The week in GRC: Investors call for action on gun violence, and Qualcomm board re-elected with reduced support
– The Wall Street Journal reported that the Federal Reserve Bank of New York and Office of the Comptroller of the Currency (OCC) are taking different paths on the issue of whether examiners should work every day inside the offices of banks they oversee.
The New York Fed recently finished moving examiners back to its headquarters – they had previously worked inside big banks’ offices, but the agency changed course after criticism that examiners had grown too close to the bankers they oversee, a phenomenon known as ‘regulatory capture.'
The OCC also planned to move examiners in-house, before the election of President Donald Trump. Now Trump’s OCC chief, former bank CEO Joseph Otting, wants examiners to remain in banks’ offices. Thomas Curry, who ran the OCC during the Obama administration, wanted to cut down on resident examiners to ‘avoid the perception of regulatory capture,’ he said in a 2017 interview. Otting follows a different school of thought, which views the location of an examiner’s desk as a minor concern compared with other factors, such as training, priorities and resources.
– The Financial Times said that although the launch of Mifid II passed without the disruption some observers had predicted, experts warn the story does not end here. Companies must manage continuing risks associated with the new rules, as regulators – which to date have allowed a grace period in certain areas around the changes – begin to watch.
‘There was a hope from firms that it would go live and that would be the end of it,’ says Matthew Ranson, risk advisory director at Deloitte. ‘[But] it’s very fair to say that Mifid II is going to be a journey rather than an event.’ One part of the directive that will take time to bed in requires fund managers to pay financial institutions directly for analyst research, instead of the opaque practice of combining the cost with trading commissions.
– The WSJ also reported that, according to people familiar with the matter, the New York Fed’s board of directors has recommended San Francisco Fed president John Williams to succeed the retiring William Dudley. Williams would need approval by the Fed’s Washington, DC-based board of governors.
– Bloomberg reported that, according to people familiar with the matter, Deutsche Bank chair Paul Achleitner has held talks with potential successors to CEO John Cryan. Discussions have focused on a leader who speaks German and who works well with regulators, the people said. Achleitner has sounded out potential replacements as part of normal succession planning, they added. One top shareholder said Cryan remains the best choice as CEO of the bank.
– Banks can expect to see major further relief from post-financial crisis rules in 2018 after the final Trump-appointed leader is seated at the nation’s banking regulators later this spring, according to the WSJ. Jelena McWilliams, the top lawyer at Cincinnati-based Fifth Third Bancorp, is set to succeed Obama-appointee Martin Gruenberg as head of the Federal Deposit Insurance Corp as early as April.
Top policy issues the leading bank regulatory agencies are likely to tackle first include the Volcker Rule, the Community Reinvestment Act, fintech, leveraged lending and cyber-security.
– The WSJ said that, according to administration officials, the US Department of the Treasury is planning to use laws designed to address national emergencies to block Chinese companies from acquiring advanced US technology, part of the Trump administration’s efforts to prevent what it sees as China’s efforts to give itself an economic and military edge.
The government is looking to use a number of legal measures, including the International Emergency Economic Powers Act, which gives the president broad authority in the case of an ‘unusual and extraordinary threat,’ according to a senior official familiar with administration plans.
– According to the FT, a new UK corporate governance code for private companies, which is due to be introduced in 2019, will not cover executive pay, said Wates Group chair James Wates, who has been asked by the government to bring about a ‘step change’ in the way large private companies are run.
Wates said the governance code for private companies ‘may not be a million miles away’ from the corporate governance rules that apply to listed companies and that he did not want to ‘reinvent the wheel’. But he said executive pay would not be tackled by the new code. ‘I believe personally that what we pay our people in private businesses is between us and them. I don’t think we have to be overly transparent on that, because otherwise we’re just putting out a For Sale [sign] on good, talented people,’ he said.
– Bloomberg reported that, according to an industry lobby group, financial services companies will have moved more than 1,000 people to Frankfurt by the end of April in preparation for Brexit. Banks are accelerating their local hiring plans and have moved in teams of people from the UK to ensure their new EU headquarters are up and running by March 2019, said Hubertus Väth, managing director of Frankfurt Main Finance. Väth expects as many as 10,000 jobs to move to the German city in the next few years.
– Governance experts are raising concerns over the quality of companies getting ready to list in Asia as stock exchanges push ahead with major reforms to attract major listings and boost their businesses, according to the FT. Hong Kong Exchanges and Clearing and mainland China’s Shenzhen and Shanghai exchanges are pursuing efforts to entice a wider array of companies, such as technology and biotech firms, to list on their markets.
