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U.S. Law: Year in Review 2020 and Year to Come 2021 summarizes some of the major developments in the U.S. last year, and a selection of key changes that we anticipate over the coming year.

There has been a wide range of changes to legislation and regulation across the U.S. including important developments in the areas of competition and antitrust, capital markets, corporate, dispute resolution, environment, financial regulation, Fintech and funds.

Explore our overview of key developments below.

Key updates to

29

pieces of legislation in 2020 and 2021

"2020 was an unprecedented year that saw a number of legal changes and an increasingly complex regulatory landscape in the U.S. Our review summarizes a selection of these developments and what we expect in 2021."

Tom Shropshire, Global U.S. Practice Head

Significant legal and regulatory events in 2020

COVID-19 dominated 2020 in the United States, just as it did everywhere else, but it did not stop Congress and U.S. regulators from taking action in many different areas, including with respect to digital token offerings, the FCPA, and CFIUS.

Capital Markets & Corporate

Easing of public company requirements: In 2020, the SEC amended its disclosure rules for public offerings, including:

Moving towards principles-based disclosure in certain Reg. S-K requirements (read more...)
Easing the financial disclosure rules regarding acquisitions and dispositions (read more...)
Simplifying the financial disclosure required regarding guaranteed securities (read more...)
Rescinding Guide 3 (Bank Holding Companies) and replacing it with new Reg. S-K provisions (read more...)

Although some of the amendments do impose additional disclosure requirements (in particular with respect to risk factors), for the most part, they reduce and simplify the disclosure burdens on companies. In March 2020, the SEC also amended certain definitions that resulted in hundreds of more U.S. public companies being exempt from the Sarbanes-Oxley Act auditor attestation requirements.

Chinese companies targeted: Not only has the U.S. government taken a hostile position toward China in general, a series of actions in 2020 – including the Holdings Foreign Companies Accountable Act, a Trump administration report, proposed Nasdaq amendments and prohibition on investments in certain Chinese military companies – are forcing Chinese companies to make difficult decisions regarding their U.S. listings.

Opening up private offerings: In August 2020, the SEC adopted amendments expanding the definition of “accredited investor” to include additional means of measuring a natural’s person financial sophistication, rather than focusing only on the person’s income or net worth. The SEC declined to raise the financial thresholds for natural person accredited investor status.

The SEC also adopted other changes to make private offerings easier, including shortening the integration safe harbor, liberalizing the communications restrictions on offerings and increasing the dollar limits on certain private offerings.

Delaware upholds federal forum provisions: The Delaware Supreme Court issued an opinion in Salzberg v. Sciabacucchi, upholding the validity of “federal forum provisions” in corporate charters that require any claims brought under the federal Securities Act of 1933 to be pursued in federal court, rather than in state court.

SPACs and direct listings as traditional IPO alternatives: Listing via special purpose acquisition companies (“SPACs”) grew significantly in popularity in 2020 as companies sought more certainty in pricing as compared to traditional IPOs. Both the NYSE and Nasdaq have recently amended their rules to make listing via SPAC merger more attractive. The SEC Chair indicated, however, that the SEC is taking a close look at disclosure in such transactions. The NYSE and Nasdaq have also tried to make direct listings a viable alternative to the traditional IPO by proposing to allow a capital raise in connection with a direct listing. While the SEC staff has approved the NYSE’s proposal, the SEC has decided to stay the rule change following a petition from the Council of Institutional Investors requesting full SEC review of the staff’s rule approval.

Proxy amendments further protect companies: The SEC took steps this year to further protect companies during the shareholder proxy process, by making it more difficult for shareholders to include their proposals in the company's proxy materials (read more...) and by further regulating proxy advisors (read more...).

SEC amends whistleblower program and continues to hand out significant awards: In September, the SEC adopted amendments to its whistleblower program that some critics say will disincentivize whistleblowers from reporting tips to the SEC.

In the meantime, however, the SEC continued to reward whistleblowers, including with its two largest-ever whistleblower awards to one person, of more than US$114m and US$50m.

Competition

DOJ sues Google for anticompetitive practices: In October, the DOJ, along with 11 states, filed a civil antitrust lawsuit against Google in federal court, alleging that Google had been unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets.

