The week in GRC: Fed pick seen as steady on deregulation, and board diversity hires pick up among S&P 500

Nov 03, 2017
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that, according to people familiar with the matter, General Electric (GE) executives did not notify the company’s board until last month about its regular flying of a spare business jet for its CEO, and didn’t tell directors GE had received an internal complaint about the practice several years ago. The board members were previously unaware, the people said, and some were dismayed to learn of the practice. Former chair and CEO Jeff Immelt told the WSJ that he didn’t know the spare plane was flying, either. ‘This is not a practice I would have allowed,’ he said.

A GE spokesperson said: ‘This practice, which GE has discontinued, involved business-critical itineraries with tight schedules, multiple international stops and, in most cases, security concerns. We do not believe the understandable criticism of this discontinued practice fairly reflects on Jeff’s dedicated service to GE for more than 30 years.’

– Two prominent senators asked US regulators to clarify their position on reforms to the Treasury market started under the previous administration, as critics have complained that work has stalled under US President Donald Trump’s government, according to the Financial Times. A wild swing in Treasury prices on October 15, 2014 startled regulators, which did not have access to sufficient data to fully analyze the day’s trading.

The letter, signed by Senator Mark Warner, D-Virginia and Senator Mike Crapo, R-Idaho, outlines seven specific issues for regulators to provide updates on, including the implementation of a new rule requiring large Wall Street firms to report their Treasury trades. A requirement imposed by the previous administration that broker-dealers report Treasury trades to regulators came into effect in July, but this was largely expected to be a first step.

Reuters reported that a big group of US states accused key players in the generic drug industry of a broad price-fixing conspiracy, moving to widen an earlier lawsuit to add many more drug makers and medicines. The lawsuit, brought by the attorneys general of 45 states and the District of Columbia, accuses 18 companies and subsidiaries and names 15 medicines. The states said the companies divided customers for their drugs among themselves, agreeing that each company would have a certain percentage of the market. The companies sometimes agreed on price increases in advance, the states added. Defendants in the case denied the allegations, said they would vigorously defend themselves or did not respond immediately to requests for comment.

– People familiar with the matter told Reuters that Troels Oerting, head of cyber and information security at Barclays, has taken a leave of absence. Oerting, a former Europol cyber-crime expert, was not immediately available for comment.

The New York Times reported that the SEC took a first step to head off the recent trend of celebrities endorsing new virtual currencies, warning that they could be breaking laws. Entrepreneurs have been issuing the digital currencies through so-called initial coin offerings, which have become a hot but largely unregulated method of fund-raising for technology projects. The SEC said in a statement that celebrities who promoted coin offerings could be violating multiple laws, including anti-fraud regulations and rules that govern investment brokers. The statement promised that the agency would ‘focus on these types of promotions to protect investors and ensure compliance with the securities laws.’

– According to Bloomberg, global regulators have warned that banks and hedge funds that rely on artificial intelligence (AI) threaten to inject risks into the financial system that could exacerbate a future crisis. The financial services industry’s rush to adopt AI raises the potential that firms will become overly dependent on technologies that herd them toward the same view of risks and could ‘amplify financial shocks’, according to a study published by the Financial Stability Board (FSB).

‘AI and machine learning applications show substantial promise if their specific risks are properly managed,’ the FSB said in the report, which called for additional monitoring and testing of robotic technologies designed to lessen human involvement. ‘Taken as a group, universal banks’ vulnerability to systemic shocks may grow if they increasingly depend on similar algorithms or data streams.’

– The SEC said David Glockner, director of the Chicago regional office, was planning to leave the agency later this month. Glockner has since late 2013 led a staff of roughly 270 enforcement attorneys, accountants, investigators and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the nine-state[??] Chicago region. He has also served as chair of the SEC’s cyber-security working group.

‘David has been a trusted adviser and a real visionary in heightening public awareness of the important intersection between enforcement and cyber-security,’ Stephanie Avakian, co-director of the agency’s enforcement division, said in a statement. Glockner said: ‘I am proud of the work the SEC’s examiners and enforcement staff in Chicago do every day to protect investors.’

– The WSJ noted that insurers traditionally have offered coverage to companies for their directors and officers and the costs associated with those people who co-operate with requests from regulators for documents and interviews, but that policies did not provide coverage when those requests were made as part of an internal probe and not as a result of a regulatory investigation. A new offering from the Travelers Companies aims to fill that gap, and an attorney with expertise in internal investigations says the change could lead to more firms conducting internal probes.

– The SEC said Charles Cain had been named chief of the enforcement division’s national specialized FCPA unit, which focuses on violations of the anti-bribery provisions of the federal securities laws. Cain has served as acting chief of the FCPA unit since April, having previously been deputy chief of the unit since 2011.

– According to Bloomberg, Jerome Powell won’t be a Federal Reserve chair hell-bent on ripping up financial rules but – in some ways – that’s better for Wall Street. Powell is expected to take a measured approach to rolling back regulations adopted in the wake of the 2008 financial crisis. He’s seen as a practical, not ideological, watchdog, who will be able to get things done. That gibes with what big banks have long expected from Trump’s presidency: they want the Fed and other agencies to take the lead in easing post-crisis constraints, particularly because the Republican-controlled Congress has made little headway dismantling the Dodd-Frank Act.

Reuters reported that, according to people familiar with the matter, AT&T and the US Department of Justice (DoJ) are discussing conditions the company needs to meet in order to win government antitrust approval for its acquisition of Time Warner. The $85.4 billion deal, unveiled in October 2016, is opposed by an array of consumer groups and competitors on the grounds that it would give the wireless company too much power over the media it would carry on its own network.

The DoJ did not reply to requests for comment. AT&T has said it expects the deal to close by the end of the year. AT&T executives have repeatedly expressed confidence the firm would reach an agreement with the antitrust enforcer. ‘When the DoJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios,’ the company said Thursday.

– The WSJ reported that, according to an analysis of 2017 proxy statements by executive recruitment firm Spencer Stuart, women and minorities account for half of the 397 newest independent directors at S&P 500 companies – the highest level since the firm began tracking the data in 1998. The shift partly reflects shareholder pressure. Institutional investors ‘keep raising the issue of board diversity,’ said Julie Hembrock Daum, head of Spencer Stuart’s North American board practice. And the business environment is changing so fast that boards increasingly ‘recognize the need to add directors with experience in emerging areas critical to the company’s future success,’ Daum added.

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