
– Facebook and Twitter both face shareholder resolutions urging the companies to do more to tackle harassment on their platforms, the WSJ reported. Arjuna Capital and the New York State Common Retirement Fund submitted proposals at both technology companies, asking them to explore the extent of harassment, particularly related to sexual harassment.
‘Social media companies need to protect their customers, themselves and their investors from hate speech and harassment,’ New York State Comptroller Thomas DiNapoli said in a statement. ‘Investors have a right to know what steps these companies are taking to enforce their terms of service and keep abusive content from fake news to sexual harassment off their platforms.’
Facebook and Twitter declined to comment.
– Dropbox filed for an IPO confidentially with the SEC on Thursday, Bloomberg reported. This is the most high-profile incidence of a company confidentially filing since the SEC changed its rules last July to allow larger companies to file pre-IPO documents confidentially. Dropbox was valued at $10 billion when its last round of private funding closed in 2014. The company intends to list in the spring, according to Bloomberg’s report, following on from the challenging IPOs faced by tech unicorns Snap and Blue Apron last year.
– Wells Fargo put aside $3.25 billion in Q4 to cover legal expenses, the company revealed on its earnings call, as reported by Bloomberg. The bank faced a $1 billion charge in Q3 over pre-crisis mortgage sales. The company’s litigation costs have driven its expense ratio for 2017 to the highest level in more than 20 years. ‘While we faced challenges in 2017, we are a much better company today than we were a year ago, and I am confident that this year Wells Fargo will be even better,’ CEO Tim Sloan said in a statement.
In more positive news, Wells Fargo received a $3.4 billion Q4 boost to revenue due to the US tax bill, which reduces the corporate tax rate from 35 percent to 21 percent.