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Cadwalader Cabinet | Remember When Money Was Green?

FRB Governor Brainard Highlights Digitalization and Decentralization of Payments

In a speech before the U.S. Monetary Policy Forum, Federal Reserve Board ("FRB") Governor Lael Brainard highlighted the increasing digitalization and decentralization of global finance and considered the implications of such trends for the financial system.

Ms. Brainard highlighted five areas for the FRB as it plans for the future of the financial system:

  • The Evolving Digitalization and Decentralization of Finance: Ms. Brainard argued that it is important to develop robust statutory and regulatory frameworks that deal with both digital payment mechanisms (particularly, stablecoins) and the delivery of services through decentralized finance platforms.

  • Preparing for the Payment System of the Future: Ms. Brainard emphasized that the FRB "needs to be preparing for the payment landscape of the future." She argued that the FRB should further consider how the possible development and implementation of a U.S. central bank digital currency ("CBDC") will affect the FRB's "responsibilities to maintain financial stability, a safe and efficient payment system, household and business access to safe central bank money, and maximum employment and price stability." She highlighted the Federal Reserve's recent issuance of a discussion paper analyzing various policy and design considerations implicated by a U.S. CBDC.

  • Financial Stability: Ms. Brainard noted that the FRB's consideration of a U.S. CBDC must include an analysis of how the usage of a CBDC would affect financial stability both currently and in the future. In particular, Ms. Brainard (i) highlighted the potential implications of a U.S. CBDC regarding financial intermediation, and (ii) discussed the possibility of a future in which CBDCs coexist alongside privately issued stablecoins and commercial bank money.

  • International Considerations: Ms. Brainard emphasized the international implications of a CBDC, for both cross-border payments and domestic payment systems, and highlighted the rollout by China of a digital yuan in a number of Chinese cities. Ms. Brainard stated that a U.S. CBDC "may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of U.S. currency to transact and conduct business in the digital financial system." Additionally, she noted that policymakers should consider how the United States can "continue to play a lead role in the development of standards governing international digital financial transactions involving CBDCs consistent with norms such as privacy and security."

  • Technology Research and Experimentation: Ms. Brainard argued that the FRB must familiarize itself with new and developing technologies, including the technology underlying the digitization of the financial system. She pointed out that the FRB is currently analyzing how distributed ledger technology and other financial innovations may improve the financial system and emphasized that such research includes "experimentation with stablecoin interoperability and testing of retail payments across multiple distributed payment ledger systems."

  • CRS Examines SEC's Regulatory Posture on Climate Risk

In a new report by the Congressional Research Service ("CRS"), CRS provides an in-depth analysis of the approach the SEC is taking towards climate-related financial risk disclosure criteria. The CRS report provides an overview of existing securities laws that are already impacting the environmental, social and governance ("ESG") disclosure practices of investment funds and investment managers, including recent developments from the Division of Examinations.

The report includes:

  1. an overview of the current disclosure regime for climate-related financial risk disclosures;

  2. the application of the federal securities law "materiality" standard in the context of climate-related financial risks, discussing recent case law;

  3. a discussion of whether companies should provide more fulsome disclosures regarding supply chain risks arising from climate change; and

  4. an overview of the SEC's regulatory approach to ESG funds and investment management companies regarding climate change.

As outlined in the CRS report, climate-related financial risks to the U.S. financial system have garnered increased public attention and raised questions about how financial regulators like the SEC are addressing them. CRS states that the two central questions in assessing the SEC's overarching goal of protecting investors are "whether, and to what degree, emergent climate change risks are of material importance to investors, and to what degree current disclosures of climate change risks have been useful to investors."

In the report, CRS highlighted steps the SEC has taken to address shortcomings from the 2010 Guidance, and reviewed the following recent measures:

  1. SEC Chair Gary Gensler instructed SEC staff to develop a mandatory climate risk disclosure rule proposal for the Commission's consideration;

  2. the SEC created an ESG Task Force to reexamine disclosures by ESG funds and analyze compliance issues relating to ESG strategies; and

  3. the Division of Corporate Finance issued sample letters to public companies to serve as guidance in climate-related corporate disclosures.

The CRS concluded that pressure is "mounting" for the SEC to set out more explicit guidelines for companies to disclose material risks related to climate change, which includes "standards for disclosures" and "specificity and consistency."

