The week in GRC: Activist investors take aim at CEOs, banks becoming confident of no new Glass-Steagall

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

– Companies and governments on Monday reported more infected computers stemming from a global cyber-attack, as IT departments around the world continued trying to determine the scope of the damage and recover from it, according to the Wall Street Journal. The cyber-attack hit businesses, hospitals and government agencies in at least 150 countries.

State media reported nearly 40,000 public and private institutions had been hit in China. French auto maker Renault, which closed plants across Europe over the weekend after being hit, said it was keeping one of its plants in France offline Monday to run tests. It expected full production back up Tuesday, a spokesperson said. As of Monday evening in Asia and Monday afternoon in Europe, there were signs the cyber-attacks were ebbing.

– The People’s Bank of China (PBOC) said it had created a new unit to address emerging financial security challenges brought by technological innovations, Bloomberg reported. The central bank set up a committee to improve financial technology research and co-ordination and will study how it affects monetary policy, markets, financial stability, payments and clearance. The PBOC will step up use of measures such as big data, artificial intelligence and cloud computing to increase its capability to recognize, prevent and reduce cross-sector and cross-market financial risks.

– The Financial Times said Peter Hambro was to step down as chair of gold mining company Petropavlovsk after more than 20 years following pressure from three shareholders. Russia-focused Petropavlovsk proposed on Monday that Hambro switch from executive chair to executive director, and remain at the company while it completes a turnaround. Petropavlovsk also proposed that Andrew Vickerman, a non-executive director, become interim non-executive chair while a long-term successor to Hambro is identified.

‘We have always recognized that, in order to grow, companies must evolve and we have taken this decision in adherence to the corporate governance standards required of a modern and forward-thinking company,’ Hambro said. ‘Our immediate priority is to ensure our recent operational and financial successes continue.’

– The Financial Industry Regulatory Authority (Finra) requested feedback on its rules governing outside business activities and private securities transactions. The review centers on rules governing broker-dealer employees’ business and securities activities carried out away from their firm. These rules were designed to protect investors from potentially problematic or risky activities that are unknown to the firm but could be perceived by the investing public as either part of the firm’s business or having the firm’s imprimatur. In addition, the rules protect firms from reputational or litigation risks when employees engage in business and securities activities outside of the firm.

– The SEC made a number of senior appointments:

  • It named Robert Stebbins as general counsel of the agency. He was previously a partner with Willkie Farr & Gallagher, focusing on M&A, private equity and venture capital, investment funds and capital markets transactions. He has also advised clients on SEC compliance issues and corporate governance matters
  • Jaime Klima was named chief counsel to chair Jay Clayton. Most recently, she served as SEC co-chief of staff under then-acting chair Michael Piwowar
  • Sean Memon was appointed as the agency’s deputy chief of staff. Memon was previously an attorney with Sullivan & Cromwell, where he advised clients in regulatory and transactional matters, including with respect to capital raisings, M&A and joint ventures.

– President Donald Trump earlier this month said his administration was taking a look at breaking up Wall Street’s biggest banks. But Bloomberg reported that instead of cowering, industry executives and lobbyists are crowing, getting more confident about ditching rules that have annoyed them for years because the Trump administration is appointing friendly regulators and signaling it will make life easier for bankers.

‘Break up the banks? That ain’t going to happen,’ said Rick Hohlt, who has advised and lobbied for lenders for three decades. ‘You need legislation to do that. And the chance of that is about zero.’

Reuters reported that banks have tightened their security systems and increased their surveillance after the recent global ‘ransomware’ cyber-attack on individuals and organizations. One person helping co-ordinate the banks’ response said they were establishing back-up systems for data and introducing security upgrades.

– Activist investors, a perennial nuisance for CEOs, are becoming an existential threat, according to the WSJ. Since January they have helped push out the leaders of three high-profile companies and are gunning for CEOs at other firms. Chief executives have long felt pressure from these investors, but activists are increasingly asking for their heads at the outset of campaigns, in a new level of aggressiveness.

