The week in GRC: CFPB to keep up enforcements, Treasury pick Mnuchin addresses bank rules, and more

‒ According to Reuters, Herbalife revealed in a regulatory filing that the US government is investigating the dietary supplement maker over whether it violated foreign bribery laws while conducting business in China. Herbalife said the SEC had asked the company for records as part of its probe. The company is conducting its own independent review, and has also separately discussed the matter with the US Department of Justice (DoJ). ‘The company is co-operating with the SEC’s investigation and cannot predict the eventual scope, duration or outcome of the matter at this time,’ Herbalife said.


‒ The Financial Times reported that two fifths of asset managers are planning to grow their internal research teams ahead of the introduction next year of new EU rules ‒ a move expected to put pressure on investment banks. From next January, asset managers will have to set a clear budget for the cost of the research they use to make investment decisions. This has prompted many fund shops to question whether they are willing to pay for analyst notes provided by investment banks and brokers.

At present, investment banks and brokers typically offer asset managers research for ‘free’ in exchange for running trades. In response to the new rules, 38 percent of fund managers said they will expand their internal research teams, rather than relying on banks, according to a poll of 69 fund managers by Electronic Research Interchange.


‒ The Wall Street Journal reported that, according to people familiar with the matter, the SEC is investigating whether Yahoo’s two huge data breaches should have been reported sooner to investors. It may prove to be a major test in defining when a company is required to disclose a hack. The SEC has opened an investigation, and in December issued requests for documents, as it looks into whether the company’s disclosures about the cyber-attacks complied with civil securities laws, the sources said.

The SEC investigation into the disclosures is in its early stages, and it’s too early to say whether it will result in any public action, some of the people familiar with the matter said. In a quarterly securities filing in November, Yahoo said it was ‘co-operating with federal, state and foreign’ agencies seeking information on the 2014 breach. Those agencies include the Federal Trade Commission, the SEC, the US attorney’s office in Manhattan and ‘a number of state attorneys general,’ the company added. When asked for comment, a Yahoo spokesperson directed the WSJ to Yahoo’s SEC filings. Representatives of the US attorney’s office in Manhattan and the SEC declined to comment.


‒ The SEC announced an award of more than $7 million split between three whistleblowers who helped the agency prosecute an investment scheme. One whistleblower provided information that was a primary impetus for the start of the SEC’s investigation, and will receive more than $4 million. Two other whistleblowers jointly provided new information during the commission’s investigation that significantly contributed to the success of the enforcement action. They will split more than $3 million between them.


‒ The highest UK court ruled that Prime Minister Theresa May must seek an act of parliament to trigger the two-year countdown to Brexit, giving lawmakers a chance to soften the government’s plan, Bloomberg reported. The decision is a defeat for May’s argument that she alone had the power to begin the country’s withdrawal from the EU.

The need to now win the approval of lawmakers threatens her March 31 deadline for starting the exit talks, although most legislators say they won’t try to stop the breakup given that 52 percent of voters backed it. Analysts said the ruling increases the chances of a so-called soft Brexit, in which the UK remains in the EU’s single trading market.


‒ The UK’s Financial Conduct Authority’s  (FCA) head of supervision Megan Butler said the financial industry’s ‘white male’ culture isn’t changing quickly enough, and the country is unlikely to see a female CEO at a major bank for at least five years, according to Bloomberg.

‘It’s extremely rare that in my professional life I have a conversation with a head of desk at an investment bank or a global head of business who is anything other than a white male,’ Butler said. ‘I’ve increasingly come to find that a little bit difficult to take.’ Butler said a lack of diversity can lead to ‘group think’, which was one of the problems that caused the financial crisis.


‒ Reuters reported that, according to the Consumer Financial Protection Bureau (CFPB), Citigroup mortgage units will pay $28.8 million for allegedly keeping home borrowers in the dark about options to avoid foreclosure and making it difficult for them to apply for relief. CitiMortgage will pay an estimated $17 million to compensate consumers, as well as a civil penalty of $3 million, the CFPB said.

CitiFinancial Services will refund roughly $4.4 million to consumers, and pay a civil penalty of $4.4 million. The CFPB said the subsidiaries neither admitted nor denied the findings in the consent orders. ‘We are pleased to resolve these matters,’ a Citi spokesperson said.


‒ Treasury secretary nominee Steven Mnuchin said banks should be regulated based on their ‘complexity and activity, not simply size’ and addressed other regulatory issues in written answers submitted to members of the Senate Finance Committee after his confirmation hearing last week, the WSJ reported.

