The week in GRC: Companies face post-Brexit changes and GOP senators urge too-big-to-fail process review

– The AFL-CIO will sue if the US Department of Labor (DoL) tries to water down an increase in overtime eligibility put in place by the Obama administration, Bloomberg reported. ‘Anything that dilutes it is bad,’ said AFL-CIO president Richard Trumka. Taking the overtime expansion away from even one worker could have devastating consequences, he added.

Millions of additional white-collar workers were due to gain overtime eligibility last December under the Obama administration’s change until it was blocked by a federal judge in Texas. If allowed to take effect, the change would double – to $913 per week – the threshold beneath which employees must be paid time-and-a-half even if designated as managers.


– The Financial Times reported that BlackRock and Vanguard called on US officials to delay the introduction of the fiduciary rule for brokers offering retirement advice. The world’s largest asset managers warned that the imminent introduction of the rule, which was endorsed by former US president Barack Obama, risks confusing investors and adding unnecessary costs for the financial industry.

In February, President Donald Trump’s administration ordered the DoL to re-examine the rule, which requires financial advisers to put their clients’ interest first. Vanguard CEO Bill McNabb said the rollout of the regulation should be pushed back by at least 12 months.


– Although prospects for revenue growth at banks have brightened, a handful of the biggest firms are considering ways to cut more from their back-office budgets, according to the Wall Street Journal. One effort is aimed at cutting the administrative and operational costs involved with processing stock and bond transactions after a trade is struck, according to people familiar with the matter. If the idea materializes, it could create a joint venture that allows banks to share trade processes and technology.

Over the past two years, collaboration between banks has accelerated. Firms recently created joint utilities for things such as anti-money laundering compliance procedures and sharing basic underlying information about stocks and bonds.


– Western companies are moving into Iran, but US companies are noticeably absent, according to the WSJ. Dozens of development projects and deals have been worked out since Iran’s nuclear accord with world powers in 2015 lifted a range of sanctions. Among them, France’s Peugeot and Renault are building cars, and Boeing last year got the go-ahead to sell 80 aircraft valued at $16.6 billion to Iran.

For the most part, however, deals involving US businesses are few and far between. A Ford spokesperson said the company was complying with US law and didn’t have any business with Iran. General Motors (GM) is focusing ‘on other markets, and other opportunities,’ a spokesperson said.


– The eurozone’s top banking regulator warned that it will take a tough line in policing banks that relocate their operations from the UK in response to Brexit, saying that lenders must move enough staff and resources to the continent to cope with the risks they would run, the FT reported. Danièle Nouy, head of the eurozone’s Single Supervisory Mechanism, vowed to crack down on banks seeking to save their market access on the cheap by running big operations through shell units or tiny branches, saying there could be no compromise when it came to financial stability.


– Reuters reported that Buffalo Wild Wings, which is battling activist hedge fund Marcato Capital Management in a proxy fight, escalated tension between the two sides by tapping one of Marcato’s own nominees for its director slate. Proxy voting rules allow one nominee to serve on two director slates as long as the person consents. ‘It is deeply troubling that the company would take these steps without consulting us or other major shareholders, as we have continuously endeavored to engage in constructive dialogue,’ Marcato said.


– Dow Chemical and DuPont secured EU approval for a $77 billion merger, overcoming regulators’ concerns with hefty concessions, including the sale of large parts of DuPont’s global pesticide business, Bloomberg reported. The companies still need to win approval across the Atlantic, where the US Department of Justice is also expected to require divestitures to approve the tie-up, according to a person familiar with the matter. Timing on that decision, or which assets will need to be sold, isn’t yet clear. EU and US authorities are in ‘very close contact,’ EU competition commissioner Margrethe Vestager said.


– The WSJreported that FASB is putting the finishing touches on proposed new rules that would govern how companies report their hedging activities, such as using futures and options to insulate profits from currency or interest rate swings. The existing rules allow companies to delay recording the economic impact of a hedge on their income statement until the same period as the transaction involved is completed. This typically results in less volatile earnings quarter to quarter.

