ISS 2021 Policy Updates on Federal Forum and Exclusive State Law Forum Provisions, Board Diversity and Other Matters
On November 12, ISS published its proxy voting guidelines updates for 2021 (Policy Updates), which include new and updated voting recommendations on federal forum and exclusive forum provisions in companies’ governing documents and the racial and ethnic diversity of directors. In light of the Policy Updates, companies should consider adopting a Federal Forum Provision, if they have not yet done so, whether any amendments should be made to their existing provisions to avoid negative recommendations by ISS, and adding disclosure to their proxy statements regarding the racial and ethnic diversity of board members. To the extent that the diversity of the board falls short of ISS policy guidelines, which will apply for 2022 meetings or state laws such as California Assembly Bill 979 applying to certain companies at the end of 2021, discussed in a previous client alert, companies may wish to consider beginning or accelerating recruitment efforts to attract qualified racially or ethnically diverse members. The Policy Updates will generally be effective for meetings on or after February 1, 2021. The updated policy on racial and ethnic board diversity will be effective for 2022 meetings.
SEC Chairman Jay Clayton to Depart Agency By Year End
On November 16, SEC Chairman Jay Clayton announced his intention to depart from the agency by the end of 2020. News of Clayton’s decision comes as no surprise to most in the industry, as it is typical for the SEC Chair to hand the reigns to a successor around the time of an election for President. What many had speculated about, however, was the timing. The results of the election may have influenced Clayton’s decision to leave by year-end, rather than remain as Chairman into 2021. Rumors of Clayton’s impending departure have swirled since June 2020 when President Trump nominated Clayton to serve as the next U.S. Attorney for the Southern District of New York (SDNY). The SDNY role never materialized, but it fueled speculation that Clayton might leave before the election.
Clayton has served as SEC Chairman since May 2017. In that time, he has set one of the agency’s most aggressive and prolific (and perhaps most contentious) rulemaking agendas in recent history. Clayton’s announcement was accompanied by a lengthy list of selected accomplishments covering rulemaking, regulatory guidance and relief, enforcement, investor protection, and even internal agency and industry considerations like diversity and inclusion. The accomplishments include adopting Regulation Best Interest and Form CRS, tackling several “market structure” issues in the trading and markets space, adopting many long-overdue rulemakings mandated by Title VII of Dodd-Frank, and adopting several rulemakings aimed at capital formation, including “harmonizing” exempt offerings, a change to the definition of “accredited investor,” and increased offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings. All of this took place despite several, significant developments that risked derailing Clayton’s agenda, not the least of which were the crypto/ICO wave of 2017/2018, the 6-week federal government shutdown of late 2018/early 2019, and the COVID-19 pandemic the world has been battling for most of 2020.
It is likely that President Trump will appoint one of the two remaining Republican Commissioners (Peirce or Roisman) as acting Chair. In January, when many expect former Vice President Biden to be sworn in as President, it is likely that Democratic Commissioner Lee will be appointed as acting Chair, followed by an eventual, newly appointed Chair to lead the agency for the duration of the next presidential term.
SEC’s Division of Investment Management Issues Information Update on Submission Form for No-Action and Interpretive Letters
On November 17, the SEC’s Division of IM issued an information update on a new web intake form for no-action and interpretive letter requests under 17 CFR § 202.1(d). The SEC’s website specifies certain procedures for submitting a request through the web intake form, including:
- Reference the specific subsection of the particular statute to which the letter pertains in the upper right-hand corner of the letter submission;
- Identification of the names of the company or companies and all other persons involved in the request. If the request involves potential “market-moving” information, the name of counsel representing the requestor should be provided;
- Letters should be limited to the particular situation involving the problem at hand and should not attempt to include every possible type of situation which may arise in the future;
- While it is essential that letters contain all of the facts necessary to reach a conclusion in the matter, they should be concise and to the point;
- The writer should indicate why he or she thinks a problem exists and include his or her own legal analysis in the matter; and
- If a request for confidential treatment is made, this request and the basis therefore should be included in a separate letter and submitted with the request letter.
The Division of IM will not answer hypothetical questions. Applicants should not include any sensitive personally identifiable information (e.g., social security numbers or date of birth) on the intake form.
SEC Adopts New Electronic Signature and Document Submission Amendments
On November 17, the SEC adopted rules and rule amendments permitting the use of electronic signatures in authentication documents, and facilitating electronic service and filing in the SEC's administrative proceedings. The rules and amendments are permanent and not limited to the duration of the pandemic or national emergency, and will help to reconcile the expedients that have arisen during the current pandemic conditions with the now-outdated regulatory expectations for manual signatures in effect prior to the adoption of the rules and amendments.
In the first action, the SEC adopted rule amendments to permit the use of electronic signatures when executing authentication documents in connection with many documents filed with the SEC. The amendments revise Rule 302(b) of Regulation S-T to permit a signatory to an electronic filing who follows certain procedures to sign an authentication document through an electronic, rather than manual, signature that meets certain requirements specified in the EDGAR Filer Manual. In addition, the SEC amended certain rules and forms under the Securities Act of 1933, Securities Exchange Act of 1934, and Investment Company Act of 1940 to allow the use of electronic signatures in authentication documents in connection with certain other filings when these filings contain typed, rather than manual, signatures. The rule amendments will be effective upon publication of the adopting release in the Federal Register.
