The week in GRC: FCC net neutrality vote faces legal challenge, and Icahn said to eye Xerox board tussle

Dec 15, 2017
This week’s governance, compliance and risk-management stories from around the web

Bloomberg reported that the UK government reversed a campaign pledge to disband the Serious Fraud Office (SFO), with the white-collar prosecutor remaining independent under the government’s newest plans for tackling economic crime. The National Crime Agency, which the government had signaled would subsume the SFO, will instead be given greater powers to directly task the prosecutor to investigate cases.

– Also in the UK, Financial Conduct Authority (FCA) fines increased 10-fold in 2017 from the previous 12 months, returning to figures more usually seen from the regulator in the last five years, according to Bloomberg. The FCA levied £229.4 million ($307 million) in penalties this year, up from £22.2 million in 2016, the FCA’s website stated. ‘A 10-fold increase is significant, but it’s worth remembering that this is the second lowest year of fines over the past five years,’ said John Whittaker, a lawyer at Clyde & Co. The FCA declined to comment.

– According to the Financial Times, the US Department of Justice (DoJ) gave HSBC a boost by dismissing the deferred criminal charges that have been hanging over the bank since it was fined for money laundering and sanctions breaches five years ago. HSBC said the DoJ would file a motion with the US District Court for the Eastern District of New York seeking the dismissal of the charges deferred as part of a settlement with the lender in December 2012. HSBC said that it had ’lived up to all its commitments.'

The ending of the deferred prosecution agreement is a vindication for the outgoing management team of Douglas Flint, who retired as chair this year, and Stuart Gulliver, who is due to hand over as CEO to John Flint, his retail banking head, in February. Flint and Gulliver made it a priority to clean up the bank’s anti-money-laundering and sanctions controls, investing more than $1 billion in compliance technology and creating a financial crime risk unit that has more than 7,000 staff.

Bloomberg reported that Steinhoff International Holdings’ response to accounting concerns has been to assign three board members to keep a closer eye on corporate governance. A new sub-committee will be led by Johan van Zyl, a Steinhoff non-executive director since May 2016, the company said. The retail company is also working with auditors Deloitte to publish full-year financial results, which were delayed indefinitely after the company discovered accounting irregularities. An investigation by PwC is under way, Steinhoff confirmed.

– According to the FT, ExxonMobil will start publishing reports on the possible impact of climate policies on its business, bowing to shareholder demands for improved disclosure of the risks it faces. The decision is the biggest success to date for investors who have been pushing companies to do more to acknowledge the threat they face from climate change and policies that curb greenhouse gas emissions.

In a regulatory filing, Exxon said it would introduce ‘enhancements’ to its reporting, including analysis of the impact of policies designed to limit the increase in global temperatures to 2 degrees centigrade, an internationally agreed objective.

At Exxon’s annual meeting in May, investors controlling about 62 percent of shares backed a proposal filed by a group of shareholders led by the New York state employees’ retirement fund calling for an annual assessment of the impact of technological change and climate policy on the company’s operations.

– SEC chair Jay Clayton warned investors in bitcoin and other crypto-currencies to beware of scams and criminal activity in the sector, The Guardian reported. In the agency’s strongest statement yet, Clayton said: ‘If a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.’

Clayton warned investors to ask several questions before investing in crypto-currencies or ‘initial coin offerings’, including: are there substantial risks of theft or loss, including from hacking? and is the offering legal?

– Activist investor Carl Icahn plans to launch a new board fight with Xerox in an effort to change management of the company, his second offensive against the firm in a roughly two-year span, according to the WSJ. ‘The CEO is the most important person in the company. We believe Xerox still has potential, but it will go the way of Kodak if there aren’t major changes,’ Icahn said, adding, ‘The times have changed but not the old guard that controls the board.’

Xerox did not comment on Icahn’s criticism, but it had said in a statement earlier Monday that it was ‘ahead of plan’ on its strategic transformation and reiterated its financial goals. Icahn has named his four director nominees in a securities filing.

Reuters reported that the SEC said it appointed Republican Senate lawyer William Duhnke to lead the PCAOB. Duhnke, who is staff director and general counsel to the US Senate Committee on Rules and Administration, will replace Jim Doty, who has been chair of the PCAOB since 2011.

The SEC also appointed Robert Brown, professor at the University of Denver, Kathleen Hamm of Promontory Financial Group, James Kaiser, partner at PwC and Duane DesParte, senior vice president at Exelon Corporation, to the PCAOB board. SEC chair Jay Clayton said he expected the transition to the new board would occur at the beginning of January 2018.

– The Securities Industry and Financial Markets Association (Sifma) said it’s hopeful that regulators will soften their stance on how investor data is collected for the consolidated audit trail (Cat), the SEC’s new market-surveillance system, according to Bloomberg. The SEC may agree to allow broker-dealers to submit client-trading information without revealing personal identifiers attached to each individual investor as the industry is requesting, Sifma president Kenneth Bentsen said.

Sifma supports the concept of the surveillance system while opposing the inclusion of detailed investor data in it, Bentsen said. The SEC had rejected requests to delay the start of the program, and data from the exchanges started flowing into the Cat system last month. Brokers have to begin submitting their client-trading data in November 2018.

– The FT said the UK’s biggest international banks are set to move fewer than 4,600 jobs from London in preparation for Brexit: just 6 percent of their total workforce in the financial center. The FT’s analysis contrasts with consultants’ original claims that tens of thousands of jobs could move from London after Brexit.

An EY study this past week claimed 10,500 could leave on ‘day one.’ The FT estimates are based on public statements by 15 of the UK’s biggest international institutions and interviews of more than a dozen senior bank executives about Brexit planning and industry benchmarks.

– The SEC said Gary Barnett, deputy director in the division of trading and markets, will retire from the agency at the end of the year. Barnett oversees the division’s office of broker-dealer finances, office of derivatives policy, office of trading practices, its Volcker Rule team and its participation in various global regulatory initiatives. He has also been a member of the agency’s cyber-security working group and its fintech working group, and has been its most senior representative on multi-agency groups including the senior supervisors group and the supervisors’ roundtable on governance effectiveness. 

Reuters looked at the US Federal Communications Commission’s party-line vote to repeal landmark 2015 rules aimed at ensuring a free and open internet, which has set up a court fight over a move that could recast the digital landscape. The approval of FCC chair Ajit Pai’s proposal was a victory for internet service providers such as AT&T, Comcast and Verizon Communications and hands them power over what content consumers can access. New York attorney general Eric Schneiderman said he will lead a multi-state lawsuit to challenge the reversal.

Bloomberg reported President Donald Trump boasting that his effort to slash government rules was ‘the most far-reaching regulatory reform in history’. Early in his administration, Trump ordered that two existing regulations be repealed for any new one put on the books. He said his administration had beaten the goal, with 22 deregulatory actions for each new regulation.

But a Bloomberg News analysis of the earlier version of the regulation report found Trump and other administration officials had exaggerated claims of cutting almost 1,000 regulations. The administration didn’t immediately release a detailed explanation of Trump’s most recent claims.

– Interest in law school is starting to rebound, the WSJ reported. The number of people applying to law school for next fall is up nearly 12 percent compared with the same period a year earlier, and around 14 percent more applications have been submitted, according to the Law School Admission Council. That marks the first significant uptick since before the last economic downturn.

Law school deans and pre-law advisers offer several theories for the rise: a political climate that has thrust legal issues into the spotlight, the recovery of the broader economy and legal job market, and law schools continuing to offer discounts to lure top performers.

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