Weekly RoundUp
December 1, 2022

DOL Finalizes Rule Opening Door to ESG Investing in Retirement Plans

In This Weekly Roundup Issue. The U.S. Department of Labor (DOL) announced a final rule to remove barriers to considering Environmental, Social, and Governance (ESG) factors in plan investments; the U.S. Securities and Exchange Commission (SEC) charged an investment adviser for failing to follow its policies and procedures involving ESG investments; in response to the SEC’s published final pay versus performance rules from late August 2022, the Goodwin team prepared an FAQ; the Office of the Comptroller of the Currency (OCC) revised its civil money penalty (CMP) manual; the Consumer Financial Protection Bureau (CFPB) released the 28th edition of its Supervisory Highlights report; the CFPB announced its annual threshold adjustment under section 612(f) of the Fair Credit Reporting Act (FCRA); and the SEC adopted amendments to shareholder reports and advertising rules. These and other developments are discussed in more detail below.

Regulatory Developments

DOL Finalizes Rule Opening Door to ESG Investing in Retirement Plans

On November 22, the DOL announced a final rule under the Employee Retirement Income Security Act (ERISA) to allow plan fiduciaries to consider climate change and other ESG factors when they select retirement investments and exercise shareholder rights, such as proxy voting. The final rule clarifies how ERISA’s fiduciary duties of prudence and loyalty apply to selecting investments and investment courses of action and exercising shareholder rights such as proxy voting. An important change adopted in the final rule is the addition of regulatory text clarifying that a fiduciary’s duty of prudence must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis, and that such factors may include the economic effects of climate change and other ESG considerations on the particular investment or investment course of action.

“Today’s rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits.”
- Marty Walsh, Secretary of Labor

SEC Charges Investment Adviser for Failing to Follow its Policies and Procedures Involving ESG Investments

On November 22, the SEC announced settled cease and desist charges and a $4 million penalty against an investment adviser registered with the SEC for policies and procedures failures involving two mutual funds and one separately managed account strategy marketed as ESG investments. During a roughly three-year period, the SEC alleged that the investment adviser failed to have any written policies and procedures for ESG research, and once policies and procedures were established, it failed to follow them consistently. The investment adviser consented to the entry of the SEC’s order finding that it violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. This enforcement action follows a similar enforcement action against a different investment adviser in May 2022 for alleged misstatements and omissions about ESG considerations in fund disclosures.

Frequently Asked Questions: SEC Pay Versus Performance Final Rules

The SEC published final rules in late August 2022 that will require new pay versus performance disclosure in 2023 proxy statements, as described in our earlier client alert. These rules will require companies that are not exempt from the new rules to provide detailed disclosures about specific executive compensation measures and company financial performance measures.

Read the client alert for an FAQ on the pay versus performance rules, prepared by Goodwin’s Public Company Advisory practice.

OCC Revises Civil Money Penalty Manual

On November 29, the OCC announced revisions to its CMP manual, which the OCC will begin using on January 1, 2023. The OCC revised the CMP matrix applicable to its regulated institutions to allow for sufficient differentiation among varying levels of misconduct or by institution size, and updated the mitigating factors to provide a stronger incentive for banks to fully address underlying deficiencies. The CMP matrix is a tool to guide the OCC’s decision making in assessing CMPs. The OCC may depart from the matrix suggestions, when appropriate and when based on the specific facts and circumstances of each matter.

CFPB Supervisory Examinations Find Credit Reporting Failures, Junk Fees, and Mishandling of COVID-19 Protections

On November 16, the CFPB released the 28th edition of its Supervisory Highlights report (the Report) identifying legal violations uncovered by the CFPB during supervisory examinations between January 1 and June 30, 2022. The Report covers findings across consumer financial products and services, including violations of the FCRA by nationwide consumer reporting companies for failing to update incorrect information on credit reports, instances where homeowners were charged impermissible fees by mortgage servicers for making payments over the phone, and unfair and deceptive practices in auto loans, including add-on product charges, loan modifications, double billing and prohibited debt collection. CFPB examiners also assessed how financial institutions handled pandemic relief benefits deposited into consumer accounts, noting that certain policies and procedures resulted in garnishments and setoff practices. The full Report is available on the CFPB’s website and the Federal Register

CFPB Increases Maximum Allowable Charge Threshold Under FCRA for 2023

On November 22, the CFPB announced its annual threshold adjustment under section 612(f) of the FCRA, increasing the maximum amount that a consumer reporting agency may charge a consumer for disclosing to the consumer information in the consumer's file from the 2022 ceiling of $13.50 to $14.50, effective January 1, 2023. The final rule was published in the Federal Register on November 25.

