The week in GRC: DoL fiduciary rule proves hard to kill and SEC gets new leader

May 05, 2017
<p>This week&rsquo;s governance, compliance and risk-managementstories from around the web</p>

The New York Times reported that local television stations are at the center of a deal-making frenzy. A day after the Federal Communications Commission (FCC) eased regulations on how many stations an owner may have, Sinclair Broadcast Group, the largest local broadcast group in the country, said it would buy 14 New York-based stations for $240 million. The timing of Sinclair’s deal may not have hinged directly on the regulatory change, but it demonstrated a demand for broadcast station mergers. Sinclair did not reply to requests for comment.

‘The FCC has basically said, Game on. We’re going to let you consolidate further than anyone had imagined,’ said Richard Greenfield, a media analyst at BTIG.

– UBS Group paid $445 million to settle National Credit Union Administration (NCUA) claims that the bank contributed to the collapse of corporate credit unions by selling them faulty mortgage-backed securities, according to Bloomberg. NCUA said the settlement – which UBS agreed to without admitting or denying wrongdoing – closes a lawsuit filed in 2012 and is the latest in a series of deals struck with banks accused of improper sales to five corporate credit unions that failed. ‘With today’s settlement, another legacy matter has been resolved,’ a UBS spokesperson said.

The Wall Street Journal said AllianceBernstein fired its CEO and removed nine of its 11 directors, the most dramatic shake-up yet among money managers under pressure to halt a flood of cash to cheaper rivals. Peter Kraus, who had served as AllianceBernstein’s chair and CEO since 2008, was terminated from both roles, the firm said in a securities filing. Seth Bernstein is the new CEO and will serve on AllianceBernstein’s board. The firm also said AXA removed all but two members of AllianceBernstein’s board, which will now be led by Robert Zoellick as chair.

– The European Commission is preparing proposals to impose EU control on the City of London’s lucrative euro-clearing market, forcing UK operators to either relocate or be policed by European authorities, according to the Financial Times. The commission is planning to issue legislative proposals next month that would heavily restrict London’s ability to host one of its flagship financial businesses.

A draft commission policy communication supports ‘more centralization of supervision’ of clearing houses across the EU if they provide ‘critical capital market functions’ of systemic importance for the region. It notes that Brexit will have a ‘significant impact’ on oversight arrangements because it will play an outsized role in capital markets beyond the EU’s regulatory regime.

– A federal court declined to reconsider telecommunications companies’ challenge to Obama-era net neutrality rules, setting the stage for a likely appeal to the US Supreme Court, the WSJ said. The rejection came just days after FCC chair Ajit Pai laid out his proposal for rolling back the net neutrality rules. But the telecom firms and their allies are still looking to the courts for backing in their opposition to the regulations, which could give them more legal protection whenever Democrats retake power.

TechFreedom, a conservative advocacy group that had joined in the appeal, said the decision ‘clears the way for TechFreedom and other parties challenging the order to take their case to the Supreme Court.’ It said the case could become a vehicle for rolling back agencies’ powers.

– The SEC announced that it will tackle questions about the declining number of IPOs and the impact of this trend on investors at an event next week with the New York University’s Salomon Center. Panelists at the symposium will take a look at data and explore the economic causes and consequences of the perceived weakness in the IPO market, and discuss ways to encourage more capital raising through IPOs.

– US business leaders have warned of the damage tighter immigration rules could do to the economy while also welcoming President Donald Trump’s moves toward deregulation and tax cuts, according to the FT. Ken Griffin, CEO of hedge fund firm Citadel, said he was ‘terrified’ at the prospect of the new administration restricting highly skilled immigration. ‘Our entire country is built on the ethics and ideas of immigrants,’ he said, adding that many senior partners at Citadel were not born in the US. ‘What makes America great is we go round the world for innovation.’

John Chambers, executive chair at Cisco, said it was ‘insanity’ that graduate students did not receive a green card stapled to their diploma. ‘We ought to find a way to make it happen,’ he said. Devin Wenig, CEO of eBay, said there were parts of the economy where technology companies were unable to find people with the right skills at the moment.

– Shareholder advisory firms Glass Lewis & Co and Institutional Shareholder Services (ISS) are recommending that Berkshire Hathaway shareholders approve a resolution asking for a twice-yearly report on the company’s political contributions and expenditures, the WSJ reported. Berkshire’s board opposes the resolution, arguing that political contributions make up less than 0.1 percent of the firm’s annual expenditures and the parent company doesn’t make any contributions. Berkshire subsidiaries including BNSF Railway and Berkshire Hathaway Energy do make political contributions. The vote on the matter will be finalized at the company’s widely attended annual meeting in Omaha, Nebraska this Saturday.

Political contribution reporting is a common topic for shareholder resolutions, and Glass Lewis said it supported about half of such proposals last year. ISS said its policy is to generally support increased disclosure of political spending.

Bloomberg reported that CtW Investment Group, a union-affiliated firm that often takes up corporate governance issues, is urging Urban Outfitters shareholders to vote against the re-election of two directors, saying the board’s ‘extreme insularity’ has contributed to weak performance. The nine-member Urban Outfitters board has only two women. The directors also have an average tenure of 19 years, compared with an average of 9.4 years for the S&P mid-cap index, according to a letter from CtW.

