The week in GRC: Yahoo’s board acts over security breach and EU financial services chief warns about Trump rule rollback

‒ Sam Woods, head of the Bank of England’s Prudential Regulation Authority, warned against rolling back reforms made in the wake of the financial crisis, arguing against any ‘retreat’ to light-touch regulation. Writing in the Financial Times, Woods described moves to drop bank rules as ‘misguided’.

While he did not mention US President Donald Trump or Brexit by name, his comments run contrary to the anti-regulation stance adopted by the new US president, and to lobbying by parts of the UK financial services industry that want to do away with what they see as overly burdensome European rules following the country’s departure from the EU.


‒ Similarly, The Wall Street Journalreported that a group of former senior regulators and academics warned against efforts to deregulate the financial system, issuing a statement arguing that financial institutions today are even more at risk of losses during an economic downturn than in the past.

‘Now is not the moment to relax or to retreat,’ stated the Systemic Risk Council document, addressed to officials from the world’s major economies. The council said governments and central banks now have less firepower to deal with a crisis, due to high levels of government debt and loose monetary policies. ‘Far from being a moment to relax’ core financial overhauls, policymakers should consider adopting even stricter capital requirements for banks to address this dearth of firepower, the council wrote.


‒ According to Bloomberg, China Securities Regulatory Commission chair Liu Shiyu said the Chinese authorities will allow more companies to list in order to boost support for the country’s economy, dismissing concerns that more supplies of shares can depress the market. The capital market’s recovery from a 2015 rout has been stronger than expected and is now ready for ‘appropriately’ larger supplies of initial public offerings, Liu said. The regulator’s faster approval of IPOs last year had been ‘welcomed’ by the market, he said.


‒ Deutsche Bank cut its 2016 bonus pool by almost 80 percent as it tries to recover from legal expenses that wiped out profit and eroded capital levels, Bloomberg said. The lender is reducing payouts with an eye on shareholders and is aware it will be ‘frustrating’ for employees, chief administrative officer Karl von Rohr told Frankfurter Allgemeine Sonntagszeitung. The measures will affect about a quarter of the 100,000 staff, the newspaper cited him as saying. The comments were accurately reported, a Deutsche Bank spokesperson told Bloomberg.


‒ The WSJ reported Monday that the planned merger between Deutsche Börse and London Stock Exchange (LSE) Group to create Europe’s largest exchange is at risk after the LSE said it wouldn’t sell its majority-owned fixed-income trading platform in Italy to appease antitrust concerns over the deal. A spokesperson for the European Commission, which must approve the deal, declined to comment, while an LSE spokesperson wouldn’t comment beyond the company’s release. Deutsche Börse issued a statement Monday saying it would await further assessment by the commission and expected a decision by the end of March.


‒ Sullivan & Cromwell has recruited Renata Hesse, formerly head of the antitrust division at the US Department of Justice (DoJ), as the law firm prepares for a continued wave of complex, cross-border mergers and other deals, according to the WSJ.


‒ The Financial Industry Regulatory Authority (Finra) launched its new Academic Corporate Bond Trace Data tool, which provides enhanced historical data to higher education institutions. The product is intended to support and encourage academic research on corporate bonds by giving researchers access to Trace historical transaction-level, corporate bond data. The data is available on a 36-month delayed basis and includes masked identifying information regarding the dealer reporting each transaction.


‒ Bloomberg reported that, according to EU financial services policy chief Valdis Dombrovskis, Trump’s planned rollback of financial rules could threaten US firms’ access to European capital markets. Dombrovskis, a vice president of the European Commission, said the EU would look at the ‘practical outcomes’ of Trump’s review of financial rules. If major changes are made, that would force the bloc to reassess the strength of US market oversight and possibly reconsider so-called equivalence decisions that grant privileged market access. Equivalence decisions affect a wide range of issues in business, including accounting standards, credit ratings, price benchmarks and even the logging industry.


‒ Japanese automotive supplier Takata pleaded guilty to criminal wrongdoing and agreed to pay $1 billion in penalties for providing misleading testing reports to auto makers on rupture-prone air bags installed in millions of vehicles, the WSJ reported.

Takata pleaded guilty to one count of criminal wire fraud in a Detroit federal court, settling a DoJ probe into the company’s mishandling of air bags that risked exploding and spraying shrapnel in vehicle cabins. Takata’s finance chief, Yoichiro Nomura, entered the guilty plea on the company’s behalf during court proceedings. He said actions of certain employees were ‘deeply inappropriate.’

A Takata spokesperson declined to comment. The company has expressed regret for its safety transgressions and pledged co-operation with government officials and auto makers.


‒ Ajit Pai, the new Republican head of the US Federal Communications Commission (FCC), promised ‘light-touch’ regulation of areas such as the internet, a dramatic shift away from the Obama administration’s approach to telecommunications oversight, Reuters reported. Pai said the agency made a ‘mistake’ in 2015 when it adopted landmark net neutrality rules reclassifying internet service like a public utility. ‘The FCC decided to apply last-century, utility-style regulation to today’s broadband networks,’ he said.


