The biggest winners and losers in the finance sector in Washington during 2022
(Bloomberg) — From cryptocurrency scandals to a bursting plumber’s bubble, 2022 has been a wild time in the financial world. It also marked President Joe Biden’s first full year as a bodyguard.
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It’s no secret that executives don’t always share the same views as regulators. So while Wall Street waits for the ball to drop in Times Square, here’s a scorecard from Washington on some of the biggest gainers and losers of 2022:
The nation’s capital has soured heavily on cryptocurrency. After a series of scandals, pressure to bring back political donations tainted by the still-unfolding FTX drama, and ordinary investors losing tons of money, it’s hard to avoid hearing a bunch of crypto-skeptics say “I told you so.”
Token backers are still in Washington, but the lavish riverside parties and photo-ops with overzealous politicians are gone — at least for the time being — as crypto lobbyists play the defense. This shift couldn’t come at a worse time for the industry as lawmakers are ready for legislation to target the asset class more squarely. Senate Banking Committee Chairman Sherrod Brown, a longtime skeptic, has expressed his desire to create a broad regulatory framework.
After a mostly inert Trump administration, corporate oversights costly in enforcement settlements with US authorities are back. This shift made 2022 a banner year for those who make a living policing behavior in corporate companies.
In a series of high-profile cases, Wall Street banks agreed to hire compliance consultants to do a deep dive into their communications policies and procedures, as well as pay hefty fines to settle allegations that bankers used WhatsApp and other unapproved platforms to do business. .
Separately, Glencore Plc agreed to bring in an independent monitor for three years as well as pay $1.5 billion to settle investigations by the US, UK and Brazil into allegations of bribery and market manipulation. Meanwhile, Deutsche Bank AG had to hold on to a watchdog for a while longer after an ESG issue at the lender’s asset management arm.
Investors seeking to influence how companies act and who owns C Suite are preparing to exercise new powers in 2023 proxy season. The SEC changed the rules for opening proxy polls and allowing management-backed managers and those provided by investors to compete directly for the same seats.
And “universal proxy suffrage” undermines the long-established practice of allowing only investors to return to a slate of candidates. Other proxy changes at the SEC are expected to make it easier for investors to bring issues of social importance to a shareholder vote, which could lead to a tsunami of new ESG proposals.
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Companies from Alibaba Group Holding Ltd acquired JD.com Inc. Reprieve this month when US regulators said they were able to scrutinize audit working papers for companies based in China and Hong Kong.
About 200 companies were facing an acute threat of expulsion from the New York Stock Exchange and Nasdaq. After months of high-stakes drama, the threat receded after the Public Accounting Oversight Board in the United States said its inspectors had gained sufficient access to audit documents of companies in China and Hong Kong for the first time. Even as Congress seeks to keep up the pressure, the outlook for maintaining their listings in the US is much better than it was at the start of the year.
The flame was dying even before the start of 2022, but this year the plumber’s craze has officially crashed. Dozens of SPACs are preparing to return billions of dollars to investors after failing to find something to buy, and several companies that have completed a buyout have gone bankrupt.
It is clear that investors are no longer handing out blank checks, and neither are regulators, with attacks on several fronts. The Securities and Exchange Commission and the Justice Department have stepped up scrutiny of the industry’s dealmaking process for signs that sponsors or company officials have broken the rules in rushing into the market, spooking investors. Furthermore, the proposed rules sought to make sponsors disclose more information, deter rosy expectations and increase the liability of banks that help fund SPACs.
Sen. Elizabeth Warren has pushed for tougher rules as well, calling the industry “riddled with fraud, self-dealing, and inflated fees.”
Funds touted as sustainable, environmentally friendly, or socially conscious have swelled in assets over the past few years. The ESG label was a marketing coup with many investors rushing at the opportunity to make money and feel good about it.
But in 2022, US regulators are starting to ask some tough questions about what it really means for an investment to be “green,” or “ESG.” The Securities and Exchange Commission proposed new marketing regulations and began suing companies over their disclosures. The regulator is also looking into whether managers of funds marketed as sustainable waive their right to vote on environmental, social and governance issues. Asset managers, led by BlackRock, have warned that some plans for the SEC’s rules on labeling could backfire.
SEC Chairman Gary Gensler has targeted the business models of wholesale brokerages such as Citadel Securities and Virtu Financial Inc. After teasing for more than a year that major rule changes were on the horizon, the regulator this month proposed a raft of plans that could lead to more orders being executed on exchanges rather than on those firms and a few of their rivals.
Currently, many orders for individual stock trades are handled by wholesale brokerage firms, which pay to process clients’ trades from companies like Robinhood Markets Inc. Through a practice known as pay for order flow. Supporters of the current system say retail investors have never had it this good, and can trade without commissions because of these arrangements.
If the spectacular and sudden collapse of FTX was a boon for crypto-skeptics, it was devastating for the industry as a whole. The face of the company, co-founder Sam Bankman-Fried, has spent a great deal of time in Washington and successfully promoted himself as a responsible player in an industry full of shadows. His indictment, arrest, and extradition have been deeply embarrassing and problematic for lawmakers and regulators who have spent time with him publicly and privately.
The industry is now under a microscope as Washington mulls ways to crack down on abuses — potentially with a heavier hand than it did before the FTX fiasco. The crisis is giving ammunition to regulators like the Securities and Exchange Commission’s Gensler, who have long argued for a more aggressive, enforcement-driven approach to the asset class.
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