Governance and legal pros consider wish lists for Trump era

As the Trump administration works through its first full week, corporate governance and legal professionals have a range of items on their – or their clients’ – wish lists for the next year or so, including clarity on compliance officer liability and insider trading.

The incoming government is expected to pursue a broadly anti-regulatory approach, although industry observers agree that the form and degree this will take remains highly unclear. That said, professionals are hoping – with varying degrees of confidence – to see certain changes.


ENFORCEMENT

Among other things, GRC professionals say they or their clients would welcome changes to enforcement policies and tactics. A key concern among many chief compliance officers (CCOs) is that the SEC has started targeting them.

CCOs fear they will be singled out even in situations where they either could not reasonably be expected to have known about violations or took diligent but unsuccessful steps to prevent wrongdoing by others. SEC commissioners and senior agency staff members have given a series of speeches trying to assure professionals that this is not the case, asserting that compliance officials will face enforcement actions only in situations where, for example, they are active participants in misconduct.

Despite those assurances, many compliance officers remain concerned. ‘One thing compliance officers are looking for is clarity as to when they will be targets in enforcement cases,’ Michael Koffler, partner with Sutherland Asbill & Brennan, tells Corporate Secretary. ‘The standards applied in some cases, as far as [CCOs] see it, vary from what the speeches state.’

He adds that some clients would like to see the SEC drop its ‘broken windows’ policy, under which small infractions are punished in an effort to prevent bigger problems arising.

Similarly, Greenberg Traurig shareholder Robert Frenchman tells Corporate Secretary that in the broker-dealer and Financial Industry Regulatory Authority space there are industry concerns that penalties for technical or inadvertent violations have become excessive. Books and records, short-selling and trade-throughs are some of the areas where less punitive responses to violations would be welcome, he says.

Also welcome would be clarification around the scope and nature of insider trading prohibitions, he adds. ‘I think [the law] is unnecessarily complex and it’s time for lawmakers to craft a… provision that’s unambiguous and aimed at insider trading, not securities fraud in general,’ he says, noting that many people try to comply with the existing standards but struggle to do so.

A former corporate secretary and general counsel tells Corporate Secretary she expects there to be a greater emphasis on holding individuals accountable, pointing to public anger at the lack of jail time for Wall Street executives following the financial crisis. She notes that such a shift has already begun with the introduction of the US Department of Justice’s Yates memo (CorporateSecretary.com, December 22).

As a result, executive compensation and individual accountability will be subject to increasing attention, she says, adding that she hopes boards of directors take note and become even more focused on governance, internal controls and compliance issues. Her wish list also includes the SEC placing less emphasis on data such as the number of enforcement cases it brings rather than focusing on the root causes of violations – and following up to see whether they have been fixed.  


RULEBOOKS

Members of Congress have in recent weeks discussed various legislative measures that would curb the ability of federal regulators to introduce new rules – efforts designed to avoid imposing what supporters argue are unnecessary compliance burdens on companies. But although many firms have complained about the wave of new rules introduced under the Dodd-Frank Act and other measures, outside corporate counsel do not foresee a uniform desire among their clients for all rules to be overturned or for the SEC to be fully constrained.

For example, Murphy & McGonigle shareholder Howard Kramer tells Corporate Secretary that industry professionals would want the SEC to still be able to take regulatory steps such as issuing no-action letters, which provide useful guidance to firms on how to interpret commission rules. There is a concern about potential gridlock on all rulemaking activity, he adds.

Similarly, the financial services industry is not homogenous in its views on scaling back the US Department of Labor’s fiduciary duty rule, Koffler says. The rule, which applies to brokers offering retirement-related advice, is due to take effect in April and has sparked loud protests in many parts of the industry.

Aspects of the rule such as certain disclosure requirements are burdensome, and the timeframe for implementing the rule is tight, Koffler points out. But having spent a great deal of time and money in preparing to comply, there are aspects of the impending regime that some firms may wish to keep, he adds.

Some firms have promoted the fiduciary duty concept internally to their field agents and externally to clients – and rolling that back would be difficult, Koffler says. He points to increasing expectations that the Trump administration will hand the issue over to the SEC, at which point the agency would need to re-examine and potentially revamp the rule.