FASB’s proposal aims to give companies more time to meet the strict documentation requirements needed to qualify for hedge accounting. ‘It will simplify the documentation process, saving us time and money,’ said Thomas Timko, vice president, controller and chief accounting officer at GM.


– The EU on Wednesday formally blocked a proposed tie-up between Deutsche Börse and London Stock Exchange (LSE) Group, the WSJ reported. The German and British exchanges agreed to merge last March with the aim of creating Europe’s biggest stock exchange operator.

Following the EU’s announcement, the LSE said it regretted the commission’s decision, but that it was confident in its prospects as a stand-alone entity and that it would continue to explore potential deals in the sector. Deutsche Börse supervisory board chairman Joachim Faber also said he regretted the commission’s decision, adding it was ‘a setback for Europe... and the bridge between continental Europe and Great Britain.’


– The House of Representatives voted to overturn broadband privacy regulations adopted by the Federal Communications Commission days before last year’s presidential election, the FTreported. The Senate had already voted for the same measure, now leaving only President Donald Trump’s signature needed before it can go into law.

The action was welcomed by groups representing the advertising and broadband industries. Scrapping the regulations would restore ‘consumer privacy protections that apply consistently to all internet companies,’ according to the Internet & Television Association. The move also drew complaints from privacy advocates, who said it would put the country’s biggest internet service providers in a position to abuse the most sensitive types of personal data, including information about their customers’ health and finances.


– According to Reuters, Senator Claire McCaskill, D-Missouri, sought details from the nation’s top opioid drug makers on their sales and marketing practices, as lawmakers step up efforts to tackle the country’s deadly opioid crisis. McCaskill asked Depomed, Insys Therapeutics, Johnson & Johnson, Mylan and Purdue Pharma for internal estimates of the risk of abuse, addiction and overdose of opioids.

Depomed and Purdue Pharma said they were reviewing the letter and would respond accordingly. Purdue also said its OxyContin painkiller made up just 2 percent of the US opioid analgesic prescription market. Johnson & Johnson said it had received the letter and would address the senator’s request. ‘We believe we have acted appropriately, responsibly and in the best interests of patients regarding our opioid pain medications,’ a spokesperson for Johnson & Johnson unit Janssen said. Insys and Mylan did not immediately respond to requests for comment.


– The SEC delivered a new blow to the concept of an exchange-traded funds (ETFs) based on the digital currency bitcoin, rejecting a proposed bitcoin ETF backed by SolidX Management that was seeking to list on an affiliate of the NYSE, the WSJ said. The agency’s reasoning was a perceived lack of transparency around the stateless and largely unregulated currency, which could open investors to fraud and manipulation. Daniel Gallancy, CEO of SolidX, said the firm was reviewing the SEC’s ruling and determining its next steps.


– The New York Times reported that Wells Fargo received a failing score on community lending from the Office of the Comptroller of the Currency (OCC). The bank was given a ‘needs to improve’ rating on its latest evaluation under the Community Reinvestment Act, a 1977 law intended to promote lending in low-income neighborhoods.

The OCC said it had uncovered ‘an extensive and pervasive pattern and practice of discriminatory and illegal credit practices across multiple lines of business within the bank, resulting in significant harm to large numbers of consumers.’ The regulator praised Wells Fargo for most of its other lending and investment activities.

Wells Fargo said it was disappointed by the rating reduction. ‘We are committed to addressing the OCC’s concerns,’ CEO Timothy Sloan said. ‘Restoring trust in Wells Fargo and building a better bank for our customers and our communities is our top priority.’


– UK Prime Minister Theresa May began taking control over thousands of EU laws on Thursday, publishing plans to fill the ‘large holes’ that Brexit will leave in business regulations, Bloomberg reported. She set out proposals to incorporate an estimated 19,000 Europe-based rules into UK law on the day the country leaves the EU. The so-called Great Repeal Bill will enable ministers and lawmakers in London to decide in the months and years after Brexit which bits of European legislation to keep and which to scrap.


