The week in GRC: Support grows for new Glass-Steagall and companies resist proxy access votes

– The Financial Times reported that support is emerging for a watered-down version of the Glass-Steagall Act following renewed declarations of enthusiasm from the White House for a reintroduction of legislation that would break up the big US banks.

This month Gary Cohn, the former Goldman Sachs president who is now a top adviser to US President Donald Trump, signaled that the administration was open to a ‘21st century’ version of the law. But with limited enthusiasm on Capitol Hill for drastic structural changes to the US banking system, some policymakers and bankers are pushing for a compromise modeled on the UK’s incoming ringfencing rules, which erect a barrier between retail and investment banking activities from 2019.


– Wells Fargo faces something few other big banks have dealt with since the financial crisis: a serious effort to vote out most of its directors, according to The Wall Street Journal. As the bank’s April 25 annual shareholder meeting approaches, bank executives and directors are meeting with key investors and dealing with the possibility that they could see one or more fail to win re-election, people familiar with the process said.

It is rare for shareholders to vote a director off a big company’s board. In the past five years, just nine directors have left boards of companies in the S&P 500 after they failed to receive majority support, according to ISS Analytics. Wells Fargo CEO Timothy Sloan said in an interview that he recently spoke with Warren Buffett, head of Wells Fargo’s largest shareholder, Berkshire Hathaway, who expressed his support for management and the board. ‘We value his input and engagement… at a very important time for the company,’ Sloan said.


– The UK government is trying to remain home to two of the EU’s most prestigious agencies covering medicines and banking after Brexit, according to the FT. David Davis, Brexit secretary, does not accept that the two agencies and roughly 1,000 staff will have to move from London, even though the EU is about to run a competition to relocate them. A UK Brexit department spokesperson said: ‘No decisions have been taken about the location of the European Banking Authority or the European Medicines Agency – these will be subject to the exit negotiations.’ The idea of the UK hosting key institutions after Brexit is unacceptable in the EU, however.


– Bloomberg reported that, according to people familiar with the matter, EU and UK regulators risk inadvertently hastening the departure of some banking operations from London by pushing lenders to make detailed plans for the worst-case Brexit scenario. Senior finance industry executives are concerned Bank of England and European Central Bank demands for full contingency plans may spur the relocation of activities from London to the continent, the people said. As the UK prepares to quit the EU by the end of March 2019, firms seeking continued access have been asked to consider the approvals needed to set up a subsidiary in time.


– Also on the subject of Brexit, Bloomberg said the UK’s Financial Conduct Authority (FCA) will prioritize advising the government on the move out of the EU and helping consumers with improperly sold payment-protection insurance, according to its new business plan. The FCA also highlighted work on extending the senior managers and certification regime to the entire financial industry next year. The regime puts the onus on firms to approve individuals as fit and proper to work for them and more clearly outlines the responsibilities of senior individuals to improve accountability.


– US District Judge Raymond Dearie sentenced Brazilian engineering company Odebrecht to pay $2.6 billion in fines in a criminal corruption case, signing off on a plea deal between the company and US, Brazilian and Swiss authorities, according to Reuters. Odebrecht, along with affiliated petrochemical company Braskem, pleaded guilty to US bribery charges in December. A spokesperson for Odebrecht had no immediate comment. A lawyer for Odebrecht in the US declined to comment after the court hearing.


– Several big businesses are resisting investors’ demands for greater boardroom clout ahead of this year’s annual shareholder meetings, the WSJ reported. The companies oppose proxy access, which grants shareholders the right to list board candidates on ballots, giving them greater power to oust directors and influence corporate strategy. About 58 percent of S&P 500 companies have adopted proxy access, according to ISS Corporate Solutions. That is up from about 21 percent in early 2016 and about 1 percent in 2014.

In coming years, virtually every company will have to decide whether to ‘give shareowners a voice in director elections or risk investors’ ire,’ said New York City Comptroller Scott Stringer, who manages $170 billion in pension funds. He launched a drive in 2015 to persuade dozens of companies to adopt or improve proxy access.


– Business leaders want the UK government to set tough new targets to boost productivity and create an independent watchdog to monitor progress as part of its new industrial strategy, the FT reported. Workers in the UK take on average five days to produce what their peers in France, Germany and the US do in four, while regional disparities are now wider in the UK than in the rest of western Europe. The CBI employers’ group has called on Prime Minister Theresa May’s government to pledge a 15 percentage-point reduction in the 122 percent productivity gap between the UK’s best and worst-performing regions by 2030.


– The WSJ looked at how brokerages are proceeding after the US Department of Labor decided to delay the fiduciary duty rule for brokers offering retirement advice by 60 days to June 9. Firms have either chosen to move ahead or modify their plans. For example, Merrill Lynch is continuing with its decision to move most retirement savers who pay a commission to accounts that charge a fee based on a percentage of assets, while LPL Financial introduced new commission-based products, such as a mutual fund-only brokerage account, and lowered investment minimums on some advisory products.


