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This panel will present a critical discussion of recent legal and regulatory developments relevant to asset managers and pool operators in the derivatives space. Topics will include recently finalized SEC rule 18f-4, new CFTC and NFA requirements for pool operators, the impact of uncleared swap margin rules, IBOR replacement, position limits and JAC/CFTC actions on margining of multiple accounts of the same beneficial owner on asset management, and potential issues raised by new and emerging asset classes such as digital assets and ESG products.
Robert Klein, Managing Director and Counsel, Citigroup Global Markets
Nicole Kalajian, Counsel, Stradley Ronon Stevens & Young
Matthew Klein, Senior Counsel, The Vanguard Group
Dorothy Mehta, Partner, Cadwalader, Wickersham & Taft
Raymond Ramierez, Partner, Eversheds Sutherland
On March 10, the U.S. Department of Labor (DOL) announced that until further notice, it will not enforce certain final rules published at the tail-end of the Trump administration. Specifically, the DOL will revisit, and, in the interim, will cease to enforce, the “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” rules which were published in November and December of 2020, respectively. These rules created requirements for plan fiduciaries subject to the U.S. Employee Retirement Income Security Act of 1974 (ERISA) to consider only pecuniary interests when selecting investments and exercising voting rights. Though the rules certainly cover environmental, social and/or governance (ESG)-driven investment decisions, proxy votes and the exercise of other shareholder rights, all ERISA fiduciaries, regardless of strategy, are subject to the rules. Please note that the rules have not been rescinded. Fiduciaries, therefore, may remain subject to private litigation risk for lack of compliance.
Some have expressed concern that the Financial Factors rule effectively prohibited the use of ESG factors by ERISA fiduciaries. We disagree. ERISA fiduciaries that treat one or more E, S and or/G factors as material to investment performance may continue to do so both under ERISA itself and under the Financial Factors rule, provided the fiduciary follows a prudent process and can point to some data or other evidence that forms the fiduciary’s belief that such factor is an important risk/return consideration, and as otherwise specified under the rule. ESG integration is one such example. The Financial Factors rule also largely retained the longstanding separate DOL test that had to be met in order for an ESG factor to be selected for non-investment performance reasons.
Fiduciaries wishing to proceed with ESG integration may continue to do so without undue risk, provided they follow the core principles and requirements under ERISA, as largely reflected in the Financial Factors rule. Please consider our prior analysis of the Financial Factors rule and the Proxy Voting rule.