‘I believe in a regulatory framework that is determined by complexity and activity, not simply size,’ he wrote, addressing a question about the $50 billion asset threshold at which banks face tougher regulation under the Dodd-Frank Act. Many lawmakers and regulators want to change the line. Mnuchin also endorsed a ‘comprehensive review’ of the powers and institutional processes of the Financial Stability Oversight Council.


– CFPB director Richard Cordray said the bureau would continue enforcement of existing consumer protection rules at a steady and vigorous pace, and the arrival of the Trump administration ‘shouldn’t change the job at all’, according to the WSJ. ‘It’s important to keep in mind that we are a law enforcement agency,’ Cordray said. ‘That’s an important part of what we do, and it… has to be kept separate from partisan politics.’

After filing enforcement actions at an unusually fast past since December, Cordray said the bureau still had some major lawsuits pending. His remarks came as congressional Republicans and the Trump administration look for ways to curb the CFPB, an agency established by the Obama administration.


– Reuters reported that, according to a top lawmaker, congressional Republican lawmakers were set to overturn a range of Barack Obama-era regulations, including an anti-bribery rule aimed at US resources companies. Other rules eyed for a quick overturn by Congress include recently introduced environmental, gun control and labor relations measures, sources said.


– Republican Federal Trade Commission (FTC) member Maureen Ohlhausen was named the FTC’s acting chair, Reuters reported. In addition to Ohlhausen, the commission has two Democrats, outgoing chair Edith Ramirez, who steps down in February, and Terrell McSweeny. It has two vacancies. The new appointment was made by a White House order, the FTC said on its website.

Ohlhausen became a commissioner in April 2012 with her term set to expire in 2018, according to the FTC website. The commission works with the DoJ to enforce antitrust law and pursues companies involved in deceptive advertising as well as those accused of fraud.


‒ Bloomberg reported that Dutch financial regulator AFM said it published some of George Soros’ short positions dating back to 2012 this week due to ‘human error’. The short positions were ‘between 0.2 percent and 0.5 percent’ of shares outstanding in the companies shorted, an AFM spokesperson said.

The regulator publishes shorts of 0.5 percent or higher on its website on a daily basis. The smaller amounts were posted by mistake, the spokesperson said, though he couldn’t disclose whether there had been contact with Soros following Tuesday’s error. A spokesperson for Soros didn’t respond to a request for comment.


‒ The Washington Post reported that US President Donald Trump’s private company on Wednesday tapped Bobby Burchfield, a long-time Republican lawyer, and a company insider to serve in two corporate oversight positions, filling key roles Trump said would ensure his business minimizes conflicts of interest during his presidency. The Trump Organization named Burchfield to serve as an outside ethics adviser. George Sorial, a 10-year Trump company executive, will serve the internal role of chief compliance counsel.

But ethics watchdogs questioned how aggressive the long-loyal executives would be in critically appraising the president’s private business interests. ‘Given Bobby Burchfield’s long-standing role in Republican party efforts, he does not fit the definition of what would be considered an independent ethics adviser,’ said Fred Wertheimer, founder of good-government group Democracy 21. In a statement, Burchfield said he was ‘honored to be asked to serve in this unique and historic role for the Donald J Trump Revocable Trust.’


‒ Bloomberg reported that US bank regulators were taking a tough line in a tussle with the EU over global capital rules, even as Trump begins to pull the country out of international agreements and prepares to roll back financial regulations.

Talks in the Basel Committee on Banking Supervision have bogged down, with no fresh compromise on the table to reconcile US and EU differences on how to stop banks using their own complex models to game capital rules, according to people familiar with the matter. The US wants tough curbs, while the EU, whose major banks would take the biggest hit under the new rules, is pushing a softer line.


‒ Andrew Bailey, CEO of the FCA, suggested that financial services firms that conform to ‘global standards’ should be allowed access to the EU single market after Brexit, according to the FT. ‘Would it be possible to take a different approach and base market access on common recognition of higher-level global standards, which are transparent and subject to regular review?’ Bailey asked on Thursday. ‘A much broader commitment to open up market access using global standards would be a decisive step in the right direction at a time when openness of the world economy is more under threat.’

The level of access UK-based firms have to the rest of Europe will be a flashpoint in the coming Brexit negotiations. May has signaled a ‘hard’ Brexit, ruling out membership of the single market. This suggests that financial firms will lose their ability to automatically ‘passport’ services and products across the EU.