iDOL Seeks Comment on Climate-Related Financial Risks
In a Request for Information ("RFI"), the DOL requested public comment on actions to protect retirement savings and pensions from risks associated with changes in climate.
The RFI was based upon President Biden's 2021 Executive Order on climate-related financial risk. That E.O. directed the department to identify actions it can take under the Employee Retirement Income Security Act of 1974, the Federal Employees' Retirement System Act of 1986, and other relevant laws to safeguard the life savings and pensions of U.S. workers from the threats of climate-related financial risk. In the RFI, the DOL asks a series of questions as to how the Employee Benefits Security Administration ("EBSA") or fiduciaries to plans may reduce climate risk. These include:
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what agency actions can be taken under "relevant laws" to reduce the threats of climate-related financial risk;
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what climate risk data related to plans to should EBSA collect;
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how do plan fiduciaries vote on proxy proposals relating to climate risk;
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what actions should plan managers take to incorporate climate risk into their decisions; and
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should investors be provided education as to climate-related financial risks?
The RFI suggested that penalties may be imposed on fiduciaries that do not invest in accordance with whatever guidelines may eventually be established, stating that "there are civil enforcement provisions aimed at assuring that plan funds are protected. . . ."
The comment period will run for 90 days after publication in the Federal Register on February 14, 2022.
Commentary by Steven Lofchie
The expanded authority that the DOL indicates it may seek to require reporting on the manner in which plan fiduciaries vote their proxies raises a concern that the government may implicitly or explicitly pressure fiduciaries to vote their proxies in a politically preferred way. That would have an indirect effect of forcing public and private corporations to act in accordance with a politically preferred manner. The SEC has published a similar proposal that would expand proxy voting disclosure reporting requirements.
While governmental mandates relating to the pandemic have been the subject of fairly considerable controversy and press, developments in financial regulation have far, far greater significance. If the government is systematically monitoring the voting of investment advisers and plan fiduciaries, and in the case of plan fiduciaries, even suggesting that a disfavored vote could be in violation of law, then there is essentially no limit to the government's authority over the private sector.
How much power should the government have over corporate proxies? The potential effects of this Request for Information, and of the SEC rule proposal as to proxy voting, are issues that are worthy of Congressional consideration. At a minimum, the imposition of very significant safeguards against the misuse of the information for political purposes should be required, assuming it would even be possible to prevent the misuse of such information.
President Biden Places Hold on Afghanistan Central Bank Property
President Joseph Biden issued an Executive Order ("EO") to preserve property of Afghanistan's central bank, Da Afghanistan Bank ("DAB"). The Order addresses the humanitarian crisis and possible "deepening economic collapse" in Afghanistan, which the Order states "constitutes a threat to U.S. national security and foreign policy."
The EO requires that U.S. financial institutions, including the Federal Reserve Bank of New York ("New York Fed"), hold all of DAB's property and interests in property. Such property is blocked and may not be transferred, paid, withdrawn, or exported at this time, except into a consolidated account held at the New York Fed. The EO addresses various parties that "have asserted legal claims against certain property of DAB" or indicated "an intent to make such claims."
FRB Researchers Suggest an Alternative to PWG Recommendations on Stablecoins
In a recent research paper titled "Stablecoins: Growth Potential and Impact on Banking," the Federal Reserve Board ("FRB") detailed (i) the current use and growth opportunities of stablecoins and (ii) the potential for stablecoins to broadly impact the banking system.
Unlike the conclusions drawn by the President's Working Group ("PWG"), which recommended limiting issuance of stablecoins to insured depository institutions to address certain identified risks, the FRB researchers found "that dollar-pegged stablecoins have exhibited safe asset qualities in that their prices in the secondary market temporarily rise above the peg during times of extreme market distress, incentivizing the issuance of more stablecoins."
The report concluded that a broad adoption of asset-backed stablecoins can potentially be supported within a two-tiered, fractional reserve banking system without a negative impact on credit intermediation because stablecoin reserves would be held as commercial bank deposits. By contrast, a "narrow bank" stablecoin framework, in which stablecoin issuers are required to back their stablecoins with central bank reserves, could potentially reduce credit intermediation.
"Robo-Adviser" Settles SEC Charges for Deceiving Investors
The SEC charged an internet-based registered investment adviser with making false claims to investors, breaching its fiduciary duty, and committing related compliance failures.
In its Order, the SEC found that the "robo-adviser," among other things, (i) marketed certain proprietary exchange-traded funds ("ETFs") that did not exist, (ii) made false claims about its rebalancing of client portfolios, (iii) used investor capital to establish its proprietary ETF fund without "prior disclosure to its clients of its preference for and affiliation with" such ETF, and (iv) did not have written policies and procedures in place to assure compliance with the Advisers Act regarding certain marketing materials and disclosure of conflicts of interest.
The SEC determined that the robo-advisor violated IAA Section 206 ("Prohibited transactions by investment advisers"), and IAA Rules 206(4)-1(a) ("Investment Adviser Marketing") and 206(4)-7 ("Compliance Procedures and Practices").
To settle the charges, the robo-advisor agreed to (i) a censure, (ii) a $300,000 penalty, and (iii) comply with the undertakings detailed in the SEC Order.
