This week’s governance, compliance and risk-management stories from around the web
- Senator Amy Klobuchar, D-Minnesota, sent a letter to the US Justice Department (DoJ) urging it to reject any effort by the White House to inject politics into merger investigations, according to Reuters. The letter followed a New York Times report saying that White House advisers battling CNN considered using a government review of AT&T plans to merge with CNN parent Time Warner as leverage.
‘Any political interference in antitrust enforcement is unacceptable. Even more concerning, in this instance, is that it appears that some advisers to the president may believe that it is appropriate for the government to use its law enforcement authority to alter or censor the press,’ Klobuchar wrote in a letter to attorney general Jeff Sessions. The White House and DoJ declined comment.
- The Financial Times reported that the Bank of England (BoE) has warned lenders against using balance sheet trickery and other ‘innovation’ to ‘circumvent the spirit’ of regulation aimed at preventing another financial crisis. Sam Woods, CEO of the BoE’s Prudential Regulation Authority, said some of the evolving funding and borrowing practices are ‘pure regulatory arbitrage’ and warned that firms ‘should expect questions and should be prepared to defend them.’
Woods said some of these practices include banks’ use of special purpose vehicles and other structures to escape certain capital requirements. He also highlighted that some banks are ‘seeking out funding that matures just beyond the time horizon used to calculate regulatory liquidity requirements.’
- Bloomberg said President Donald Trump plans to nominate Randal Quarles, who served as a senior US Department of the Treasury official in the George W Bush administration, to be the Federal Reserve’s top banking regulator.
If confirmed by the Senate, Quarles would leave his job as a managing director at a Salt Lake City-based private equity firm to become the Fed’s first vice chairman of supervision, a job established by the Dodd-Frank Act but never filled. The new vice chairman would be expected to play a key role in carrying out Trump’s pledge to ease some of the regulatory constraints that were put on banks after the financial crisis.
- Almost 1,000 lawyers in England and Wales have registered in Ireland in the year since the Brexit referendum, at least 10 times the usual annual number, because they fear losing the right to represent clients in European courts after the UK leaves the EU, according to the FT. The registration rush has been led by competition lawyers who fear losing their ability to represent clients - known as the right of audience - at the European Court of Justice. Brexit could also have serious implications for the status of legal professional privilege, the confidentiality of communications between clients and their lawyers.
- Burberry investor Royal London Asset Management expressed continued concern about corporate governance at the UK luxury brand and said it would vote against the company's pay report, Reuters reported. The asset manager also said it would vote against the re-election of chair John Peace and of the remuneration committee chair Fabiola Arredondo at Burberry's annual shareholders' meeting on Thursday.
‘While the board has made some improvements since the last shareholder rebellion three years ago, the chaotic response to several remuneration issues this year has heightened our concerns about poor corporate governance at Burberry,’ said Ashley Hamilton Claxton, Royal London's corporate governance manager. Burberry declined to comment.
- A new requirement for broker-dealers to report certain transactions in Treasury securities to the Financial Industry Regulatory Authority (Finra) went into effect, with the aim of giving regulators a new tool to increase understanding and enhance surveillance of the bellwether market. The rule requires that member firms report secondary market transactions in Treasury securities, except savings bonds, to Finra’s Trade Reporting and Compliance Engine.
- Reuters reported that, according to people familiar with the matter, Mitsubishi UFJ Financial Group (MUFG) may disclose information on so-called special advisers - all former top executives - and clarify the work they do, as part of its efforts to improve corporate governance. Doing so would put the bank among the first of major Japanese firms to review the role of advisers after the government this year called on companies to clarify the status of former executives who stay on their payrolls as consultants.
Prime Minister Shinzo Abe's administration has made corporate governance a key policy item, keen to shake up a business culture that has often been criticized for putting the interests of executives over shareholders. An MUFG spokesperson declined to comment.
- The Guardian said that Amazon, Facebook, Netflix and other technology firms would join with online activists, librarians, minority rights and free speech groups in a day of protest against the Trump administration’s plans to roll back rules in what critics say is a ‘war on the open internet.’ The so-called ‘day of action’ came as the new head of the Federal Communications Commission (FCC) prepares to dismantle net neutrality rules following pressure from cable companies and other internet service providers.