– Car makers and airlines easyJet and Ryanair demanded Britain secure a Brexit deal that preserves their access to Europe, warning any barriers to trade could risk the future of car plants and flights between the UK and the continent, according to Reuters. ‘Any deal must include securing tariff-free trade with the wider Customs Union and not just the EU27, while retaining access to the best talent and resources,’ said Jim Farley, president of Ford of Europe.


– The FT said JPMorgan is in talks to buy a new building in Dublin, but has told London staff it will not ‘rush into any decisions’ on how it will adjust its operations after Brexit. The bank declined to comment. JPMorgan’s investment bank head Daniel Pinto and wealth management boss Mary Erdoes told staff on Wednesday that the bank was still assessing its options. ‘We have spent the last several months reviewing the many variables in this process: client needs, employee considerations, regulatory requirements, operational risks, our inventory of licenses, political issues in the region and dozens of other factors,’ the pair wrote in a memo.


– Reuters reported that Republican lawmakers asked US Treasury secretary Steve Mnuchin to review the process a government council uses to label non-bank institutions as ‘too big to fail’, saying the additional capital requirements and regulations are too onerous. The existing designation process ‘lacks transparency and accountability, insufficiently tracks data, and does not have a consistent methodology for determinations,’ 10 Republican senators wrote. The Treasury did not immediately comment on the letter.


– Toshiba shareholders, some in tears, denounced management at a shareholders’ meeting outside Tokyo and asked why Toshiba had poured billions of dollars into a now-bankrupt US nuclear business, the WSJ reported. The event took place less than 24 hours after a Chapter 11 bankruptcy filing by Westinghouse Electric, a US nuclear plant builder 87 percent-owned by Toshiba.

Speaking to about 1,300 shareholders, Toshiba CEO Satoshi Tsunakawa repeatedly offered apologies but didn’t offer clear-cut answers on why the company decided to expand its nuclear power business even after the 2011 meltdown at the Fukushima Daiichi plant in Japan. As is typical at shareholder meetings in Japan, reporters viewed the meeting on a video feed that didn’t include images of the shareholders asking questions.


– The Guardian reported that Mars, Staples and The Gap were among the US corporations challenging Trump’s reversal of Obama administration climate policies that were designed to cut greenhouse gas emissions. ‘We’re disappointed the administration has decided to roll back climate regulations such as the clean power plan and others,’ said Edward Hoover, senior manager of corporate communications for Mars. ‘Corporations can’t do it alone. Governments play a critical role in mitigating the effects of climate change on our economy.’


– The WSJ said James McDonald, an assistant US attorney for the Southern District of New York, will head the Commodity Futures Trading Commission’s enforcement division. McDonald will succeed Aitan Goelman, who stepped down in February, and inherits a division whose responsibilities were significantly expanded under the Dodd-Frank Act.


– Credit Suisse has been targeted in sweeping tax investigations launched in the UK, France and the Netherlands, according to the FT. The bank said it was co-operating with authorities after its offices in London, Paris and Amsterdam were contacted by local officials ‘concerning client tax matters’. The inquiries came despite efforts by the Swiss banking industry in recent years to overhaul business models and ensure customers are fully in line with tax requirements following a US-led clampdown on evaders.

Credit Suisse said it followed ‘a strategy of full client tax compliance’ but was still trying to gather information on Friday about the probes. It was unclear whether the cases referred to old accounts – active before controls were tightened – or money that has flowed more recently into the bank.


– Reuters reported that Senator Pat Toomey, R-Pennsylvania, said he was ‘frustrated’ that the Trump administration had not yet dropped the government’s case against Metlife, an insurer challenging the administration’s ‘too big to fail’ designation. MetLife challenged the designation and last year won an initial ruling that the Financial Stability Oversight Council had erred in giving it that label. But the Obama administration appealed that ruling, and the new administration has not yet moved to scrap the appeal, which is still pending. The Treasury did not have an immediate response to Toomey’s criticism.


– The Financial Industry Regulatory Authority said the SEC had approved its rule proposal aimed at addressing financial exploitation of seniors. Under the rule changes, firms will be required to make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer’s account. Broker-dealers will also be permitted to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation.