The week in GRC: FDIC’s Hoenig eyes investment banking partitions and the OCC moves ahead on fintech licenses

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

The New York Times reported that, although Chinese firms struck a record-breaking $225 billion in deals to acquire companies abroad last year, the government is telling some of its companies to cool things down. The country’s commerce minister Zhong Shan criticized what he called ‘blind and irrational investment’, and said officials planned to intensify supervision of what he called a small number of companies.


– HSBC broke with tradition by choosing outsider Mark Tucker of AIA Group to replace Douglas Flint as chairman later this year, Reuters reported. ‘As a top five long-term shareholder, we have been involved in the process and are pleased to see a highly regarded and fresh independent chair for HSBC,’ said Sacha Sadan, director of corporate governance at Legal & General Investment Management.


– According to The Wall Street Journal, ABB said lax controls played their part in the fraud and embezzlement at its South Korean unit that cost the Swiss company an estimated $73 million in lost pre-tax profit, some $30 million less than first signaled. ABB ‘failed to provide adequate management oversight and review of the local treasury activities,’ the company said. ‘Management has concluded that these deficiencies in the operation of ABB’s internal controls constituted a material weakness,’ the company noted in its annual report.

ABB disclosed last month that it had uncovered a ‘sophisticated criminal scheme’ that it said was orchestrated by an unnamed official of its South Korean unit, who went missing.


– The Times reported that the Federal Reserve Bank of Atlanta broke a 104-year-old racial barrier by naming Raphael Bostic as its new president. Bostic, an economist and former housing policy official in the Obama administration, will become the first African-American to lead any of the Fed’s 12 regional reserve banks, and only the fourth to serve on its policy-making committee. The Fed has come under growing pressure from congressional Democrats and liberal groups to increase the diversity of its leadership.


– Federal Deposit Insurance Corp vice chair Thomas Hoenig said US financial firms should partition their investment banking activity, putting it into a separate ‘intermediate holding company’ with its own board, management and capital, according to Bloomberg. The companies could even have a special class of stock, he said. Hoenig’s plan, which would require new legislation, wouldn’t exactly reinstall the Glass-Steagall Act, he said, but it could meet the Trump administration’s goal of enacting a modern take on the law that divided banking functions for more than six decades.


– The WSJ said JPMorgan Chase is moving ahead with its plan to drop commissions in retirement accounts that use a financial adviser, becoming the latest brokerage to push forward with efforts to comply with the US Department of Labor’s fiduciary duty rule that is under review for potential repeal or revision.

The bank told some wealth management customers with individual retirement accounts that as of April 7 their ‘financial adviser will no longer be able to provide investment guidance’, according to a letter sent to clients. Affected clients will be automatically moved to a self-directed retirement account on that date, the letter added. JPMorgan said in its letter that ‘it may not proceed with this transition’ of accounts if the new regulation requiring brokers to act in the best interests of retirement savers isn’t implemented as planned.


– Yahoo detailed a golden parachute of $23 million for CEO Marissa Mayer as part of her planned departure from what’s left of the company after it sells its core assets to Verizon Communications, the WSJ reported. Yahoo also outlined in securities filings the leadership of the remaining business, placing board director Thomas McInerney at the helm of what will in effect be a holding company for Yahoo’s stakes in Alibaba Group Holding and Yahoo Japan.

Mayer will continue as Yahoo’s CEO until the deal’s completion, at which point she will be replaced by McInerney and step down from the company’s board of directors. Her future with the core operations that will become part of Verizon hasn’t been announced, though Mayer herself has said she is ‘planning to stay.'


– Maureen Ohlhausen, the acting head of the Federal Trade Commission (FTC), said the agency is ‘not primarily a regulator’, according to the Guardian. Ohlhausen said the FTC was primarily a law enforcement agency and called for a wait-and-see approach to enforcement. She also defended the use of big data to offer consumers different prices for the same goods and said she wanted manufacturers of internet-connected household devices to decide best practices among themselves.


Bloomberg said optimism among CEOs of some of the largest US companies rose in the first quarter by the most since the economy emerged from the last recession, as the outlook for sales, the labor market and investment brightened. The Business Roundtable CEO Economic Outlook Index ‒ a measure of expectations for revenue, capital spending and employment ‒ jumped 19.1 points to 93.3, according to the group’s survey. The increase, the biggest since the final three months of 2009, left the gauge above its long-run average of 79.8 for the first time in seven quarters. 


– Senators Chuck Grassley, R-Iowa, and Debbie Stabenow, D-Michigan, introduced a bill that would require foreign companies buying US food and agriculture firms to undergo a review aimed at ensuring any deal would not hurt US food security, according to Reuters. The legislation would add the secretaries of the US Department of Agriculture and US Department of Health and Human Services, which oversees the Food and Drug Administration, to a panel that reviews mergers and other deals to ensure transactions do not harm national security.


– The WSJ said president Donald Trump picked J Christopher Giancarlo to head the Commodity Futures Trading Commission (CFTC). Giancarlo is expected to adopt a more industry-friendly approach than his predecessors during the Obama administration. If confirmed, he will have the power to overhaul the agency’s trading rule book for swaps, having spent the past several years trying to persuade the commission to shred those rules, which he says are ‘fundamentally flawed.'

But unlike Trump, who has vowed to ‘dismantle’ the Dodd-Frank Act, Giancarlo supports the law’s provisions that overhauled swaps, including routing them to clearinghouses. His appointment signals that the Trump administration is unlikely to follow through on its campaign promise to fully unwind the law.


– Giancarlo on Wednesday revealed wide-ranging plans to revamp regulations and help drive an ‘American economic recovery,’ the FT reported. His blueprint includes reviewing the agency’s rules, reforming its surveillance of markets and pushing for a revision of bank capital charges. 

Giancarlo embraced the Trump administration’s nationalist position on economic policy, saying he would pursue policies ‘that are most appropriate for American markets’ in talks with international counterparts. He also announced a reorganization of the agency, moving its market surveillance branch into its enforcement unit, with the aim of becoming better at monitoring illegal trading practices such as spoofing, manipulation and fraud. 


Reuters reported that Trump pledged to appeal a federal judge’s order placing an immediate halt on his revised travel ban, describing the ruling as judicial overreach that made the US look weak. In granting the temporary restraining order in response to a lawsuit by the state of Hawaii, US District Judge Derrick Watson found that ‘a reasonable, objective observer... would conclude that the executive order was issued with a purpose to disfavor a particular religion.’

US District Judge Theodore Chuang also issued a nationwide preliminary injunction in a similar case in Maryland brought by refugee resettlement agencies represented by the American Civil Liberties Union and the National Immigration Law Center.


– The Office of the Comptroller of the Currency (OCC) pressed ahead with its plan to offer a specialty license to financial technology (fintech) firms, a move that would allow the emerging industry to enter the federal banking system, according to the WSJ. The OCC laid out its licensing manual, which would allow fintech firms such as online lenders and payment processors to apply for a federal charter instead of going through the more cumbersome route of applying with each state where they do business.


– The Australian Securities & Investments Commission (ASIC) said the nation’s large banks still need to improve oversight of their financial advisers, Bloomberg reported. An ASIC report into how large financial firms have dealt with poor advisers concluded that while they have improved their practices, a number of problems remain. ‘The industry is driving its own reforms to improve the quality of financial advice,’ a spokesperson for the Australian Bankers’ Association said.


Reuters reported that the Trump administration proposed a 31 percent cut to the Environmental Protection Agency’s budget, as the White House seeks to eliminate climate change programs and trim initiatives to protect air and water quality. The EPA would sustain the biggest cut of any federal agency in the White House 2018 budget, as Trump seeks to remove regulations he claims are hobbling US oil drillers, coal miners and farmers. The proposed cuts are a starting point, and Congress could temper them in its budget deliberations.


– This year’s Wells Fargo proxy includes a proposal submitted by a group of mostly religious-affiliated activist investors who want the company’s board to produce a report into the root causes of last year’s sales scandal, Reuters reported. Wells Fargo's board urged shareholders to reject the shareholder proposal. The proxy stated that the board believes the topics that would be covered are already being addressed by other reviews that are underway.

The bank last year reached agreements with regulators regarding allegations that some of its retail customers received products and services they did not request.

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