United States: What happened in 2021 and significant events in 2022
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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.
pieces of legislation in 2021 and 2022
New approach to insider trading and 10b5-1 safe harbor: In 2022, the SEC may see its first success – or failure – at bringing charges based on a novel theory on insider trading known as “shadow trading,” which involves corporate insiders attempting to circumvent insider trading restrictions by using their private information to facilitate trading in economically linked firms (rather than in their own firms).
The SEC is also expected to propose amendments to Rule 10b5-1 under the Exchange Act. The rule provides affirmative defenses for corporate insiders and companies to trade in the company’s securities. The proposed changes may include additional required disclosures regarding Rule 10b5-1 plans and impose cooling-off periods.
Encouraging whistleblowing: The SEC is expected to revisit two Trump-era amendments to its whistleblower program, which some have argued could discourage whistleblowers from coming forward.
The program exceeded $USD 1 billion in total awards in 2021.
Revisiting proxy advisor rules: The SEC staff is expected to adopt its proposal revisiting Trump-era changes that had codified the view that proxy voting advice constitutes a solicitation, and had also imposed new disclosure and liability requirements on proxy advisory firms. Proxy advisers argued that the 2020 rule changes compromised the independence of their voting advice.
Compensation clawbacks to be resurrected: The SEC will likely re-propose, and then adopt, a version of its 2015 compensation clawback proposal sometime in 2022. Under the 2015 proposal, if an issuer is required to prepare an accounting restatement due to material noncompliance with financial reporting requirements, it must “claw back" from current or former executives any incentive-based compensation paid during a three-year look-back period in excess of what would have been paid under the accounting restatement. The clawback would be required regardless of issuer or executive misconduct.
Securities claims in state court: Since 2018, corporates have looked for ways to minimize the impact of the Supreme Court's decision in Cyan v. Beaver County Employees Retirement Fund, which held that Securities Act claims could be brought in both state and federal courts. One issue that the Supreme Court may decide in 2022 is the applicability of the Private Securities Litigation Reform Act’s discovery stay to state court Securities Act claims. Next year may also see more state court decisions (to add to those in Delaware, California and New York) upholding federal forum provisions in corporate charters requiring Securities Act claims to be brought in federal court.
Long-awaited climate change disclosure rules: The SEC is expected to issue in early 2022 its long-awaited proposal on climate change-related disclosures. Among the issues the proposal is expected to address are: governance, strategy, and risk management related to climate risk; specific metrics, such as greenhouse gas emissions, that are most relevant to investors; and potential requirements for companies that have made forward-looking climate commitments, or that have significant operations in jurisdictions with national requirements to achieve specific, climate-related targets. SEC Chair Gary Gensler has indicated that he prefers that these disclosures be mandatory rather than voluntary, and be included in the annual report rather than outside SEC filings, but several states have already threatened lawsuits if disclosures are mandatory.
Disclosure of proxy votes by funds and managers: The SEC is expected to adopt rules proposed in September 2021 that would require more disclosure by certain funds regarding their proxy votes. Among other things, the proposed rules would require funds to categorize each voting matter by type – such as environment or climate; human rights or human capital / workforce; diversity, equity and inclusion; and political activities – to help investors identify votes of interest and compare voting records.
Progress towards other ESG disclosures: The SEC is also expected to issue proposals requiring public companies to make disclosures regarding human capital management and board diversity.
In 2022, Nasdaq-listed companies will also have to begin to provide annual board diversity statistics, and the following year begin complying with Nasdaq’s new board diversity requirements.
Stablecoin and crypto regulation: Regulation of stablecoins may be on the horizon following the President’s Working Group on Financial Markets issuance of its Report on Stablecoins. The report says that current regulation is inconsistent and fragmented, and urges Congress to enact legislation to ensure that stablecoins are subject to a federal prudential framework, including requirements for issuers to be insured depository institutions and subjecting custodial wallet providers to oversight.
But while two SEC Commissioners continue to push for more clarity with respect to digital assets (read more...), the SEC has not scheduled any rulemaking in the area (read more...), and its Enforcement Director argued that the SEC is not regulating digital assets by enforcement (read more...).
SEC Chair Gensler has said that more investor protection is needed in crypto and has urged the SEC staff to continue to protect investors in the case of unregistered sales of securities.
More greenwashing actions expected: 2022 will likely bring more greenwashing claims, both by the government and private plaintiffs, against corporates and investment funds. The SEC is also expected to issue a proposal targeting funds that market themselves as “green” or “sustainable," and could require fund managers to disclose the criteria and underlying data used. The SEC may also take a holistic look at the “Names Rule,” which requires funds to invest at least 80% of their assets in the investment type their names suggest.