(Bloomberg) – From crypto busts and scandals to the bursting of the SPAC bubble, 2022 has been a wild time in the world of finance. It also marked the first full year of work for President Joe Biden’s watchdogs.
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It’s no secret that leaders don’t always share the same views as their regulators. As Wall Street waits for the ball to drop in Times Square, here’s a dashboard from Washington on some of the biggest winners and losers of 2022:
WINNERS
Cryptoskeptics
The Nation’s Capital has significantly downgraded on crypto. After a series of scandals, pressure to make political donations tainted by the still-ongoing FTX drama, and average investors losing a ton of money, it’s hard to avoid hearing a collective “I told you so from crypto-skeptics.
Token backers are still in Washington, but the lavish riverside parties and photo ops with cheering politicians are over — at least for now — as crypto lobbyists play havoc. defense. The change couldn’t come at a worse time for the industry as lawmakers prepare legislation to directly target the asset class. Senate Banking Committee Chairman Sherrod Brown, a long-time skeptic, has expressed a desire for an overarching regulatory framework.
Compliance Consultants
After a mostly dormant Trump administration, costly corporate surveillance has returned under enforcement deals with US authorities. This shift has made 2022 a banner year for those who make a living controlling corporate behavior.
In a series of high-profile cases, Wall Street banks have agreed to hire compliance consultants to deepen their communication policies and procedures, in addition to paying hefty fines to settle allegations that bankers used WhatsApp and other unapproved platforms for doing business. .
Separately, Glencore Plc has agreed to hire an independent monitor for three years in addition to paying $1.5 billion to settle US, UK and Brazilian investigations into allegations of corruption and market manipulation. Meanwhile, Deutsche Bank AG had to keep a monitor in place longer following an issue with environmental, social and governance criteria within the lender’s asset management arm.
Activist Investors
Investors seeking to influence corporate behavior and who they have in the C-suite are set to wield new powers in the 2023 proxy season. The Securities and Exchange Commission has changed rules to open up voting by proxy and allow management-backed and investor-backed directors to compete more directly for the same seats.
“Universal proxy voting” undermines the long-standing practice of leaving investors with only a slate of nominees. Other changes to proxies by the SEC are expected to make it easier for investors to bring issues of social importance to a shareholder vote, potentially triggering a tsunami of new ESG proposals.
Chinese ADR
Businesses of Alibaba Group Holding Ltd. at JD.com Inc. got a reprieve this month when U.S. regulators said they were able to inspect audit working papers from companies based in China and Hong Kong.
About 200 companies faced an acute threat of being forced off the New York Stock Exchange and Nasdaq markets. After months of high-stakes drama, the threat subsided after the US Public Enterprise Accounting Oversight Board said its inspectors had obtained sufficient access to audit documents on companies in China and Hong Kong for the first time. Even as Congress seeks to keep the pressure on, the outlook for their continued listings in the US is much better than it was at the start of the year.
LOSERS
PSPC
The flame was extinguished even before the start of 2022, but this year, the craze for the SPAC has officially collapsed. Dozens of special purpose acquisition companies are preparing to return billions of dollars to investors after they failed to find something to buy, and several that have completed a purchase have gone bankrupt.
Apparently, investors are no longer handing out blank checks, and neither are regulators, with attacks on multiple fronts. The SEC and Justice Department have stepped up scrutiny of industry deals for signs that sponsors or company officials broke rules in the market rush, scaring investors . On top of that, the proposed rules were intended to compel sponsors to disclose more information, deter pink showings, and increase accountability for banks that help fund SPACs.
Senator Elizabeth Warren has also pushed for tougher rules, calling the industry “full of fraud, personal dealings and inflated fees”.
ESG labeled funds
The assets of funds presented as sustainable, environmentally friendly or socially responsible have exploded in recent years. The ESG label has been a marketing stunt with many investors rushing to the opportunity to make money and feel good.
But in 2022, US regulators have started asking 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 disclosures. The regulator is also investigating whether managers of funds marketed as sustainable waive their right to vote on environmental, social and governance issues. Asset managers, led by BlackRock Inc., have warned that some of the SEC’s proposed labeling rules could backfire.
Wholesale brokerage
SEC Chairman Gary Gensler has taken aim at the business models of wholesale brokerage firms like Citadel Securities and Virtu Financial Inc. After teasing for more than a year that major rule changes were looming, the regulator proposed a series of plans this month that could result in more trade orders being executed on the exchange, rather than by these firms and a handful of their competitors.
Currently, many individual stock trading orders are processed by wholesale brokerage firms, which pay to process client trades from firms such as Robinhood Markets Inc. through a practice known as pay-for-flow. of orders. Proponents of the current system say retail investors have never been better and can trade commission-free through these arrangements.
Crypto’s Reputation
While the dramatic and sudden collapse of FTX was a boon for crypto-skeptics, it was devastating for the industry as a whole. The face of the company, co-founder Sam Bankman-Fried, had spent a lot of time in Washington and successfully presented himself as a responsible player in an industry full of shadows. His indictment, arrest and extradition have been deeply embarrassing and problematic for lawmakers and regulators who have spent time with him in public and in private.
The industry is now under a microscope as Washington considers ways to crack down on abuse – likely with a heavier hand than it would have been before FTX’s failure. The crisis gives ammunition to regulators like the SEC’s Gensler, who have long advocated for a more aggressive, enforcement-focused approach to the asset class.
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