The Challenge of Addressing Non-Financial Misconduct in UK Regulated Firms

by Matthew Nunan and Martin Coombes

Many UK regulated firms will be currently (re-)assessing staff as fit and proper and training staff on the Financial Conduct Authority’s (FCA’s) (or the Prudential Regulation Authority’s (PRA’s)) Conduct Rules. The FCA has recently banned three individuals from working in the financial services industry for non-financial misconduct outside the workplace. The enforcement actions are, therefore, a timely reminder for regulated firms that the FCA has indicated it will bring an increased focus on how firms deal with non-financial misconduct by employees, both within and outside of the workplace. Continue reading →

SEED Findings on the SEC Enforcement Actions Against Public Companies and Their Subsidiaries in Fiscal Year 2020

by Anat Carmy-Wiechman, Giovanni Patti, and Peter Robau

In a new report (PDF: 1.02 MB), the NYU Pollack Center for Law & Business, in collaboration with Cornerstone Research, investigated recent trends in enforcement via the Securities Enforcement Empirical Database (SEED). Below, we highlight some of the key findings.
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The Evolving Role of Investor Protection at the PCAOB (Part II of II)

by J. Robert Brown, Jr.

These remarks have been edited for length and are being published in two parts. The following post is Part II of J. Robert Brown, Jr.’s prepared remarks delivered on November 6, 2020 at the 50th World Continuous Auditing & Reporting Symposium. As Mr. Brown noted at the beginning of his remarks, the views he expressed therein are his own and do not necessarily reflect the views of his fellow Board members or the staff of the PCAOB.

Accountability and Public Input

With respect to the PCAOB’s mission, transparency is necessary but not sufficient. Transparency is no guarantee of actual participation. For this to occur, the PCAOB must put in place structures that ensure investors have clear, consistent and recognized avenues for input. In doing so, the PCAOB should ensure that input is sought from underrepresented segments of the investor community.

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A Step Towards More Responsibility in Banking

by Claire A. Hill

Goldman Sachs recently admitted that it conspired to violate the Foreign Corrupt Practices Act’s (FCPA’s) anti-bribery provisions.  It agreed to pay a significant monetary fine and to enter into a deferred prosecution agreement.  These sorts of resolutions are common when companies are charged with violating the law.  But Goldman did something that is not common: it clawed back or reduced compensation for senior executives not directly involved in the wrongdoing.  It clawed back some amounts paid to senior executives during the time the misconduct was occurring, and it reduced 2020 compensation of present top management. Continue reading →

The Evolving Role of Investor Protection at the PCAOB

by J. Robert Brown, Jr.

These remarks have been edited for length and are being published in two parts. The following post is Part I of J. Robert Brown, Jr.’s prepared remarks delivered on November 6, 2020 at the 50th World Continuous Auditing & Reporting Symposium. As Mr. Brown noted at the beginning of his remarks, the views he expressed therein are his own and do not necessarily reflect the views of his fellow Board members or the staff of the PCAOB.

The concept of continuous auditing is critical to the future of the audit profession. The issue goes to the heart of the relevancy of the audit. I have, in the past, talked about audit relevancy and the risks that, without changes, the profession may confront extinction.[1]

My view was, and still is, that the role of the auditor in providing assurance for information outside of the financial statements should be modernized. This type of disclosure is increasingly used by investors and other participants in the capital markets. Investors rely on non-GAAP measures, key performance indicators, and environmental, social, and governance (ESG) metrics to make investment and voting decisions.

I believe that the Public Company Accounting Oversight Board (PCAOB) is in a good position to lead the discussions on the role, if any, of auditors, in providing assurance on these metrics.

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CFTC Enforcement Division Issues Compliance Program Guidance

by Elizabeth Mitchell, Anjan Sahni, Daniel Schubert, Paul Architzel, Petal Walker, Matthew Beville, and Rob Greffenius

On September 10, 2020, the Commodity Futures Trading Commission’s (CFTC, or the Commission) Division of Enforcement (Division) director issued a memorandum to Division staff setting forth a framework for evaluating the effectiveness of a company’s compliance program in the context of an enforcement matter (Guidance).[1] The Guidance follows the Division’s May 2020 guidance on determining civil monetary penalties in enforcement actions (Penalty Guidance) and the Department of Justice’s (DOJ) June 2020 revisions to its guidance “Evaluation of Corporate Compliance Programs,” originally published in 2017 (DOJ Guidance).[2]

While the memorandum largely consolidates and formalizes existing CFTC guidance, and is consistent with the more detailed DOJ Guidance,[3] it provides some additional insight into the emphasis the Division places on the scope and speed of remediation in the enforcement process. These insights continue the Commission’s ongoing commitment to provide more transparency into its deliberative process,[4] and serve as helpful guideposts to market participants as they structure and enhance their existing compliance programs.