FCC chair Ajit Pai has called the rules politically motivated and ‘heavy handed’ and has claimed they stifle innovation by imposing unnecessary burdens on cable companies. The rules have been unsuccessfully challenged in court but could now be overturned by the Republican-controlled FCC.
- UK Prime Minister Theresa May welcomed a review recommending stronger protection for workers in the country’s ‘gig economy,’ as her government seeks to address insecurities generated by new informal employment practices, according to The Wall Street Journal. The report recommended that UK law be clarified so that people working in such conditions are regarded as workers - it suggests the term ‘dependent contractors’ - and not as self-employed. They should have rights to greater worker protection, including safeguards to ensure they don’t earn less than the national minimum wage plus a supplement to account for vacation pay, it says.
- Reuters reported that, according to the US Department of Justice (DoJ), CVS Health Corp has paid $5 million to resolve allegations that pharmacies it operates in California failed to keep and maintain accurate records of prescription drugs. CVS also entered into an administrative compliance plan with the US Drug Enforcement Agency that covers 168 pharmacies in California, the DoJ said.
As part of the settlement agreement, CVS acknowledged that during the period at issue, some of its California pharmacies failed to fulfill certain recordkeeping obligations under federal law. But CVS contends that any recordkeeping failure did not cause drugs to be diverted for illegal uses, the settlement agreement said. ‘As the settlement agreements recognize, CVS already maintains extensive programs and measures concerning compliance with the Controlled Substances Act and corresponding regulations,’ the company said.
- Politico said Jim Clinger asked the White House to withdraw his nomination to become chair of the Federal Deposit Insurance Corp, citing family issues. ‘It is…with a sense of regret that I have asked the White House to withdraw my nomination,’ Clinger said. ‘I did so after concluding that the family-related obligations that prompted me to leave government service earlier this year - which have grown more challenging in the interim - are incompatible with the demands of leading an important federal agency like the FDIC.’
- Reuters (via The New York Times) said that Barclays announced board appointments for its non-ring fenced business Barclays International (BI) to comply with new post-financial crisis rules forcing UK banks to separate their retail operations from their riskier business.
Gerry Grimstone, who is at present deputy chair and senior independent director of Barclays Group, will be appointed chair of the eight-person BI board, which comprises corporate and investment banking, international cards and payments and private banking, and will take effect on August 1 2017. Tim Throsby, president of BI, and Emily Portney, CFO of BI, will be appointed executive board members alongside five other independent non-executive appointments.
- The UK Financial Conduct Authority said it was planning to create a new category within its ‘premium’ listing rules that would exempt companies controlled by governments from some rules that apply to oligarchs or other private groups, according to the FT.
At present, overseas companies rarely seek a premium listing on the main London market, which entails adherence to the rigorous governance standards required of UK-listed companies. The alternative, a standard listing, is seen as second-best and would put off many investors. The move is part of broader plans by the FCA to reform equity and debt markets in an effort to keep the UK open for business after Brexit.
- The Consumer Financial Protection Bureau, under the leadership of director Richard Cordray, completed a regulation barring financial services firms from requiring aggrieved customers go to arbitration, rather than to court, to resolve disputes over credit cards, bank accounts, private student loans and auto loans, the WSJ reported. But firms and Republican lawmakers in turn stepped up their opposition, saying they would look at legislative, legal and regulatory avenues to stop the rule.
Opponents say it will increase compliance costs and litigation expenses, while benefiting trial lawyers who bring class action cases. Consumer advocates say requiring arbitration limits legal protections for consumers against corporate greed.
- The WSJ said that Vanguard Group named Mortimer ‘Tim’ Buckley, a onetime assistant to the firm’s founder Jack Bogle, as its next CEO. He will replace William McNabb in January. Vanguard has pulled in new assets at a record pace in recent years as investors lost faith in more traditional money managers who handpick stocks and bonds. ‘My goal has always been to leave the woodpile higher than where I found it,’ McNabb said. ‘I think that’s the right amount of time for someone to run an organization like Vanguard,’ he said referring to his tenure as CEO. McNabb will remain as chair next year and eventually pass that role to Buckley.