Issue 44: Open Season
MBK Search
We connect the best risk, audit, and compliance talent with the world’s leading firms.
Welcome to This Week in GRC, MBK Search 's?weekly digest of the news and views in the world of governance, risk, and compliance.
The Opening Bell
What is the best risk management strategy for navigating an election year?
Gone are the days of benign campaigns, where the beats and tropes were entirely predictable and simple to navigate.
Geo-political risks are top of book for many senior GRC professionals, and with a swathe of votes taking place in 2024, many will be waving their fingers in the air to feel where the prevailing wind is blowing. Whether they find an answer is another story...
With regulators on both sides of the Atlantic promising to scrutinize firms like never before, perhaps the good 'ol cliche "Expect the unexpected" will be an entirely reasonable stance.
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SPACs Face Strict New Due Diligence Bar Under Bold SEC Actions
This week, the SEC unveiled major rules to strengthen investor guardrails around SPAC transactions. The rules aim to enhance transparency, accountability, and disclosure standards.
Governance and compliance teams must prepare firms for critical new compliance changes. The changes enable fairer, more trustworthy deals. They also maintain the speed advantages.
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SEC Spotlights Patchwork Private Offering Rules for Overhaul
SEC Commissioner Mark Uyeda recently outlined his vision for rethinking private securities offerings to aid startups and retail investors.
Governance, risk management, and compliance teams should note several areas covered that could reshape oversight duties.
Unpacking the EU’s New Anti-Money Laundering Regulation: 6 GRC Need-to-Know
The EU's Anti-Money Laundering Regulation (AMLR) will soon uniformize compliance across the bloc alongside its 6th Anti-Money Laundering Directive (AMLD6). The expansive rulebook will substantially impact governance, risk management, and compliance approaches.
FINRA: Most Crypto Asset Promotions Violated Disclosure Rules
Wall Street's self-regulatory body FINRA sanctioned dozens of firms over “unfair, unbalanced or misleading” cryptocurrency promotions. ?
The watchdog reviewed over 500 retail crypto communications from July to September 2022 after observing surging volumes. Violations turned up in 70% of sampled ads, podcasts, research reports, and other dealer notices.?
Commonly cited issues include deceptive comparisons between tokens and cash, falsely stating certain coins held SEC approval or SIPC coverage, and blurring lines around third-party issuers versus proprietary offerings.?
FINRA also spotted inadequate explanations of crypto functioning, volatility, or security. Oversimplified language largely omitted balanced warnings demanded from securities under existing standards.?
Regulatory affairs head Ira Gluck said crypto-linked notices bore five times higher historical violation rates than other instruments. The gap signals shaky governance maturity around appropriate disclosures as mainstream adoption swells.?
While continuing to ascertain boundary lines, FINRA considers most crypto assets securities necessitating stringent diligence. It warns tying coins to brokerage accounts further mandates stringent oversight like conventional products.
But despite past alerts, basic compliance remains lacking in spaces seeing floods of novice traders. Victims of failed platforms or fraudulent tokens continue emerging weekly.
Alongside fines, FINRA pledged to refer egregious offenses for enforcement inquiries into potential fraud charges down the line. The agency believes enforcements demonstrating consequences can motivate voluntary cleanups preempting litigation.
But, crypto allies dismiss FINRA’s qualifications dictating terms absent formal jurisdiction. They argue minimal transparency enables decentralization upholding user control.
Either way, regulators eye strengthening rules for investor protection in a turbulent market. Clear communication stands essential for educated decisions as technical complexities challenge informed consent.
UK Softens Corporate Governance Code Revisions to Attract Business
The UK's audit and governance regulator published muted updates this week to its Corporate Governance Code guiding public company oversight expectations. Modest internal control clarifications aim to balance accountability and burdens amid economic uncertainty.
The Financial Reporting Council (FRC) chose to narrow its focus to risk assessment procedures rather than addressing wider reform issues like sustainability or diversity disclosures. Officials felt larger changes could repel investors and registrations.?
Under the revised principles, boards must include a yearly declaration confirming their material control assessments sufficiently support assurances and governance needs. The provision grants flexibility in defining key financial, compliance and operational controls requiring testing.??
By refraining from mandating specific internal audits like the US, the FRC believes it struck the right balance on self-policing. Officials pledge to revisit expanding scope once conditions improve.?
Supporters agree prudent governance cannot drift too far from business realities some sectors face. Mandating expansive due diligence risks discouraging public listings during downturns rather than uplifting standards.?
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But skeptics counter that light-touch oversight enables misgovernance to fester until serious frauds or failures manifest. They consider robust monitoring procedures a small price for access to public capital and pension investments.??
In the FRC's judgement, incremental reform spurs more collective progress. But critics contend unchecked governance gaps continue enabling value destruction and misconduct.
For now the updated code clarifies rather than advances expectations on risk management and control maturity. However economic stability concerns have only paused wider calls for reform.
NY Regulator: Vet Execs Regularly, Look Beyond Background Checks
New York financial authorities published final rules this week elevating background check requirements when appointing senior officers like chief compliance officers. The guidance aims to address outdated hiring practices missing key integrity risks.?
Banks and other regulated institutions must now go beyond one-off criminal searches to unearth regulatory, disciplinary, and conflict of interest red flags before onboarding executives.
And crucially, due diligence cannot stop at hiring. Firms must continually re-vet leaders and report findings to boards to uphold accountability.?
Past sanctions, license revocations, ties posing conflicts, and similar events should raise scrutiny according to state officials. Inheriting troubled executives risks reputational and oversight damages.
Regulators argue robust screening and monitoring deters misconduct better than after-the-fact punishments alone. But industry groups contend fuzzy standards create compliance uncertainty despite agreeing improved vigilance protects consumers.?
Critics also worry expanded liability for executive wrongdoing not directly tied to internal controls overreaches into general conduct regulation.
Nonetheless, regulators believe recurring checks will discourage corner cutting or duplicity over the long term. They expect the principles to reach federal level attention over time as well.
For now, New York banks face the most explicit enhanced executive vetting rules of any state. But officials predict enhanced governance becoming the norm industry-wide as risks crystallize from outdated norms.
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Getting the Fintech Story Straight:
12:00 EST, Friday January 26
Managing Director at Klaros Group Michele Alt is speaking with Financial Health CEO Jennifer Tescher and FinRegLab CEO Melissa Koide later today about replacing assumptions with data and convincing regulators to trust fintech. Tune in live, or watch back later, here.
See the full list of GRC jobs MBK Search is recruiting for on our website — mbksearch.com/jobs
At MBK Search, we help firms find world-class talent to build champion teams across regulated markets. Let's start building — visit our website to find out how. www.mbksearch.com
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