OCC Seeks Feedback on Principles for Climate-Related Financial Risk Management

Goodwin

REGULATORY DEVELOPMENTS

OCC SEEKS FEEDBACK ON PRINCIPLES FOR CLIMATE-RELATED FINANCIAL RISK MANAGEMENT FOR LARGE BANKS

On December 16, the OCC published draft principles to support the identification, measurement, monitoring, control and general management of climate-related financial risks by national banks, federal savings associations, and federal branches and agencies of foreign banking organizations with more than $100 billion in total consolidated assets. The draft principles call for banks to address both physical and transition risk, including credit risk, liquidity risk, operational, legal/compliance risk, and other financial and nonfinancial risk through governance, policies, procedures, limits, strategic planning, risk management, data and risk measurement and reporting, and scenario analysis. Although these draft principles target only the largest banks, the OCC acknowledged that all banks, regardless of size, may have material exposures to climate-related financial risks. Feedback can be submitted through February 14, 2022.

ANTITRUST DIVISION SEEKS ADDITIONAL PUBLIC COMMENTS ON BANK MERGER COMPETITIVE ANALYSIS

On December 17, the Department of Justice’s Antitrust Division (the Division) announced that it is seeking additional public comments on whether and how the division should revise the 1995 Bank Merger Competitive Review Guidelines (Banking Guidelines). This follows a September 1, 2020 announcement by the Division seeking comment on whether and how the Banking Guidelines should be revised, with six specific questions. The December request for additional feedback adds a request for comments on whether and to what extent should the Division’s competitive scrutiny of bank mergers should apply standards, and incorporate factors, beyond those applicable to other industries. The deadline for additional comments is February 15, 2022.

COMMUNITY BANK LEVERAGE RATIO IS IN EFFECT

On December 21, the Agencies issued an interagency statement regarding the optional community bank leverage ratio framework (the Framework). In 2019, the Agencies adopted the optional Framework as a method of measuring capital adequacy for certain community banks. Depository institutions that have less than $10B in total consolidated assets and other qualifying criteria may opt into the Framework, which includes a 9% leverage ratio. In 2020, the Agencies issued an interim rule (the Interim Rule) that (1) lowered the ratio from 9% to 8% due to the COVID-19 pandemic; and (2) established a gradual two-quarter transition period back to the 9% leverage ratio. The Interim Rule expired on December 31, 2021. Starting on January 1, 2022, the Framework went into effect with the two-quarter grace period, during which qualifying community banks may elect into the Framework, but can temporarily fail to meet the requirements as long as they are “well capitalized,” meaning an 8% leverage ratio.

“Weaknesses in how banks identify, measure, monitor and control the potential physical and transition risks associated with a changing climate could adversely affect a bank’s safety and soundness, as well as the overall financial system.”
– Office of the Comptroller of the Currency

WILLIAM BIRDTHISTLE NAMED DIRECTOR OF DIVISION OF INVESTMENT MANAGEMENT

On December 21, the SEC announced the appointment of William Birdthistle as the new Director of the Division of Investment Management (the Division), which is the SEC’s division primarily responsible for developing regulatory policies to oversee investment companies and advisers. Mr. Birdthistle replaces Sarah ten Siethoff (the current Associate Director for the Division’s Rulemaking Office), who had been serving as “acting” Division Director since Dalia Blass stepped down in this role approximately one year ago. Prior to joining the SEC, Mr. Birdthistle served as a law professor at Chicago-Kent College of Law since 2006, where he specialized in the areas of investment funds, securities regulation and corporate governance. During his tenure as a professor, Mr. Birdthistle authored a book on mutual funds (entitled Empire of the Fund: The Way We Save Now) and served as counsel of record on multiple amicus briefs to the U.S. Supreme Court. In recent years, he also served as an expert witness – for the plaintiff shareholders – in an excessive fee case brought under Section 36(b) of the Investment Company Act of 1940. Prior to academia, Mr. Birdthistle practiced at a law firm for five years as an associate in the firm’s investment management practice. Mr. Birdthistle received his J.D. from Harvard Law School.

SEC PROPOSES ACCELERATED AND ENHANCED SHARE REPURCHASE REPORTING

On December 15, the SEC announced that it had proposed rules that would enhance and expand existing reporting of share repurchases by companies. The most significant proposal would require companies to make daily reports of purchases of any class of securities registered under Section 12 of the Securities Exchange Act of 1934.

Read the client alert to learn more about the impact of the proposed rules on companies and what they should do to address those matters.

FINCEN PROPOSES RULES IMPLEMENTING CORPORATE OWNERSHIP REQUIREMENTS UNDER CORPORATE TRANSPARENCY ACT (CTA)

On December 7, FinCEN issued a notice of proposed rulemaking regarding a proposal to implement part of the CTA, which was enacted earlier this year. The proposed rule would require each “domestic reporting company” and each “foreign reporting company” (each, a reporting company), such as a corporation, limited liability company, or other entity created by or registered to do business by filing a document with a secretary of state or similar official of a state or tribe, to file reports with FinCEN that identify each “beneficial owner” of such reporting company and each “applicant” who has filed an application to form or register the entity to do business.

Read the client alert for more information on what reporting companies should consider in light of the proposed rule.

SEC STAFF PROVIDES FORM CRS OBSERVATIONS, EXPECTATIONS AND BEST PRACTICES

On December 17, the staff of the SEC issued a statement regarding Form CRS disclosures required of SEC-registered broker-dealers and investment advisers who offer services to retail investors.

Read the client alert for examples of checkups firms should consider related to substance and process, and access our chart that sets forth the Committee’s observations to take into account during these reviews.

SEC AND PCAOB PREPARE TO IMPLEMENT THE HOLDING FOREIGN COMPANIES ACCOUNTABLE ACT

The SEC has adopted final amendments that, in conjunction with final rules adopted by the Public Company Accounting Oversight Board (PCAOB) earlier this year and the recent determination by the PCAOB that it is unable to inspect or investigate completely any registered public accounting firm in China and Hong Kong, will set the stage for the SEC to designate companies as “Commission-Identified Issuers” based on annual reports filed for fiscal years beginning after December 18, 2020.

Read the client alert to learn more about what companies need to know now.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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