In the second action, the SEC adopted rule amendments to require electronic filing and service of documents in administrative proceedings. These rule amendments also require redaction of sensitive personal information from many of these documents before filing with the SEC. These amendments will become effective 30 days after publication of the adopting release in the Federal Register. However, compliance will not be required until April 12, 2021, and there will be an initial 90-day phase-in period following the compliance date.
OCC Finalizes Rule to Eliminate Unnecessary Licensing Requirements
On November 16, the OCC released a final rule updating and clarifying its Rules, Policies, and Procedures for Corporate Activities, 12 CFR part 5, including eliminating unnecessary requirements consistent with safe, sound and fair operation of the federal banking system. The significant changes include:
- permitting national banks and federal savings associations to elect to follow the procedures applicable to state banks or state savings associations, respectively, for certain business combinations;
- expanding the operating subsidiary notice and expedited review processes to include activities that are substantively the same as activities previously approved by the OCC;
- permitting non-controlling investments and pass-through investments in entities that have not agreed to OCC supervision, and permitting certain other investments without a filing;
- providing procedures for granting and revoking citizenship and residency waivers for national bank directors;
- changing the definition of "troubled condition" for purposes of changes in directors and senior executive officers to specify that an enforcement action must require the national bank or savings association to improve its financial condition for it to be considered in “troubled condition” solely as a result of the enforcement action, which would align with OCC supervisory practice; and
- adding Chief Risk Officer to the list of positions for which a bank in troubled condition must provide notice when making a change in personnel.
The final rule is effective on January 1, 2021.
CFPB Announces Debt Collection Compliance Aid Resources
The CFPB’s Office of Regulation’s Regulatory Implementation and Guidance team published its strategy for providing support to the financial services industry in understanding, implementing and complying with the final rule to implement the Fair Debt Collection Practices Act. Through the designated compliance resource webpage, the CFPB provides:
- Compliance aids, including executive summaries, compliance guides, disclosure aids, flowcharts, decision trees, one-pagers and webinars;
- Informal individual guidance in response to inquiries using the CFPB’s web intake form; and
- Applicable data collection guidance and tools.
At the bottom of the compliance resource webpage, interested parties can also subscribe to CFPB emails for updates on debt collection rules and compliance resources.
FHFA Further Extends COVID-Related Loan Flexibilities and Announces 2021 Multifamily Loan Purchase Caps
The FHFA announced that Fannie Mae and Freddie Mac (the Enterprises) will extend several loan origination flexibilities until December 31, 2020 to ensure continued support for borrowers during the COVID-19 national emergency. The extended flexibilities, which were set to expire on November 30, include:
- Alternative appraisals on purchase and rate term refinance loans;
- Alternative methods for documenting income and verifying employment before loan closing; and
- Expanding the use of power of attorney to assist with loan closings.
The FHFA also announced that the 2021 multifamily loan purchase caps for the Enterprises will be $70 billion for each Enterprise. The cap structure allows the Enterprises to offer a combined total of $140 billion in support to the multifamily market. At least 50% of the Enterprises multifamily loans are required to be used for affordable housing. Additionally, for the first time, affordable housing manufactured housing communities must either be resident/government/nonprofit-owned or must have tenant lease protections to be counted as mission-driven, affordable housing.
When Do M+A Discussions Constitute MNPI? Recent SEC Guidance May Shed Some Light
Last month, the SEC announced that a public company had agreed to pay a $20 million penalty to resolve charges related to its repurchase of stock while supposedly in possession of material, non-public information (“MNPI”) that it might be acquired by another company. The SEC’s cease and desist order offers important lessons for assessing whether a company is in possession of MNPI in the context of ongoing M+A discussions. Read the client alert for more information about the cease and desist order and the process of determining the existence of MNPI.
Department of Labor Finalizes Regulation Requiring Fiduciary Investment Decisions to be Based Solely on Pecuniary Factors
As previously discussed in the November 4 edition of the Roundup, the Department of Labor (DOL) released its final amended regulation on investment duties under Section 404(a)(1)(A) and (B) of ERISA, which substantially reworks the DOL’s original proposal but retains its intended effect of suppressing the consideration of non-pecuniary environmental, social, governance and similar issues by investment fiduciaries. Read the client alert to learn more about the final regulation and its impact on fiduciary investment decisions.
ENFORCEMENT & LITIGATION
CFPB Settles with Telecommunications Debt Collector for Alleged FCRA and CFPA Violations
On November 12, the CFPB announced that it had entered into a consent order with an Illinois-based debt collector that collects debts on behalf of telecommunications companies and furnishes consumer-account information to credit reporting agencies. Read the Enforcement Watch blog for more information about the alleged violation against the Fair Credit Reporting Act and the Consumer Financial Protection Act and the resultant consent order.