COVID-19

COVID-19: The COVID-19 pandemic kept Congress and regulators busy designing relief resulting in the CARES Act and other support legislation, as well as SEC and stock exchange relief from public company reporting and other requirements.

Dispute Resolution

FCPA developments: In February 2020, in U.S. v. Hoskins, the Court of Appeal for the Second Circuit overturned the controversial conviction of a former Alstom executive for FCPA violations, which potentially limits the U.S. government’s ability to bring charges against non-U.S. nationals for conspiring to violate, or aiding and abetting violations of, the FCPA.

In July 2020, the DOJ and SEC updated the FCPA Resource Guide to address the Hoskins decision, among other things.

Meanwhile, the U.S. government settled major FCPA cases, including against Goldman Sachs (US$2.9bn in global penalties) and Airbus (US$3.9bn in global penalties).

SEC disgorgement authority upheld: In an important decision governing the SEC’s enforcement ability, the Supreme Court issued a decision in Liu v. SEC affirming the SEC’s authority to continue using disgorgement as a remedy in federal court enforcement actions, as long as the disgorgement does not exceed a wrongdoer’s net profits and is awarded for victims.

DOJ, CFTC update corporate compliance guidance: In June, the DOJ published updated guidance on its approach to the evaluation of corporate compliance programs, reflecting a more nuanced approach that places greater emphasis on data analysis and takes into account lessons learned over the past three years and feedback from the business community.

The CFTC also issued further enforcement guidance this year, including civil monetary penalties guidance (read more...) and guidance outlining factors that the CFTC will consider when evaluating corporate compliance programs in enforcement actions (read more...).

U.S. sanctions focus on China, Iran, Venezuela, North Korea: In 2020, the U.S. continued to increase sanctions pressure on Iran, Venezuela and North Korea, while also taking new measures against China in connection with China’s alleged human rights abuses in Hong Kong and with respect to its Uyghur minority. In July, President Trump signed the Hong Kong Autonomy Act, which requires the Secretaries of State and the Treasury to submit a report identifying persons who have materially contributed to China’s actions in violation of the 1984 Joint Declaration or Hong Kong’s Basic Law. The Secretaries must also report to Congress if they have determined that any foreign financial institutions have knowingly conducted a significant transaction with a person identified under the Autonomy Act.

Environment, Social and Governance

U.S. continued to resist ESG changes: Although a CFTC committee issued a report recommending steps to address systemic financial risks from climate change (read more...), the SEC has in general hewed to its principles-based stance towards environmental, social and governance (“ESG”) disclosure (read more...), opting not to incorporate mandatory ESG disclosures into its latest round of disclosure rule amendments (read more...). The SEC also adopted rules regulating proxy advisors, who have in recent years put pressure on companies to pay attention to ESG issues (read more...). The DOL adopted a rule that would prevent certain employee benefit plans from investing in “non-pecuniary” vehicles, but it removed certain restrictive ESG language that was in the proposed rule.

Financial Regulation

Volcker rule amendments expand exceptions: Five U.S. financial regulators amended the Volcker Rule to provide new exceptions to some of its key restrictions on sponsorship of, investment in, and transactions with certain types of private funds.

These changes give financial institutions involved in structured finance transactions some relief with respect to special purpose vehicles from the Volcker Rule’s prohibition on the sponsorship and investment in certain types of fund vehicles, although they may not go as far as some in the industry had hoped.

Fintech

SEC won two digital token offering cases: The SEC had two key federal court successes, against Kik Interactive (September 2020) and Telegram Group (March 2020), confirming the general proposition that offers and sales of tokens are presumptive offers and sales of securities requiring either registration or an exemption. SEC Commissioner Hester Peirce has proposed a safe harbor that would allow digital token offerings without SEC registration (read more...), but the SEC has not yet taken any action to implement it.

Investment Funds

SEC proposes “finder” exception to broker-deal registration: In October, the SEC proposed a conditional exemption that, if adopted, would allow “finders" to engage with accredited investors in connection with a private securities offering without having to register as broker-dealers.