– The New York Times reported that Equifax named Mark Begor as its new CEO. Begor takes over for Paulino do Rego Barros, who has filled the role on an interim basis since September, when Richard Smith stepped down after a data breach exposed sensitive personal information of 148 million people.
Begor, a managing director at the private equity firm Warburg Pincus, will start at Equifax on April 16. He is also a member of the board at the credit-scoring company FICO, a position he plans to give up before joining Equifax. Barros will stay through the transition and retire early next year, Equifax said.
‘The team has made meaningful progress in the last several months to address a number of well-publicized issues,’ Begor said in a statement. ‘I will prioritize continuing our team’s efforts to communicate transparently and restore confidence with consumers, customers, shareholders and policymakers.’
– Reuters reported that the US Department of Justice (DoJ) said Barclays agreed to pay $2 billion for allegedly causing billions of dollars of losses to investors by engaging in a fraudulent scheme to sell residential mortgage-backed securities between 2005 and 2007. The DoJ said the firm misled investors about the quality of the mortgage loans backing those deals and committed violations of mail fraud and bank fraud. According to the department’s statement, Barclays disputes the allegations.
‘I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice. It has been a priority for this management team from the start to resolve these historic issues in a timely and appropriate manner wherever possible,’ Barclays CEO Jes Staley said.
Two former Barclays executives, Paul Menefee and John Carroll, paid a combined $2 million in exchange for claims against them being dismissed, the department said. They also dispute the allegations.
– Deutsche Bank CEO John Cryan told employees Wednesday he is ‘absolutely committed’ to serving the bank, in a memo posted to the lender’s public website, according to the WSJ. The communication was the first public comment from Cryan after media, including the WSJ, reported Tuesday that Deutsche Bank chair Paul Achleitner has reached out externally to potential candidates to be the bank’s next CEO.
The WSJ, citing people briefed on the discussions, said the outreach has been informal and raises the possibility that Cryan could leave before his contract ends in 2020. Cryan and Achleitner didn’t respond to requests for comment, and a Deutsche Bank spokesperson said they wouldn’t comment. The bank didn’t immediately respond to a request for comment about the memo.
The Journal reported Tuesday that members of Deutsche Bank’s supervisory board aren’t all in agreement on CEO succession planning, citing people familiar with board deliberations.
– The FT reported that Hyundai Motor’s founding family is simplifying the South Korean company’s complex ownership while consolidating their control over the group’s key units. The group said it would spin off the module manufacturing and after-sales parts business of Hyundai Mobis and then merge the spun-off business into Hyundai Glovis, its logistics unit. Afterwards the controlling family will sell its stake in Hyundai Glovis and use the proceeds to buy more shares of Hyundai Mobis, the parts-making unit at the core of the group’s ownership structure.
– A group of 142 institutional investors called on gun manufacturers, retailers and other companies with ties to the gun industry to take ‘meaningful action’ to address the US’s epidemic of gun violence in the wake of February’s mass shooting in Florida, The Guardian noted. The statement, which says ‘the moral case for action grows more urgent each day,’ was drafted by the Interfaith Center on Corporate Responsibility (ICCR), a coalition of global institutional investors. It has been signed by US and European investors that together manage more than $634 billion in assets.
The statement identifies a series of commitments that companies should consider to protect their employees, consumers and communities, including ending any commercial relationships or promotional ties with the NRA. The move comes after the ICCR launched a campaign to push shareholders in the two largest US gun manufacturers, American Outdoor Brands and Sturm Ruger, to tighten up their gun safety policies.
– Bloomberg reported that Under Armour said roughly 150 million user accounts tied to its MyFitnessPal nutrition-tracking app were breached earlier this year. An unauthorized party stole data from the accounts in late February, Under Armour said, adding that it became aware of the breach earlier this week and took steps to alert users about the incident.
– Bloomberg also reported that Qualcomm vote tallies from its annual meeting show that the company’s board was re-elected with reduced support from shareholders, as fallout from a failed takeover bid from Broadcom that many investors wanted. Directors were running unopposed at the meeting because Broadcom pulled an alternative slate of candidates after its acquisition attempt was blocked by the US government.
Qualcomm disclosed in a regulatory filing that the incumbent directors drew the support of 580 million to 781 million votes out of a total available of about 1.48 billion. The supporting votes were down from last year, when most company nominees got more than 1 billion votes each, and the number of shares withheld - essentially a vote against - from most directors jumped.