The week in GRC: PCAOB adopts tougher standards, and Campbell Soup names new CEO
– Reuters reported that Malaysian authorities on Monday filed criminal charges against Goldman Sachs and two of the bank’s former employees in connection with an investigation into suspected corruption and money laundering at state fund 1MDB.
‘The charges arise from the commission and abetment of false or misleading statements by all the accused in order to dishonestly misappropriate $2.7 billion from the proceeds of three bonds issued by the subsidiaries of 1MDB, which were arranged and underwritten by Goldman Sachs,’ Malaysian Attorney General Tommy Thomas said in a statement.
A Goldman Sachs spokesperson said the charges were ‘misdirected’ and that the bank would vigorously defend them. The bank continued to co-operate with all authorities in their investigations, the spokesperson added.
US prosecutors filed criminal charges against former Goldman Sachs bankers Tim Leissner and Roger Ng last month. Leissner pleaded guilty to conspiracy to launder money and conspiracy to violate the FCPA. Ng, detained in Malaysia, is facing extradition to the US. Lawyers for Leissner and Ng could not be reached immediately.
– SEC chair Jay Clayton called on the UK and the EU to take action to ensure a no-deal Brexit would not cause chaos in global markets, according to the Financial Times. Clayton said he would like to see firm commitments to ensure key market functions can continue without disruption even if the UK leaves the EU without securing a withdrawal agreement. He pointed to non-centrally cleared derivatives contracts and investment management broadly as areas of concern.
‘Some period of adjustment would be good,’ Clayton said. ‘The intricacies of our financial system are significant and it’s difficult to identify all the ways in which a decree that something is no longer valid may impact.’ Clayton’s comments are the latest in a series of warnings issued by US regulators as the March 29, 2019 deadline for the UK’s exit from the EU looms. The Federal Reserve warned in November that a no-deal Brexit posed near-term risks to the US financial system.
– The New York Times reported that the Committee on Foreign Investment in the United States – a panel that reviews foreign investments for national security threats – and the departments of justice, homeland security and defense all agreed to the proposed $26.5 billion merger between T-Mobile and Sprint.
Some investors, consumer advocates and government officials opposed the merger, arguing that the new telecommunications company would limit customer choices and result in high prices for consumers. Proponents of the deal said it would make the combined company a competitor that would be able to compete with AT&T and Verizon in the battle to dominate the next frontiers of wireless technology in the US. The deal would still need to secure approval from the Federal Communications Commission.
– The UK’s Big Four accounting firms face a major shake-up under proposals to reduce their hold on the market for auditing companies’ books, which would also force them to separate their audit and advisory businesses, Reuters reported.
In a report commissioned by the business ministry, John Kingman, chair of insurer Legal & General, said the existing regulator –- the Financial Reporting Council – should be replaced by a new body with new management, stronger powers and a competition remit. The new regulator would also have powers to pursue any company director if it found wrongdoing. Another report by the Competition and Markets Authority stopped short of calling for a break-up of the big four but proposed putting their audit and advisory services into separate operating entities.
‘We are supportive of change that enhances audit quality and maintains the competitive position of the UK as we prepare to leave the EU,’ said Deloitte senior partner David Sproul. EY said it would support workable measures that genuinely improved audit quality to rebuild society’s trust in business.
– The Wall Street Journal reported that the Public Company Accounting Oversight Board (PCAOB) adopted tougher standards for auditing accounting estimates and beefed up requirements for auditors that rely on the work of specialists. Accounting estimates such as fair-value measurements involve subjective assumptions by managers and are susceptible to management bias. That makes accounting estimates one of the riskiest areas in an audit and one that requires additional auditor attention, the PCAOB said.
The new rules direct auditors to pay more attention to tackling potential management bias, create a more uniform approach to substantive testing for estimates and integrate risk management standards to focus on estimates with greater risk of material misstatements.
– According to Bloomberg, Maria Vullo is stepping down as head of New York’s Department of Financial Services after three years in which she created a national model for cyber-security regulations at banks and fought back against federal attempts to undermine Obamacare and payday-lending rules. Vullo will leave on February 1.
‘It’s been a great three years,’ Vullo said in the interview. ‘I am immensely proud of the depth of the work done in every division of this agency.’ She collected more than $2.8 billion from enforcement actions against financial institutions, mostly foreign banks, for violations of US sanctions, anti-money laundering laws and the Bank Secrecy Act.
– The WSJ reported that the Association of National Advertisers (ANA) is pushing the Federal Trade Commission (FTC) to advocate for a new federal law governing the way advertisers and others collect and use consumer data. It is an effort to pre-empt regulation by individual states.
The ANA said the federal government should clearly define ‘reasonable’ and ‘unreasonable’ data practices. It was responding to the FTC’s request for comment ahead of its planned February hearing on consumer privacy amid Europe’s new General Data Protection Regulation and the California Consumer Privacy Act, which is set to take effect in 2020.
– The WSJ also reported that Campbell Soup Co named Mark Clouse as its new CEO. Clouse will take the job after the company wrapped up a public battle with activist hedge fund firm Third Point over its leadership and strategy. Clouse was CEO of Pinnacle Foods until that company was purchased by Conagra Brands in October. The company said Clouse will start work as CEO on January 22.