This week’s governance, compliance and risk-management stories from around the web
‒ Bloomberg reported that the SEC’s division of enforcement is imposing a series of cuts as it braces for deep spending reductions in US President Donald Trump’s budget proposal, according to people familiar with the matter. In addition to a ban on non-essential travel, the department has also imposed a hiring freeze and curbed the use of outside contractors that aid agency lawyers with cases.
‘We’re already seeing a quieter enforcement regime’ since the change of administration, said Urska Velikonja, a law professor at Emory University in Atlanta who has studied the SEC’s enforcement history. ‘The number of enforcement cases is likely to be down considerably going forward.’
A spokesperson for acting SEC chair Michael Piwowar denied he had directed any agency division to make budget cuts or curtail spending. But Piwowar had said the SEC should review how it allocates resources, particularly because the agency’s funding might be cut.
SEC and White House spokespeople declined to comment.
‒ General Motors said it had agreed to sell its European operations, The Wall Street Journalreported. Peugeot will pay €1.32 billion ($1.4 billion) for GM’s Opel and Vauxhall brands, the companies said. GM’s financial operations in Europe will be jointly acquired by Peugeot and BNP Paribas for roughly €900 million. GM said it would take an accounting charge of $4 billion-$4.5 billion in connection with the transaction. Still, the US auto maker said the deal would free up about $2 billion in cash, which it plans to use for share buybacks.
‒ Reuters said non-domestic applicants for temporary jobs at high-tech US companies will undergo a longer visa approval process after the Trump administration announced it will temporarily suspend expedited applications for H-1B visas. The US Citizenship and Immigration Services said that, starting April 3, it will suspend ‘premium processing’ for up to six months. Under this expedited procedure, applicants can be eligible for visa approvals within 15 days, instead of a regular review period that can last for up to a few months.
– Reuters reported that Chinese telecommunications equipment maker ZTE Corp said it had agreed to plead guilty and pay $892 million to settle allegations it violated US laws restricting the sale of US-made technology to Iran. ZTE will plead guilty to conspiring to violate the International Emergency Economic Powers Act, among other charges, in the agreement with the US departments of commerce, treasury and justice. The agencies all declined to comment on Tuesday.
‘ZTE acknowledges the mistakes it made, takes responsibility for them and remains committed to positive change in the company,’ said ZTE chair and CEO Zhao Xianming in a statement.
– The Trump administration and Senate Republicans rolled back labor protection laws in a pair of moves labor advocates predict will chill complaints by vulnerable workers, particularly in the low-wage food-processing industry, which relies heavily on easily exploited undocumented laborers, the Guardians aid.
The Senate voted along party lines to repeal an Obama-era executive order mandating accurate labor violation recordkeeping, meaning companies with on-the-job accidents and fatalities no longer have to disclose that information in order to receive lucrative government contracts. Earlier the same day, Trump issued an executive order promising to ‘rigorously evaluate all grounds of inadmissibility or deportability’ with respect to foreign nationals on US soil.
– Johnson & Johnson’s legal costs jumped last year after a surge in the number of people suing the world’s largest healthcare company, according to the Financial Times. The number of lawsuits disclosed by Johnson & Johnson rose by 28,300 during 2016 to hit 104,700 by the start of 2017, according to a recent securities filing. Litigation expenses increased 480 percent year-on-year to $817 million. The company is contesting claims and said it ‘will try cases where appropriate.’ It has also won several court cases or had them dismissed.
– CSX said it had agreed to appoint Hunter Harrison as CEO, effective immediately. The decision ended an unusual contest with an activist investor who parlayed Harrison’s popularity with Wall Street into sweeping leadership changes at CSX, which operates one of two major freight networks east of the Mississippi River, the WSJ said. Harrison said the depth of investor support for his leadership at CSX was unexpected. ‘Shareholders took a much more active role than I’ve ever seen before. They wanted change,’ he said.
– The Boston Globe reported that State Street Global Advisors (SSGA) installed a bronze statue of a little girl, with hands on her hips, staring down the Wall Street bronze bull. SSGA placed the statue in the financial heart of New York as a call for more women to serve on corporate boards. State Street also announced that it had adopted new guidelines to press 3,500 public companies in which it invests to increase the number of women on their boards.
– The EU has insisted on no cherry-picking by the UK in the coming Brexit negotiations, but many of the 27 governments that will remain in the bloc are jockeying for some possible gains, according to Bloomberg. In their sights are two of the EU’s most influential regulatory bodies – the European Medicines Agency (EMA) and the European Banking Authority (EBA) – which are now based in London but are almost certainly relocating to other EU cities after Brexit.
The EMA was the subject of informal exchanges among representatives of EU governments on Monday, diplomats said. Officials warn that clashes between member states could spill over into the Brexit negotiations if decisions on the EMA and the EBA drag on.
