Financial Institutions

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Principles for Responsible Banking Gain Support of First Large U.S. Bank

Last week, Citi announced its support of the Principles for Responsible Banking (the Principles), joining a list of banks from around the world that have committed to becoming signatories. The Principles were developed by a group of 28 banks, jointly representing more than $17 trillion in assets, on behalf of the wider United Nations Environment Programme Initiative (UNEP FI). Citi has been a member of UNEP FI, a partnership between UNEP and the global financial sector, since 1997 and has undertaken several initiatives related to sustainability in the recent past.

So far, the majority of endorsers of the Principles are non-U.S.
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IFC Launches Framework for Impact Investing with Commitments by 60 Global Investors

On April 12, 2019, the International Finance Corporation (IFC), a World Bank Group, officially launched their Operating Principles for Impact Management (the Principles).  As of the official launch date, 60 global investors have committed to the Principles.  The first adopters range from large asset managers, private funds to non-profit investment firms.  The focus of the Principles is on impact investing, a term that IFC defines as “investments made into companies or organizations with the intent to contribute to measurable positive social or environmental impact, alongside a financial return.”  IFC adapted this definition from GIIN and notes that impact investing focuses on more than just avoiding harm or managing environmental, social and governance (ESG) risks; it aims to utilize investing’s ability to positively impact society by “choosing and managing investments to generate positive impact while also avoiding harm.”  This focus seemingly goes beyond the UN initiated Principles of Responsible Investing or UN PRI, which were tailored to the idea of responsible investing – investing with the goal of incorporating ESG factors into decisions in order to manage risk and generate long-term returns.
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Mr. Clayton Goes to Washington

SEC Chair nominee Jay Clayton’s March 23rd hearing before the Senate Banking Committee covered much of the expected ground. In a series of responses designed to avoid controversy, Clayton repeatedly returned to the three core mandates of the SEC – capital formation, investor protection and efficient markets – as touchstones for his future leadership of the Commission, should he be confirmed. Beyond these general areas, Clayton offered few specifics or signals as to how he might steer the Commission during his term as Chair. He did, however, discuss concerns about growing companies finding the U.S. public markets unattractive due to the burdens of being a public company.
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Dodd-Frank Update: Incentive Compensation for Financial Institutions

On Monday, May 2, 2016, the Federal Reserve and, on Friday, May 6, 2016, the SEC issued their versions of a reproposed rule to regulate incentive compensation at the financial institutions under their purview, as required by Section 956 of the Dodd-Frank Act. These issuances follow the releases in the prior weeks of the proposed rule by the National Credit Union Administration, the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Federal Housing Finance Agency. We reported on the release of the proposed rule in our visual memorandum released last Monday.

As a reminder, Section 956 of Dodd-Frank generally requires that these agencies jointly issue rules that:

(1) prohibit incentive compensation that encourages inappropriate risks by certain financial institutions by providing excessive compensation or that could lead to material financial loss; and

(2) require those financial institutions to disclose information concerning incentive compensation to the appropriate federal regulator.
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Delaware Court of Chancery Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches

On March 7, 2014, Vice Chancellor Travis Laster of the Delaware Court of Chancery found a financial advisor liable for aiding and abetting breaches of fiduciary duties by the board of Rural/Metro Corporation in connection with the company’s 2011 sale to an affiliate of Warburg Pincus LLC. In its 91-page, post-trial opinion, the Court concluded that the financial advisor allowed its interests in pursuing buy-side financing roles in both the sales of Rural/Metro and Emergency Medical Services to negatively affect the timing and structure of the company’s sales process, that the board was not aware of certain of these actual or potential conflicts of interest, and that the valuation analysis provided to the board was flawed in several respects.
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FSA Provides Guidance on the Remuneration Code for Financial Institutions

On August 5, 2011, the UK Financial Services Authority (FSA) proposed two draft “Dear CEO” letters providing guidance on issues relating to the revised Remuneration Code, which came into force on January 1, 2011. The Remuneration Code covers a relatively wide-range of financial institutions in the UK (both UK firms and non-UK firms with branches in the UK) including banks, building societies and broker-dealers (over 2,500 institutions in all). The letters, one of which is for firms in proportionality tier 1 and the other for firms in proportionality tiers 2, 3 and 4, detail how the FSA plans to monitor implementation of the Remuneration Code and provide guidance on FSA policy with regard to the Code.
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