While the stated purpose of the proposed exemption is to help small businesses, there is no reason that funds could not also take advantage of it.

M&A and Competition

CFIUS implemented major changes: 2020 was a year of major change for foreign investment reviews by the Committee on Foreign Investment in the United States (CFIUS), which issued a number of regulations implementing CFIUS reform legislation enacted in 2018. As a result of CFIUS’s new regulations:

CFIUS’s jurisdiction has expanded to include certain non-controlling investments and real estate transactions;
Parties are required to submit mandatory pre-closing filings for certain transactions;
Certain investors from Australia, Canada, and the United Kingdom are excluded from some of the new CFIUS requirements;
CFIUS is willing to look past qualifying indirect, passive foreign investments via U.S.-managed investment funds;
Filing fees must be paid for traditional CFIUS notices; and
Short-form declarations may be filed in lieu of full notices, offering the possibility of CFIUS clearance in as little as 30 days.

Capital Markets & Corporate

Competition

COVID-19

Dispute Resolution

Environment, Social and Governance

Financial Regulation

Fintech

Investment Funds

M&A and Competition

Significant legal and regulatory events in 2021

While there will be some major changes to U.S. policy attempted by the Biden administration, it is not clear that there will be significant reversals in key areas such as the U.S.-China relationship, antitrust, or digital token offerings. Further, policy changes may be stymied by the U.S. Senate if it remains controlled by Republicans.

Capital Markets & Corporate

Majority Democratic SEC Commissioners: SEC Chair Jay Clayton, who during his term has generally pushed to ease restrictions on companies, will be leaving the SEC at the end of 2020. Republican Commissioners Roisman and Peirce have terms extending to 2023 and 2025, and Democratic Commissioners Lee and Crenshaw have terms extending to mid-2022 and mid-2024. At some point in 2021, the SEC will likely have a Democrat majority, which could put the brakes on further liberalization of regulations (although we note that the SEC has been generally easing its regulations over the past two decades irrespective of political control) and may also result in greater enforcement activity, particularly in connection with insider trading. Enforcement may also take steps to change its focus from Main Street to Wall Street more generally.

The SEC may also choose not to act on outstanding rulemakings, such as the request for comment on whether to eliminate quarterly reporting, or the proposed amendments to increase the Form 13F reporting threshold from US$100m to US$3.5bn under management. The SEC may also finally act on long-awaited Dodd-Frank rulemaking relating to compensation clawbacks, pay for performance disclosure, and the disclosure of payments by resource extraction issuers.

Relationship with China: It is not clear that U.S. relations with China will be substantially different under President Biden. Legislative measures such as the Hong Kong Autonomy Act and the Holdings Foreign Companies Accountable Act had bipartisan support. Also, the SEC has for many years been concerned about U.S.-listed Chinese companies using auditors that are not inspected by the Public Company Accounting Oversight Board.

End of LIBOR: The official end of LIBOR will occur at the end of 2021, when banks that have participated in the determination of LIBOR will no longer be required to make LIBOR submissions. However, market participants have begun acting in earnest to coalesce around substitute rates. In the U.S., the Alternative Reference Rates Committee of the Federal Reserve (the “ARRC”) and the Loans Syndication and Trading Association have recommended that lenders should seek to transition their affected loan portfolios as early as possible by amending their legacy USD LIBOR contracts or incorporating “fallback” language similar to the ARRC’S recommended language published in summer 2020. This is consistent with the ARRC’s “Best Practice Recommendations” released earlier this year. In endorsing this guidance, the ARRC has expressed its view that “cash markets will benefit by adopting a more consistent, transparent and resilient approach to contractual fallback arrangements for new LIBOR products.”

Registration for swap dealers and participants: Although the SEC’s cross-border security-based swap amendments are already effective, the key compliance dates – including the due date for the registration applications from security-based swap dealers and major security-based swap participants – fall in late 2021.

Competition

Pursuing Google (and Amazon, Apple, Facebook): The Biden Department of Justice will need to decide soon whether it will proceed with the lawsuit that the DOJ filed against Google in October. Notably, the House of Representatives’ Judiciary Subcommittee on Antitrust issued a report expressing concern about the dominance of Amazon, Apple, Facebook and Google, and their allegedly anti-competitive behavior. The report recommends new legislation to potentially break up technology companies and make it more difficult for them to pursue acquisitions.

