The week in GRC: Wave of enforcements closed pre-Trump, more women in line to be CEOs, and more

– BlackRock is urging UK companies – the majority of which are preparing pay policies for a binding vote for the first time in the 2017 annual general meeting season – to link executive pay to long-term performance and to mind shareholders’ views on remuneration, The Wall Street Journal reported. In a letter to the remuneration committees of the companies in the FTSE 350, BlackRock circulated its expectations and beliefs on remuneration and stressed its view that boards should be responsible for designing pay packages aligned with sustainable corporate performance.

Under the UK’s corporate remuneration policy rules, which were implemented in 2013, all companies have to put their pay policies to shareholders for approval – a binding vote – at least every three years. Investors are now headed for a couple of years of exercising influence over executive pay, taking account of different fiscal years.


– Rolls-Royce Holdings said Monday it had settled a long-standing corruption probe with US, UK and other authorities at a cost of more than $800 million, according to the WSJ. Under the agreement, the company admits to guilt in some of its business dealings overseas. The UK’s Serious Fraud Office began examining the alleged wrongdoing in 2012 and opened a formal probe the following year; US and other regulators later joined the investigation.

The company said Monday that the case involved ‘intermediaries in a number of overseas markets’. The investigation spurred the company, which is no longer affiliated with the maker of luxury cars, to order an outside review of business practices. As a result, it cut back on the use of middlemen in trying to secure contracts overseas. Rolls-Royce said it had ‘co-operated fully’ with authorities and would continue to do so.


– The Financial Times reported that Banco Santander is set to pass its US stress test at the fourth attempt as the Federal Reserve prepares to make the bank’s US offshoot one of several groups granted an exemption from the most demanding part of the process. The move is the result of proposed changes to the Fed’s annual stress tests of the biggest US banks. The central bank is expected to exclude smaller US lenders and several foreign groups from the most onerous part of the exercise.


– Finance executives say they are preparing for the worst on Brexit as UK Prime Minister Theresa May indicated she plans to pull the UK out of the EU single market, Bloomberg reported. Banks, bracing for the loss of their right to sell services freely around the EU from London, are set to start the process of moving operations into the eurozone within weeks of the government triggering Brexit talks, which is scheduled to happen by the end of March. May said in a speech on Tuesday that she expects the UK to leave the single market.


– State Street Corp said it had agreed to pay more than $64 million to resolve US investigations into whether the company overcharged certain trading clients in Europe, the Middle East and Africa, the WSJ reported. The trust bank said Wednesday that it reached a $32.3 million settlement with the US Department of Justice (DoJ) and the US Attorney’s Office in Massachusetts, and said it had offered another $32.3 million to resolve a separate SEC probe. The SEC didn’t respond immediately to a request for comment.

State Street acknowledged as part of its DoJ settlement that it had charged clients secret commissions on trades related to its work in restructuring their portfolios. ‘State Street deeply regrets this matter and accepts responsibility for the actions of its former employees,’ the bank said. ‘The company fully reimbursed the six clients that were impacted, terminated responsible employees, appointed new executives to lead its transition management business and implemented new and stronger controls.’


– Women are the strongest in-house contenders for becoming CEO at a small but growing number of major US companies, according to the WSJ. Their ultimate success could produce an unprecedented number of female CEOs. Patricia Stitzel, for example, was promoted to president and COO of Tupperware Brands in October. ‘Her next title will be CEO,’ said EV Goings, veteran CEO of the company. ‘I am ready when she is ready.’

Women held president or COO roles at 13 S&P 500 companies when those firms’ 2016 proxy statements appeared – up from nine in 2006, a study for the WSJ by researchers Equilar found. Women frequently advance to run companies where they have a long track record.


– The FT reported that DoJ officials have done a year’s worth of work in little more than three weeks. Prosecutors since December 23 have announced nearly $20 billion in corporate settlements and penalties, which exceeds the $15.3 billion the department collected in all criminal and civil actions in fiscal 2016, according to government figures.

Obama administration officials are eager to complete high-profile cases they have spent months or years developing. Though president-elect Donald Trump has promised to ease regulations on business, his unpredictability is giving companies a reason to settle now rather than gamble on more lenient treatment in the future. ‘You know who you’re dealing with in the Obama administration. You don’t know what you’re dealing with in the Trump administration – good or bad,’ said Michael Barta, a white-collar defense attorney with Dechert.


– Christopher Giancarlo, the sole Republican commissioner on the Commodity Futures Trading Commission (CFTC), has thrown his hat into the ring to be appointed the agency’s next chair, despite having embraced aspects of financial reforms that Trump’s team wants dismantled, the FT said. Giancarlo is set to assume the job of acting CFTC chair after Trump’s inauguration on Friday. In a speech on Wednesday he publicly expressed for the first time his desire to be named the agency’s permanent chair, saying he would be ‘honored to be nominated and confirmed.’

The Trump transition website has said his team ‘will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.’


– Bloomberg reported that Deutsche Bank scrapped the bonuses of its top executives for a second straight year and cut variable compensation for other senior employees, as the bank shores up its capital. The measures, announced in a memo to employees, will affect roughly one quarter of employees, including vice presidents, directors and managing directors. ‘Other companies have taken similar steps in the past and have come back stronger than before,’ Deutsche Bank said in the memo. ‘We are convinced we will, too.’ The bank said it plans to return to its regular compensation program for 2017.


