(Bloomberg) – From crypto bankruptcies and scandals to the bursting of the SPAC bubble, 2022 has been a wild time in finance. It was also the first full year on the job for President Joe Biden’s watchdogs.
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It’s no secret that executives don’t always share the same views as their supervisors. As Wall Street waits for the ball to drop in Times Square, here’s a scorecard from Washington of some of the biggest winners and losers of 2022:
WINNER
crypto skeptics
The nation’s capital has soured dramatically on crypto. After a string of scandals, pressure to return political donations tainted by the still-unfolding FTX drama, and average investors losing a ton of money, it’s hard to avoid a collective “I got you said” from crypto skeptics.
Supporters of the tokens are still in Washington, but the lavish riverside parties and photo ops with eager politicians are over — at least for now — as crypto lobbyists play defense. The shift couldn’t come at a worse time for the industry as lawmakers provide legislation that directly targets the asset class. Senate Banking Committee Chairman Sherrod Brown, a longtime skeptic, has expressed a desire for a broad regulatory framework.
Compliance Advisor
After a mostly dormant Trump administration, costly corporate surveillance ships returned in enforcement settlements with US agencies. The shift made 2022 a stellar year for those who make a living monitoring corporate behavior.
In a series of high-profile cases, Wall Street banks have agreed to hire compliance consultants to scrutinize their communications policies and procedures, and also paid hefty fines to resolve allegations that bankers failed to approve WhatsApp and others platforms for their business.
The story goes on
Separately, Glencore Plc agreed to onboard an independent observer for three years and to pay an additional $1.5 billion to resolve US, UK and Brazilian investigations into allegations of bribery and market manipulation. Meanwhile, an issue related to environmental, social and governance criteria at the lender’s wealth management arm meant that Deutsche Bank AG had to conduct extended surveillance.
activist investors
Investors looking to influence how companies behave and who they have in the C-suite are poised to wield new powers in the 2023 proxy season. The Securities and Exchange Commission changed the rules to open ballots for proxy holders and allow directors, supported by management and investors, to compete more directly for the same seats.
“Universal proxy voting” undermines the long-standing practice of only letting investors support a list of nominees. Other SEC proxy changes are expected to make it easier for investors to put issues of social importance to a shareholder vote, potentially unleashing a tsunami of new ESG proposals.
Chinese ADRs
Companies of Alibaba Group Holding Ltd. bis JD.com Inc. got a reprieve this month after US regulators said they could see the audit working papers of companies based in China and Hong Kong.
Around 200 companies were in acute danger of being booted from the New York Stock Exchange and the Nasdaq markets. After months of high-stakes drama, the threat eased after the US Public Company Accounting Oversight Board said its inspectors had gained sufficient access to audit papers from companies in China and Hong Kong for the first time. Even with Congress trying to keep the pressure up, the prospects for keeping their listing in the US are much better than they were at the start of the year.
LOSER
SPACs
The flame died out before the start of 2022, but this year the SPAC craze officially collapsed. Dozens of special purpose vehicles are preparing to pay back billions of dollars to investors after finding nothing to buy, and several that completed a purchase have gone bankrupt.
Investors appear to have stopped issuing blank checks and neither have regulators as attacks come from multiple fronts. The SEC and Department of Justice have intensified scrutiny of industry deals for signs that sponsors or company officials have been breaking rules in their rush to market and spooked investors. In addition, the proposed rules aimed to get sponsors to disclose more information, discourage rosy forecasts and increase the liability of banks funding SPACs.
Senator Elizabeth Warren also pushed for stricter rules, calling the industry “rife with fraud, self-dealing and excessive fees.”
ESG certified funds
The assets in funds that are advertised as sustainable, environmentally friendly or socially aware have risen sharply in recent years. The ESG label was a marketing ploy that saw many investors rushing for a chance to make money and feel good about it.
But in 2022, US regulators began asking some tough questions about what it really means for an investment to be “green” or “ESG.” The SEC proposed new marketing regulations and began suing companies for their disclosure. The regulator is also investigating whether managers of funds marketed as sustainable are giving away their voting rights on environmental, social and governance issues. Asset managers, led by BlackRock Inc., have warned that some of the SEC’s regulatory plans for labeling could backfire.
wholesale broker
SEC Chairman Gary Gensler took aim at the business models of wholesale brokers like Citadel Securities and Virtu Financial Inc. After more than a year of fret that major rule changes were on the horizon, the regulator this month proposed a series of plans that would more trades are executed on the exchanges than by these firms and a handful of their competitors.
Currently, many individual stock trade orders are processed by the wholesale brokerage firms that pay for the processing of client trades from firms such as Robinhood Markets Inc. through a practice known as payment for order flow. Proponents of the current system say retail investors have never had it so good and can trade commission-free because of these agreements.
The Reputation of Crypto
If FTX’s spectacular and sudden collapse was a boon to crypto skeptics, it was devastating to the industry at large. The face of the firm, co-founder Sam Bankman-Fried, had spent much of his time in Washington and successfully portrayed himself as a responsible player in an industry teeming with shady business. His indictment, arrest and extradition were deeply embarrassing and problematic for lawmakers and regulators who spent time with him in public and private.
The industry is now under scrutiny as Washington considers ways to crack down on abuse – likely with a stronger hand than it would have had prior to FTX’s failure. The crisis gives ammunition to regulators like the SEC’s Gensler, which have long advocated a more aggressive, enforcement-oriented approach to the asset class.
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