Treasury's Federal Insurance Office Takes Steps to Address Financial Risks from Climate Change

Treasury's Federal Insurance Office ("FIO") joined the Network of Central Banks and Supervisors for Greening the Financial System ("NGFS"). FIO said it will issue a climate report on insurance supervision and regulation by the end of the year.

FIO plans to work with NGFS to support three priorities highlighted in FIO's Request for Information on the Insurance Sector and Climate-Related Financial Risks (issued in August 2021). As previously covered, those priorities are:

  • evaluating deficiencies in insurer regulation and supervision and their effect on the stability of the U.S. financial system;

  • determining the possibility of "major disruptions" with respect to the private insurance coverage of markets that are especially susceptible to the effects of climate change; and

  • improving FIO's and the insurance sector's efforts to satisfy climate-related objectives.

Further, FIO signaled that it will release by year end a report on "climate-related issues or gaps in the supervision and regulation of insurers, including their potential impacts on U.S. financial stability." FIO noted that the report will contain "an analysis of climate-related disclosures for the insurance sector." The forthcoming report also "may include initial analyses of selected at-risk insurance markets."

In addition, FIO's Federal Advisory Committee on Insurance (or "FACI") created a Climate-Related Financial Risk Subcommittee.

South Korean Telecom Company Settles SEC Charges for FCPA Violations

A South Korean telecom company settled SEC charges for books and records and internal accounting controls violations under the Foreign Corrupt Practices Act ("FCPA").

The SEC found that the company lacked sufficient internal accounting controls over expenses, including as to executive bonuses and purchases of gift cards that enabled managers and executives to "generate" slush funds. The SEC stated that from 2009 through 2017, these slush funds enabled executives to provide items of value to government officials in the Republic of Korea and Vietnam, including gifts, entertainment and illegal political contributions.

The SEC determined that the company violated Sections 13(b)(2)(A) and 13(b)(2)(B) ("Reporting Requirements") of the Exchange Act.

To settle the charges, the company agreed to:

  • cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; and

  • pay (i) a disgorgement of $2,263,821, (ii) prejudgment interest of $536,457, and (iii) a civil money penalty of $3,500,000.

Primary Sources

  1. SEC Complaint: KT CORPORATION

  2. SEC Press Release: Largest South Korean Telecommunications Co. Agrees to Pay the SEC to Settle FCPA Charges

CME to Publish NY Reference Rates for Bitcoin and Ether

The Chicago Mercantile Exchange ("CME") will publish two new benchmark reference rates: CME CF Bitcoin Reference Rate New York (BRRNY) and CME CF Ether-Dollar Reference Rate New York (ETHUSD_NY). Beginning February 28, 2022, CME will provide the daily benchmark price for bitcoin and ether in U.S. dollars.

The two new digital asset reference rates will be published at 4:00 p.m. New York time. The new rates will "complement" existing CME CF Bitcoin Reference Rate (BRR) and CME CF-Ether Dollar Reference Rate (ETHUSD_RR) currently published at 4:00 p.m. London time. CME stated that the existing rates will continue to be used as the benchmark rates for settlement of all CME Group Bitcoin- and Ether- related futures.

Primary Sources

  1. CME Group to Launch New York Reference Rates for Bitcoin and Ether on February 28
© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 53

About this Author

Law Clerk

Sebastian Souchet is a law clerk in the Financial Services Group.

Sebastian earned his J.D., magna cum laude, from Fordham University School of Law, where he was a member of the Fordham Law Review, a Mary Daly Scholar, and was elected to the Order of the Coif. He earned his B.A., summa cum laude, from Adelphi University, where he graduated from the university’s Honors College.

Michael Ruder Financial Attorney Cadwalader
Special Counsel

Michael Ruder concentrates his capital markets practice on commercial mortgage-backed securities (CMBS) transactions and other securitizations. Michael frequently represents issuers and underwriters in connection with agency and private label CMBS securitizations, including single-asset / single-borrower (SASB) transactions. He has securitized CMBS loans secured by a variety of asset types, including multifamily, office, retail, hospitality, industrial and assisted living facility properties. Michael has experience with securitizations involving hybrid ARM mortgage loans, mezzanine loans,...