The benefits of shareholder engagement can be captured, but will they be near-term enough to address DOL concerns?

According to the Wall Street Journal, “there are signs that companies are becoming more responsive to investor demands before annual meetings, especially as consumers engage more on environmental and social topics.” As an example of this development, the article points to the recent decision by Mondelez International Inc. to have all of its Oreo cookie wrappers recyclable by 2025. Though the Mondelez decision is the fruits of many years of discussions, the article acknowledges that “[i]t is difficult to measure the effect of closed-door conversations between shareholders and companies.” This is the tension: even with company boards showing greater receptivity to engagement, how does one gauge measurable outcomes of these meetings? This conundrum will probably surface with likely new guidance from the Department of Labor on proxy voting and shareholder engagement this year. One should expect the guidance will call for a greater articulation of the costs spent on these activities, as well as some indicator that any such engagement is in the best interests of the retirement plan investor in light of those costs.

George Michael Gerstein to discuss the state of play of ERISA regulation and what may come next at the NSCP National Conference

George Michael Gerstein will be co-hosting, “ERISA: Now and into the Future” at the National Society of Compliance Professionals’ (NSCP) National Conference in Baltimore, MD. The conference runs from October 21-23, 2019. The ERISA panel on Oct. 22 at 9:50 am. Registration for the conference is now open.


Is Reg BI stronger than an adviser’s fiduciary duties?

SEC Commissioner
Hester M. Peirce

InvestmentNews reported that SEC Commission Hester Pierce stated at a recent conference, “When you lay it side-to-side against the fiduciary standard, I think one could argue that it’s a stronger standard because it does require mitigation or elimination of conflicts in a way the fiduciary standard does not.” This is in reference to certain provisions within proposed Regulation Best Interest that disallow disclosure as a proper method for addressing certain conflicts of interest. We will wait to see if the final Reg BI will better define the type of conflicts that cannot be disclosed away.

OCC seeks comments on proposed changes to fiduciary regulations

On April 29, the Office of the Comptroller of the Currency (OCC) published an advance notice of proposed rulemaking (ANPR) inviting comment on possible revisions to the OCC’s fiduciary regulations, 12 CFR 9 and 150. Specifically, the ANPR requests comment on whether the OCC should update the regulatory definition of “fiduciary capacity” to make it more consistent with recent developments under state laws. The ANPR also requests comment on the potential addition of new provisions to OCC regulations to establish certain basic requirements for non-fiduciary custody activities of national banks, federal savings associations, and federal branches and agencies (collectively, banks), which are not currently addressed by specific OCC rules. The ANPR has a 60-day comment period, ending on June 28, 2019.

The OCC seeks comment on two possible revisions to the OCC’s regulations.

  • Updating the definition of “fiduciary capacity” to include certain capacities that are based on the authority a bank has with respect to a trust, e.g., the power to make discretionary contributions, override the trustee, or select a new trustee. This change could
    • remove ambiguity and confusion for banks because of differences between how OCC regulations and state laws define “fiduciary capacity,” and
    • provide for the uniform application of OCC regulations to trust activities that state laws describe with different terminology.
  • Codifying OCC guidance related to non-fiduciary custody activities. A proposed rule could be based on the following core elements of sound risk management, which are similar to those required in the current rules for fiduciary custody activities:
    • Separation and safeguarding of custodial assets.
    • Due diligence in selection and ongoing oversight of sub-custodians.
    • Disclosure in custodial contracts and agreements of the custodian’s duties and responsibilities.
    • Effective policies, procedures, and internal controls.
  • The OCC believes that a non-fiduciary custody rule could
    • eliminate any confusion that exists over a bank’s obligtions with respect to custody arrangements;
    • impose minimal new responsibilities on well-managed banks, as the OCC would be codifying the OCC’s guidance on custody service activities for banks; and
    • complement regulations related to the custody of client assets issued by the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, Internal Revenue Service, various states, the United Kingdom, and the European Union.