Reuters reported that Virginia governor Terry McAuliffe issued an order to lay the groundwork for a cap-and-trade system designed to cut greenhouse gas emissions from power plants, saying it would ‘fill the void’ left by the Trump administration, which has been rolling back federal climate rules. McAuliffe specifically asked regulators to propose a rule for the state air pollution control board that would enable Virginia to participate in a multi-state carbon-permit trading program such as the Regional Greenhouse Gas Initiative for Northeastern states.

The Environmental Protection Agency has been rolling back Obama administration rules aimed at combating climate change, including the Clean Power Plan that aimed to slash carbon emissions from power plants by 32 percent below 2005 levels by 2030.

– The FT said banks that help companies and governments raise debt are starting to grapple with a little-noticed part of the revised Markets in Financial Instruments Directive (Mifid II) that is set to come into force next year: a demand to justify decisions about which investors get to buy a bond. The rule is forcing banks to make sweeping changes to the way they sell bonds in the primary market as regulators push for greater clarity on how dealmakers operate. Mifid II takes effect in January 2018 and has far-reaching implications across European financial markets, with much of the focus on the way banks charge for research and ensure transparency in secondary market bond trading.

– The WSJ reported that, according to people familiar with the matter, the SEC will reconsider its initial approval of a first-of-its-kind exchange-traded fund (ETF) that promises four times the daily price moves of S&P 500 futures contracts. The commission’s decision means the earlier approval – given by the agency’s staff – has been put on hold and doesn’t allow the ForceShares Daily 4X US Market Futures Long Fund and ForceShares Daily 4X US Market Futures Short Fund to begin trading, the people said. The commission could reverse or uphold the staff’s decision.

ForceShares is a first-time ETF sponsor that worked with ETF Managers Group, a firm that provides services to aid smaller sponsors in launching new ETFs. A principal at ForceShares couldn’t be reached for comment. A spokesperson for ETF Managers Group declined to comment. An SEC spokesperson didn’t immediately respond to a request for comment.

– NYSE Group, which is owned by Intercontinental Exchange, was given permission by regulators to implement a so-called speed bump on one of its exchanges, allowing it to go head to head with upstart rival IEX (also known as the Investors Exchange), according to Reuters. NYSE Group plans to add a delay of a fraction of a second for incoming and outgoing orders on its NYSE MKT exchange, which it is renaming NYSE American. It will have a similar model to the Investors Exchange, including a 350-microsecond delay, except it will have electronic market makers with obligations to ease the trading of NYSE American-listed stocks.

Reuters reported that the US Senate could soon approve a major overhaul of the federal bureaucracy and make lasting changes to regulation of the environment, education, banks and other areas. A Senate committee sent a bill on to the full chamber that, supporters say, will make regulators more accountable to lawmakers and provide greater understanding of how rules affect the economy. The next step, debating the Regulatory Accountability Act on the Senate floor, has not been scheduled. The House of Representatives approved companion legislation in January.

Critics say the bill would create so many new requirements that it would paralyze regulators working to establish even the most basic rules and standards. They also say it makes cutting industry and banks’ costs a higher priority than protecting public health and safety.

– According to the WSJ, IBM is dismantling its popular decades-old remote-work program to bring employees back into regional offices, a move it says will improve collaboration and accelerate the pace of work. The company won’t say how many of its 380,000 employees are affected by the policy change, which so far has been rolled out to its Watson division, software development, digital marketing and design.

The shift is particularly surprising because the company has been among the business world’s staunchest supporters of remote work, both for itself and its customers. IBM’s leaders want employees to work differently now, a company spokesperson said. The company has rebuilt design and digital marketing teams to quickly respond to real-time data and customer feedback, collaborations that happen more easily when teams work shoulder to shoulder, the spokesperson added.

Reuters said insurers in more than 100 countries face a ‘once in a lifetime’ accounting change from January 2021 with the introduction of a uniform international bookkeeping standard from the International Accounting Standards Board. The new regulation seeks to make it easier for investors to compare how much insurers earn from policies by opening up opaque national practices. Analysts say it will mean billions of euros in compliance costs as insurers ramp up IT systems to recalculate millions of contracts each reporting period.


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