– Bloomberg reported that Mark Calabria, chief economist to vice president Mike Pence, said the Trump administration’s initial efforts to attack financial regulations will include directing federal agencies to reverse changes that have been made through guidance rather than formal rulemaking.
The White House is trying to fill vacancies at the banking industry regulators ‘in short order,’ Calabria said. Once Trump’s people are in place, they can quickly roll back supervisory efforts they think aren’t appropriate, he added. ‘As so much of the Obama-era financial regulation was by guidance – and, I would say, regulation by enforcement – that part of the Obama era can be easily erased once we have new regulators in place.’
– The new administration’s deregulatory stance has led to expectations of a pullback in the enforcement of laws aimed at preventing discrimination in lending, The New York Times said. Bankers have been frustrated by what they see as overzealous enforcement of fair lending rules over the last few years, but consumer watchdogs and regulators have raised serious concerns about biased lending in some communities after banks pulled back from mortgage lending because of the financial crisis. A spokesperson for the US Department of Justice declined to comment on the agency’s enforcement plans.
– The Financial Industry Regulatory Authority (Finra) filed a proposal with the SEC that it said would streamline competency exams and create opportunities for professionals seeking to enter or re-enter the securities industry. The proposal would revise the existing exam structure to eliminate duplicative testing and barriers to demonstrating and maintaining qualifications.
According to Finra, the changes would make it easier for an individual with no prior securities industry experience – whether an investor, recent college graduate or professional seeking a second career – to take a general knowledge exam as an important first step to entering the industry.
– According to Bloomberg, the latest indication that Wall Street regulations won’t be gutted anytime soon is that Republicans who write financial laws are starting to focus on other things. Reality is setting in on Capitol Hill that rolling back the Dodd-Frank Act won’t be quick or easy – even though it’s a priority for Trump, who says the measure is hurting the economy. Congress is bogged down by fights over replacing Obamacare and rewriting tax laws, leaving little capacity for a battle over financial rules.
– Reuters reported that, according to people familiar with the matter, the SEC last year pushed the three main exchange-traded fund (ETF) trading venues to draft rules that explicitly require the funds to continually pass a number of tests or face the possibility of being shut down. The regulator approved the second of the three proposals in a notice posted on Wednesday and could rule on the third soon.
Some managers have sent letters to the SEC arguing that the rules are unnecessary and could force some ETFs to be declared out of compliance or shut down even if the fund itself is not at risk. An SEC spokesperson declined to comment.
– According to an Americans for Financial Reform report, banks and other financial companies expecting big benefits from Republican-led deregulation spent record amounts on lobbying in the last election cycle, Reuters said. The financial services industry spent $2 billion on political activity from the beginning of 2015 to the end of 2016, including $1.2 billion in campaign contributions – more than twice the amount given by any other business sector, according to the study. That equates to $3.7 million per member of Congress and is the most ever tracked by the group, which analyzed spending data going back to 1990.
– The FT reported that KPMG picked William Thomas, who chairs the group’s Americas business and has been with the firm for almost three decades, to be its global chairman. Thomas will assume the role in October. He will replace John Veihmeyer, who is retiring, for a four-year term.
– Federal Communications Commission (FCC) chair Ajit Pai defended his promised rollbacks of Obama-era privacy and net neutrality rules at a hearing, saying they are necessary to maintain broadband investment, the WSJreported. But Democrats warned his efforts to scale back the rules could lead to consumer harm.
‘At the end of the day the FCC has the responsibility to put the public interest ahead of special interests,’ said senator Bill Nelson, D-Florida, the ranking member on the committee on commerce, science & transportation. ‘Congress expects the commission to uphold the laws it has passed and enforce the regulations properly adopted by the agency.’
– Trump assured a group of US community bank executives that he will implement regulatory changes that will make it easier for them to lend money, according to Bloomberg. He was seeking the bankers’ input on which regulations may be crimping their ability to lend to consumers and small businesses, according to a White House statement. Trump previously called Dodd-Frank a ‘disaster’ for small lenders and pledged to ‘do a big number’ on it.
– Reuters reported that the Senate Banking Committee approved – with some bipartisan support – a number of bills aimed at spurring capital formation, marking its first step this year toward modernizing market rules that critics have said are outdated and get in the way of business expansion and investment. The bills propose a variety of changes to SEC regulations, such as raising the dollar amount of stock options private companies can award employees in a given year from $5 million to $10 million, and easing restrictions to allow brokers to publish research on the ETF market.
– According to the WSJ, corporate executives are buying their own companies’ shares at the slowest pace in at least 29 years. Share purchases and sales by executives are parsed by investors searching for signals about what insiders expect from the market. Sales can show wariness about valuations, while purchases can signal confidence that more gains lie ahead.