‒ The Financial Industry Regulatory Authority (Finra) issued a report discussing the use and implications of distributed ledger technology (DLT), better known as blockchain, in the securities industry. The paper also asked for comments as part of an effort to obtain feedback on any challenges associated with the use and implementation of DLT.

The paper, which is intended to be Finra’s initial contribution to a continuing dialogue with market participants about the use of DLT, provided an overview of the technology, highlighted key applications and discussed implementation and regulatory considerations for broker-dealers. Among the applications addressed are those being used or tested in the equity, debt and derivatives markets, as well as shared utilities.


‒ The SEC said general counsel Anne Small, who has served in the role since April 2013, will leave the agency later this month. As the agency’s chief legal officer, Small has provided counsel on virtually all legal and policy issues before the commission, covering a record number of enforcement actions and more than 50 rulemaking initiatives including those implementing the Dodd-Frank Act and the Jumpstart Our Business Startups Act.

SEC chair Mary Jo White said: ‘Anne is brilliant and has an extraordinary legal mind and tremendous judgment.   She has always provided thoughtful and wise counsel on countless important and complex issues before the commission.’ Following Small’s departure, Sanket Bulsara, deputy general counsel for appellate litigation, adjudication and enforcement, will become the acting general counsel.


‒ According to Reuters, the Federal Trade Commission said on Wednesday that Mallinckrodt Pharmaceuticals agreed to pay $100 million to settle allegations that a subsidiary broke US antitrust law by sharply increasing the price of a multiple sclerosis drug while ensuring that no rival medicine appeared on the market.

Mallinckrodt, an Irish company headquartered in the UK, said the settlement would not affect its net sales and slammed the FTC’s probe. ‘We continue to strongly disagree with allegations outlined in the FTC’s complaint, believing that key claims are unsupported and even contradicted by scientific data and market facts,’ a company representative said in a statement.


‒ Dodd-Frank’s most passionate defenders were leaving the executive branch on Friday and some of its loudest critics will now grab the levers of power, the WSJsaid. The question is no longer how far the law’s impact will ripple across the economy, but how much of it will be dismantled. Most major rules required by Dodd-Frank are complete, with notable exceptions such as restrictions on what the law’s backers see as excessive Wall Street compensation. For every five rules Dodd-Frank mandated, about four have been drafted or finalized, according to the most recent estimate from Davis Polk & Wardwell.

Trump and his top financial advisers say the torrent of Dodd-Frank rules is slowing growth, particularly by overburdening smaller lenders that provide credit to small businesses. The Trump team’s stated solution is to simplify the rulebook. No nominee or adviser has repeated his campaign promise to break up large banks. Instead, they have promised to roll back Dodd-Frank, but haven’t said what that means exactly.


‒ The SEC announced that it had established an arrangement with the Hong Kong Securities and Futures Commission (SFC) as part of the SEC’s long-term strategy to enhance the oversight of regulated entities that operate across national borders. The new supervisory co-operation arrangement is intended to augment the SEC’s and the SFC’s ability to share information about regulated entities that operate in the US and Hong Kong, including investment advisers, broker-dealers, securities exchanges, market infrastructure providers and credit rating agencies.


‒ According to Reuters, US authorities said Western Union, the world’s biggest money transfer company, agreed to pay $586 million and admitted to turning a blind eye as criminals used its service for money laundering and fraud. Western Union admitted to aiding and abetting wire fraud by allowing scammers to process transactions, even when the company realized its agents were helping scammers avoid detection, the US Department of Justice and the FTC said.

A Western Union spokesperson said the company didn’t do as much as it should have to oversee its agents between 2004 and 2012 but is committed to improving its procedures. The company said that more than one fifth of its work force is devoted to compliance. It also said consumer fraud accounts for less than one tenth of 1 percent of consumer-to-consumer transactions.


‒ The FT reported that Citigroup will pay a $25 million penalty to settle CFTC charges of spoofing the US Treasury market, making it the first bank to be caught in the crackdown on the illegal trading practice. The CFTC said on Thursday that the bank had agreed to settle allegations that five of its traders repeatedly placed orders they intended to cancel in order to move market prices and profit from moves by other investors. Citigroup was also accused of having failed to diligently supervise its traders, the agency said. Citigroup did not admit or deny the charges. We are pleased to have resolved this matter, the bank said.


‒ Democrats are rolling out a new strategy to defend the US Department of Labor’s fiduciary rule for brokers engaged in retirement advisory work, asking big financial firms to publicly embrace the policy, the WSJreported. Senator Elizabeth Warren, D-Massachusetts, on Thursday sent letters to the dozens of major financial institutions that have already started taking steps to comply with the new rule before its implementation starts in April.

In the letters, Warren praises the firms for announcing steps in recent months to comply with the rule. These include lowering mutual fund fees and suspending the provision of investment advisory services on a commission basis. She asks the companies to answer several questions, including whether they support delaying the regulation and if they would roll back their already-announced plans if the rules implementation is pushed back.