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FinCEN and Federal Reserve Propose to Significantly Lower Threshold for International Funds Transfers Under Recordkeeping and Travel Rules

by Jamie L. Boucher, Eytan J. Fisch, Khalil N. Maalouf, Ernst-Wesley Laine, Malika Moore, Greg Seidner, and Javier A. Urbina

On October 27, 2020, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Board of Governors of the Federal Reserve System (Federal Reserve, together with FinCEN, “the Agencies”) published a joint notice of proposed rulemaking to amend the Recordkeeping Rule[1] and Travel Rule[2] regulations under the Bank Secrecy Act (BSA). The proposed amendments would reduce the applicable threshold for international funds transfers from $3,000 to $250 and, consistent with FinCEN’s existing guidance, formally extend these rules to cover convertible virtual currencies (CVCs) and digital assets used as legal tender. The threshold for domestic funds transfers would remain unchanged at $3,000.

The threshold in the proposed rules is significantly lower than the minimum threshold of $1,000 or €1,000 recommended by the Financial Action Task Force (FATF), an intergovernmental body that develops anti-money laundering and counter-terrorism financing standards and promotes their effective implementation.[3] FATF’s recommended threshold has been adopted by the European Union and by a vast number of jurisdictions around the world.

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Despite Unprecedented Challenges, SEC’s Division of Enforcement’s 2020 Annual Report Presents Healthy Enforcement Results

by Kara Brockmeyer, Andrew Ceresney, Arian June, Robert B. Kaplan, Julie M. Riewe, Jonathan R. Tuttle, Mary Jo White, Ada Fernandez Johnson, and Mark D. Flinn

On November 2, 2020, the U.S. Securities and Exchange Commission’s (the “SEC” or “Commission”) Division of Enforcement (the “Division”) released its 2020 Annual Report (the “Report”), which details the Division’s activities and results for the period October 1, 2019 to September 30, 2020. The Report highlights the substantial impact of the COVID-19 pandemic on the Division’s activities, including the challenges of moving investigations forward while working remotely and the need to divert significant resources to protecting retail investors by investigating potential pandemic-related misconduct. Continue reading →

Post-Election Law Privacy Law Prospects

by Jeremy Feigelson, Avi Gesser, Jim Pastore, Frank Colleluori, Mengyi Xu, Jeffrey Cunard, Luke Dembosky, and Tigist Kassahun

California voters have approved the new California Privacy Rights Act (“CPRA”). The margin was 56% – 44% – comfortable, if significantly tighter than pre-election polling that showed CPRA winning in a landslide. That comes on the heels of the California Attorney General’s release of still more proposed amendments to the regulations for the existing California Consumer Privacy Act (“CCPA”). Below we sum up these important changes emerging from Sacramento. We also note some possible Election Day impacts on the privacy law reforms that have been percolating in Washington, D.C.

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DOJ Issues Cryptocurrency Enforcement Framework

by J. Christopher Giancarlo, Elizabeth P. Gray, Justin L. Browder, Conrad G. Bahlke, and Richard M. Borden 

On October 1, 2020, the Cyber-Digital Task Force (“Task Force”) of the United States Department of Justice (“DOJ”) issued a Cryptocurrency Enforcement Framework (“Framework”).[1]  The Framework summarizes threats posed by illicit uses of cryptocurrency, the applicable laws that the DOJ and other federal regulatory agencies apply in seeking to identify and mitigate such threats, and the ongoing challenges faced by the DOJ in prosecuting criminal conduct in the digital asset ecosystem.  The Framework details an extensive array of federal, state, and international laws and regulations that apply to cryptocurrencies and reflect the emerging approach to cryptocurrency regulation and enforcement by federal and state governments.  While the extensive patchwork of regulations suggests a need for harmonization, the Framework refrains from calling for any new or amended legislation, regulation, or other rules.  It also does not discuss the government’s use of sophisticated technology to track cryptocurrency transactions and develop its cryptocurrency-related cases.  Importantly, the Framework does not advocate for legal or regulatory suppression of cryptocurrency, as some initial commentators suggested.

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