While the report was only signed by the subcommittee’s Democratic staff, Republican subcommittee members agreed that the companies had grown too powerful.

Antitrust scrutiny of Fintech: The Fintech sector should expect greater antitrust scrutiny, as the DOJ’s Antitrust Division has made it clear that they are paying attention to “transactions involving acquisitions of nascent competitors in emerging technologies.” It is also closely scrutinizing the increasing number of vertical mergers that involve a number of different financial products and services, such as data platforms and infrastructure that are potentially inputs to the acquiring firms’ products.

Environment, Social and Governance

Action on climate change and ESG: President-elect Biden has made it clear that addressing climate change is a high priority, and that he intends for the U.S. to rejoin the Paris Climate Agreement. He has also proposed the formation of the first National Climate Council to direct climate-related policies across the U.S. government.

Although there was little action with respect to ESG matters under the Obama administration, Biden has indicated that he may take action to require public companies to disclose climate risks and greenhouse gas emissions in their operations and supply chains. Two current SEC Commissioners have already expressed their support for requiring specific ESG disclosures by U.S.-listed companies. Further, the U.S. Federal Reserve just issued its financial stability report, and – for the first time – identified climate change as a risk and linked “increased transparency through improved measurement and disclosure” to better pricing of climate risks in vulnerable assets. The new administration may also reverse the recent Department of Labor rule preventing certain employee benefit plans from investing in “non-pecuniary” vehicles.

As Biden has identified climate change as an “existential threat,” we expect action more generally on enforcement in the environmental space, and in particular, in an effort to enhance such efforts, Biden is expected to establish an Environmental and Climate Justice Division within the DOJ.

Financial Regulation

Prospects of financial regulatory reform: In 2021, the Biden administration will have to choose leadership for the various U.S. financial regulators, including the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation, who will have a significant influence over any financial regulatory reform. Some of the top positions, such as the Federal Reserve leadership, have tenures that will not expire for several years, and it is not clear if any will be leaving early when the administration changes. Certain positions will also require Senate confirmation, which, depending on the outcome of the Georgia runoff election in January, could mean that the Biden administration will nominate more centrist rather than liberal candidates.

Fintech

Digital token offerings: In 2021, the House of Representatives may act on two bills, the Securities Clarity Act and the Digital Commodity Exchange Act, which would provide some clarity as to digital token offerings. Among other things, the Securities Clarity Act would define an “investment contract asset” as an asset, whether tangible or intangible, including assets in digital form sold or otherwise transferred, or intended to be sold or otherwise transferred, pursuant to an investment contract, and state that an investment contract asset is not a security. The Digital Commodity Exchange Act would establish a framework for governing the subsequent trading of digital assets. The Blockchain Association and Coin Center, as well as a number of other advocates for blockchain technology, have endorsed the bills. The SEC and other agencies also will almost certainly act in 2021 to bring greater clarity to the digital asset space.

Tax

Tax reform: Depending on whether the Democrats are able to control Congress, the Biden administration may begin working on tax reform in 2021, including:

increasing the corporate tax rate;
establishing a corporate minimum tax on book income;
increasing the tax rate on “global intangible low-taxed income"; and
extending tax credits for wind resources, solar resources and energy storage.

U.S. Election

Georgia Senate runoff election: In January 2021, the state of Georgia will hold a runoff election with respect to both its Senate seats. Currently, Republicans hold 50 Senate seats and Democrats hold 48 seats. If Republicans win one or both Georgia Senate seats, the Senate will be under Republican control, which will significantly limit the Biden administration’s ability to enact its agenda. Even if Democrats win both Georgia Senate seats, and the Senate is 50-50 with Vice President-elect Kamala Harris able to cast tie-breaking votes, the strength of the Biden administration’s mandate is an open question that may constrain its ability to implement major change.

Capital Markets & Corporate

Competition

Environment, Social and Governance

Financial Regulation

Fintech

Tax

U.S. Election