‒ Reuters said a study unveiled by the SEC found US equity crowdfunding platforms are giving entrepreneurs a new way of raising capital, though the number of companies taking advantage of it and the amount of money being raised are still relatively small. The research found that from May through December 2016, a total of 156 companies did 163 deals. Since the SEC’s new crowdfunding rule went into effect last spring through mid-January, a total of $10 million has been raised.


‒ The Financial Conduct Authority (FCA) has proposed major reforms to rules for UK initial public offerings, with the aim of giving investors better and earlier information as the regulator seeks to keep the country ‘open for business’ after Brexit, according to the FT. The FCA said information about a company planning an IPO should be made available sooner, and to a wider range of analysts and investors. It warned that some current practices involving the early dissemination of information to a select pool of analysts could breach EU rules against market abuse.


‒ Congressional Republicans are taking aim at the regulatory process through which some financial institutions become subject to heightened regulation because they are deemed too big to fail, Reuters reported. In a report released on Tuesday, Republican staff members of the House of Representatives Financial Services Committee said the process for identifying systemically important financial institutions was ‘arbitrary and inconsistent’ and confusing to banks, insurance companies and other financial firms.


‒ The SEC’s Investor Advisory Committee will review whether Snap’s decision to deny shareholders voting rights might also reduce the social media company’s public disclosures on executive pay and other governance matters, committee head Kurt Schacht told Reuters.

The IPO shares will give investors no voting rights, an unprecedented feature that has raised concerns among corporate governance leaders that other high-valuation companies may follow suit and leave investors with little say over company operations. For Snap, ‘the question becomes, as there are no common shareholders’ proxy votes to do, what does that do to the level of disclosures it will have to do for annual meetings and annual reports?’ Schacht said. A Snap representative declined to comment.


‒ The Washington Post reported that the US Department of Labor (DoL) on Wednesday announced a proposal to push back the implementation of the fiduciary rule for brokers offering retirement advice by 60 days, giving officials more time to determine whether the measure should be revised or eliminated. Without a delay, the fiduciary rule would take full effect on April 10. Under the proposal, it would not take full effect until June 9.


‒ Yahoo said CEO Marissa Mayer will take a pay cut after a board investigation found she and other senior executives failed to ‘properly comprehend or investigate’ a 2014 security breach that hit more than 500 million accounts, according to the WSJ.


As a result of its review, Yahoo’s board won’t award Mayer her 2016 cash bonus, and accepted her offer to forgo her 2017 equity awards, Yahoo said. In addition, the company’s top lawyer, Ronald Bell, resigned. The board also directed Yahoo to beef up its cyber-security measures. The company’s lawyers failed to sufficiently investigate the breach despite having enough information to justify a deeper probe, according to the board’s review.

Bell referred questions to a publicist, who confirmed he had resigned but declined to comment on the circumstances of his resignation.


‒ The SEC voted to adopt rule and form amendments to make it easier for investors and other market participants to find and access exhibits in registration statements and periodic reports that were originally provided in previous filings. The amendments will require issuers to include a hyperlink to each exhibit in the filing’s exhibit index. 


‒ Reuters said a bipartisan pair of lawmakers on the US Senate Banking Committee are planning to introduce a bill aiming to encourage private corporations to give their employees larger equity stakes in their companies and promote longer-term investing. The draft bill is being rolled out by Mark Warner, D-Virginia, and Pat Toomey, R-Pennsylvania.


‒ The WSJ reported that Wells Fargo’s board denied eight senior executives their 2016 cash bonuses and clawed back certain stock awards in response to revelations about the bank’s sales practices. Wells Fargo said the compensation cuts for executives don’t reflect the culpability of individuals but are meant to show their accountability for the bank’s overall performance and reputational risk as a result of the scandal.


‒ The SEC‘s office of the investor advocate announced it will host a summit on March 10 to discuss strategies for raising retail investors’ understanding of key investment characteristics such as fees, risks, returns and conflicts of interest. The summit will mark the official launch of the agency’s new investor research initiative called ‘policy-oriented stakeholder and investor testing for innovative and effective regulation’ (Positier).


‒ Bloomberg reported that banking analyst Mike Mayo said investors will have to be more diligent in assessing the strength of the industry if the Trump administration follows through on promises to ease regulatory burdens. ‘We collectively ‒ especially investors ‒ need to hold corporations and their managements and boards of directors more accountable’ now that the push is on to roll back government rules meant to protect consumers and shareholders, Mayo said. ‘What I’ve been proud of is holding truth to power ‒ holding managements accountable.’


‒ Acting SEC chair Michael Piwowar criticized the DoL’s fiduciary rule for brokers providing retirement advice, saying the rule was written to ‘increase profits’ for trial lawyers, the WSJreported. Piwowar said the rule was ‘highly political’ and was ‘never about investor protection.’ His comments show how unlikely the SEC is to propose stricter standards for brokers even if the department’s effort is rescinded.