– The New York Times reported that Trump signed an order that he said would favor US companies for federal contracts and reform the visa program for foreign technical workers. Yet the order calls for a series of relatively modest steps, such as a multi-agency report on changes needed for the H-1B visa program, under which the government admits 85,000 foreign workers annually, many of them in the high-tech, industrial, medical and science fields. Collectively, the efforts outlined in the order could take years to carry out.

‘This does nothing,’ said Senator Charles Schumer, D-New York. ‘Like all the other executive orders, it’s just words – he’s calling for new studies. It’s not going to fix the problem. It’s not going to create a single job.’


– More than 175,000 Arizona residents who received Theranos’ blood tests will receive a full refund under a pact reached between the laboratory company and the Arizona attorney general, the WSJreported. The settlement requires Theranos to pay $4.65 million into a state reimbursement fund, a $200,000 civil penalty and $25,000 in state legal fees, without admitting wrongdoing.

In a statement, Theranos said it agreed to return the $4.65 million to Arizona customers, ‘regardless of whether Theranos received payment for the tests, or whether the test results were voided or corrected.’ In a consent decree, the state alleged that Theranos ‘misrepresented, omitted and concealed material information regarding its testing service’s methodology, accuracy, reliability and essential purpose.’


– The FT said Vivendi has threatened legal action against Agcom, the Italian communications regulator, after it ruled that the French group had breached rules on concentration of power and could not keep large stakes it had built up in both Mediaset and Telecom Italia. Agcom ruled that Vivendi’s stake-building in the two companies breached the country’s Gasparri Law, a set of antitrust rules designed to protect media pluralism and prevent a dominant position by a single party.

In a statement, Vivendi argued that it ‘neither controls nor exercises a dominant influence on Mediaset’ and that it could fight Agcom’s ruling with legal action. ‘Vivendi reserves the right to take any appropriate legal action to [protect] its interests, including filing an appeal to the Agcom decision at the Regional Administrative Court and to submit a formal complaint to the European Commission for the breach of EU law,’ it said.


– EU financial services policy chief Valdis Dombrovskis used a visit to Washington, DC to renew his call for Trump to maintain the US authorities’ commitment to global financial rules put in place since the crisis, Bloomberg reported. The US and the EU have worked together in the Group of 20 to ‘develop a common international financial governance to build global resilience,’ Dombrovskis said. ‘Without working jointly, we would run the risk of regulatory arbitrage and renewed instability.’

The EU is working to fine-tune regulations to make them more ‘growth-friendly’ but is ‘not willing to lower prudential standards,’ Dombrovskis said. ‘We count on the US to stand by the same principle.’


– The WSJ said the Chinese government is trying to ensure financial system stability in a pivotal political year by focusing on regulatory officials as it also tightens the reins on banks, brokerages and insurers. After encouraging liberalization for such firms in the hope of fueling a slowing economy, the government is becoming increasingly anxious about possible financial shock. The new message for its regulators is ‘back to basics.’

Until recently, China’s leadership promoted broadening the financial sphere, from wider equity ownership and peer-to-peer lending to online insurance sales. But then came the 2015 stock meltdown. New regulators ​are emphasizing tougher fundamental risk control​ by trying to clearly delineate​ responsibilities.


– The Federal Communications Commission (FCC), on a 2-1 Republican-led vote, decided to ease a limit on TV station ownership, a step that could open the door to new mergers, according to Bloomberg. The FCC vote restored the practice of counting just part of some stations’ audience. Shrinking the audience allows more room to buy stations before a company reaches the limit of serving 39 percent of the national TV viewership. The agency also said it may consider raising that limit.


– Trevor McFadden, a deputy assistant attorney general at the US Department of Justice, said the Trump administration will be persistent in prosecuting white-collar crimes despite giving a higher profile to tackling violent crime, Reuters reported. He also said enforcement of laws against US companies bribing overseas officials is ‘alive as ever’, although he added that federal prosecutors are not trying to ‘break our own records for the largest fines or longest prison sentences.’


– The FT said Deutsche Bank became the first big bank to be penalized for alleged violations of the Volcker Rule. The Federal Reserve said it had found ‘gaps’ in key parts of Deutsche Bank’s Volcker compliance program, which meant the lender failed to adequately monitor whether traders were performing legitimate trades on behalf of clients or betting the bank’s own money.

Separately, the Fed said Deutsche Bank would pay a fine for allegedly failing to detect that currency traders engaged in ‘unsafe and unsound conduct’, allegedly disclosing some positions to rivals at other banks or talking about co-ordinating strategies. Combined, the actions resulted in $157 million in civil penalties. Deutsche Bank said it was pleased to resolve the matters with the Fed.