SEC Publishes FY22-26 Strategic Plan

On November 23, the SEC released its Strategic Plan (the Plan) for fiscal years 2022 to 2026. The Plan outlines agency objectives to fight against fraud, maintain a robust and relevant regulatory framework, and sustain a skilled and diverse workforce to serve America’s investors and capital-raising entrepreneurs alike.

The Plan establishes three primary goals:

  1. Protect the investing public against fraud, manipulation, and misconduct
  2. Develop and implement a robust regulatory framework that keeps pace with evolving markets, business models, and technologies
  3. Support a skilled workforce that is diverse, equitable, and inclusive and is fully equipped to advance agency objectives

SEC Adopts Amendments to Shareholder Reports and Advertising Rules

On October 26, the SEC voted to adopt rule and form amendments (final rules) related to (1) shareholder reports of mutual funds and exchange-traded funds registered on Form N-1A and (2) fee and expense information in advertisements of all registered investment companies and business development companies. The rules were proposed in August 2020.

Read the client alert for an overview of the final rules and changes from the proposal in August 2020.

FINRA Sheds Light On Path to Digital Asset Security Broker Registration

Interest in engaging in a crypto business seems to be at an all-time high, including doing so in or through regulated and compliant businesses in traditional financial services firms. Brokers-dealers sit atop that list. The path to registration for digital or crypto asset securities brokers can be long and arduous. Just one example — FINRA views digital asset securities business lines as material and, for existing members, requiring approval under FINRA Rule 1017 as a “material change in business operations.” To provide a modicum of clarity, a recent FINRA podcast outlined the FINRA Membership Application Program’s approach to seeking approval for a material business expansion in this area.

Read the client alert for key takeaways. 

FINRA Exam Targets Broker Crypto Asset Communications

FINRA recently announced targeted exams of its members focused on certain retail communications concerning “crypto asset” products and services between July 1, 2022 and September 30, 2022. 

Read the client alert for more information about what defines a “crypto asset” and what these exams mean for affected firms.

Goodwin News

Webinar: Proposed SEC Rules Will Force Public Companies to Dramatically Rethink Cybersecurity Investigations and Response Strategy

Join Goodwin lawyers for a discussion on Thursday, December 15 from 12:00 – 1:00 PM EST surrounding proposed SEC rules from earlier this year that represent a substantial shift in the breadth and timing of disclosure requirements in connection with cybersecurity incidents. 

If these rules are adopted, public companies will need to disclose “material” cybersecurity incidents — and the potential impact of such incidents on the financial performance or position of a company — on an expedited timeframe. One of the key provisions would require disclosure within four (4) business days — representing one of the shortest notification clocks under U.S. law. Because security incidents are “not if but when,” public companies should take steps now to prepare for anticipated impacts of the proposed rules.

Register for the webinar to confirm your attendance and hear from our panelists about:

  • The nuances of incident disclosure requirements under the proposed rule, and considerations for “materiality” determinations
  • How the 4-day trigger may work in practice, including potential impacts on other notification obligations
  • Notification and communication strategies and related litigation and regulatory risks associated with SEC cybersecurity-related disclosures
  • Recommended adjustments to public companies’ incident response processes and cybersecurity governance frameworks
  • Impacts of anticipated uptick in SEC and other regulatory enforcement activity and considerations for public companies to mitigate related risks

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Samantha M. Kirby
William McCurdy

Josh Burlingham
Serene Qandil
Nico Ramos
Jiabao (Eva) Xu