In response to the criticisms, Urban Outfitters said in a statement that it has a ‘long-standing record of engaging with shareholders and responding to their suggestions.’ Since 2011, the company has adopted a lead independent director and added two female board members. Three of the past four directors are also independent, Urban Outfitters said. ‘Changing the composition of a board is not something that can or should take place overnight,’ the company said. Instead, it added, Urban Outfitters has been ‘taking targeted, strategic steps to alter the make-up of the board over time.’

– US Commerce Secretary Wilbur Ross said there is no reason why the nation’s economy cannot grow more robustly if the Trump administration is successful in rolling back a number of regulations, Reuters reported. ‘If we can undo the shackles put on by regulations, there is no reason the economy can’t do much better than it’s been doing,’ Ross said.

– According to the FT, Standard Chartered announced plans to establish a new EU subsidiary in Frankfurt, becoming one of the first banks to select Germany’s main financial center as its alternative European hub to cope with the disruption of Brexit. Standard Chartered chair José Viñals said at the bank’s annual meeting that the likely move would cause ‘minimal disruption’ to the bank’s operations as it already has an office and several staff in Frankfurt. He added that the bank was in talks with German regulators about upgrading the status of its Frankfurt office from a branch to a more heavily regulated subsidiary.

The Times reported that Harvard Law School, expanding a pilot program for Harvard undergraduates, will allow juniors accepted from any college to defer admission as long as they finish college and spend at least two years working, studying or pursuing research or fellowships. The expanded program will be open to students applying from this fall. The existing pilot program, for Harvard juniors, was started in 2014 to encourage students to gain work experience before entering law school and to encourage those studying science, technology, engineering or math to pursue the legal profession.

Law schools around the country, most of which are facing lower enrollment, have debated how to attract a more diverse pool of applicants. Amid concerns over legal employment, many potential students have shied away from law school and the six-figure debt it typically entails.

– The Financial Industry Regulatory Authority and the SEC said cyber-security and investing by seniors will be among the topics discussed when they hold their national compliance outreach program for broker-dealers on July 27. The program is designed to provide an open forum for regulators and industry professionals, including compliance, audit and other senior personnel of broker-dealer firms and branch offices, to discuss compliance practices and promote an effective compliance structure.

– The SEC also published a range of new data and analyses of private fund statistics and trends. The private funds statistics, released quarterly since October 2015 by the division of investment management’s risk and examinations office, provides investors and other market participants with insights by aggregating data reported by private fund advisers on Form ADV and Form PF. The new analyses include information about the use of financial and economic leverage by hedge funds, and characteristics of private liquidity funds.

– Bank of America chair and CEO Brian Moynihan said breaking up the big banks would be ‘crazy,’ the FT reported. BofA is among the large US banks that have been threatened by talk from the Trump administration about restoring some kind of Glass-Steagall Act. A revival of the law could count on support on both sides of the political aisle, but Moynihan said it would be ‘against America’s interests.’ His remarks align him with Jamie Dimon, chair and CEO of JPMorgan Chase, who has long stressed the benefits of size.

– The WSJ said that, although opponents of the US Department of Labor’s fiduciary rule for brokers offering retirement advice welcomed Trump’s election as their chance to kill the rule, it is proving tough to quash. Shortly after his inauguration, Trump ordered the department to review the rule’s economic impact on retirement savers and the financial services industry, with an eye toward revising or rescinding it.

But people on both sides of the debate say the rule may survive both a 60-day delay to the compliance deadline and the regulatory review process relatively unscathed. ‘It’s unlikely to get dramatically changed,’ said a person familiar with the department’s process. More likely, the person said, is a relaxation of certain elements, such as client disclosure requirements, while preserving the heart of the rule. ‘This is a pretty damn good compromise,’ the person said.

– The SEC announced that Jay Clayton was sworn into office by US Supreme Court Justice Anthony Kennedy as the 32nd chair of the agency. ‘It is a tremendous honor to lead the SEC and be sworn in by Justice Kennedy, whom I greatly admire,’ Clayton said. ‘The work of the SEC is fundamental to growing the economy, creating jobs and providing investors and entrepreneurs with a share of the American Dream.’

Before joining the commission, Clayton was a partner at Sullivan & Cromwell, where he advised public and private companies on a wide range of matters, including securities offerings, M&A, corporate governance and regulatory and enforcement proceedings.

– The FT reported that a US House of Representatives committee advanced the Financial CHOICE Act, legislation intended to unwind portions of the Dodd-Frank Act. Republicans had criticized Dodd-Frank for creating too much red tape that slowed economic growth, while Democrats have countered that the CHOICE Act would remove protections against risky and predatory behavior from Wall Street.

Trump has taken frequent aim at Dodd-Frank throughout his campaign and since taking office in January he and others in his administration have pledged to undo portions of that law, passed during his predecessor’s administration.

– Companies targeted by the Consumer Financial Protection Bureau (CFPB) are more frequently choosing to fight enforcement actions rather than settle, according to the WSJ. Of 21 enforcement actions announced by the agency in 2017, one third have been challenged, the CFPB said. Those seven challenges already exceed the number last year, when the bureau brought 36 enforcement cases and faced six challenges, according to data compiled by Christopher Peterson, a University of Utah law professor. The shift has occurred as Republican critics push for an overhaul of the CFPB.

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