The SEC has launched a dedicated team to oversee FINRA, according to remarks by Marc Wyatt, Director of the SEC’s Office of Compliance Inspections and Examinations (“OCIE”). Congress has vested the SEC with the power to supervise FINRA, including the authority to inspect and examine. The new unit, named FINRA and Securities Industry Oversight (“FISIO”), is headed by Kevin Goodman, head of the SEC’s broker-dealer exam program. On Oct. 17, 2016, Wyatt spoke at the National Society of Compliance Professionals 2016 National Conference in Washington, D.C., where he made the announcement. According to Wyatt, the new FISIO team includes “roughly 40 people” throughout the country, and consolidates the SEC’s oversight of FINRA “into a single group.” The FISIO team will oversee FINRA to ensure “that it’s fulfilling its mandate in terms of evaluating its member broker-dealers.” On a separate panel at the event, Goodman noted that before FISIO, the SEC examined FINRA through “programmatic” exams focused on a particular FINRA operation (e.g., exams, enforcement, dispute resolution programs) and “oversight” exams that assessed “the quality of the individual examinations” that FINRA conducts on broker-dealers. According to Goodman, FISIO will “combin[e] those two functions into one,” which he described as “not only powerful but efficient as well.” Continue Reading
On September 29, 2016, the Department of Labor (“DOL”) issued regulations (the “final rule”) implementing Executive Order 13706, which requires federal contractors to provide paid sick leave to their employees. According to the DOL, federal contractors employ 1.15 million individuals—594,000 of whom do not receive paid sick leave. Thus, for contractors who do not currently provide paid sick leave to their employees, the final rule imposes significant administrative and financial burdens. Given the nuanced requirements of the final rule, however, even contractors who currently provide some form of paid sick leave to employees may find compliance with the final rule burdensome. Contractors should act now to either develop paid sick leave policies or determine what changes need to be made to their current paid leave policies to ensure they are in compliance with the final rule once it becomes effective.
Volume X – Accounting for the Cost of Business Combinations Under Government Contracts
Mergers and acquisitions create additional costs and complex accounting issues for government contractors. There are fees for accounting, legal, and business consultants. There may be restructuring costs associated with combining business operations. Segments may be closed and retirement plans may be terminated. Golden handcuffs and golden parachutes are also common. Assets may be revalued, goodwill may be created, and there may be changes in cost accounting practices.
If the New York State Department of Financial Services (“DFS”) has its way, come January 1, 2017, financial services companies that require a form of authorization to operate under the banking, insurance, or financial services laws (“Covered Entities”) will be required to comply with a new set of comprehensive cybersecurity regulations aimed at safeguarding information systems and nonpublic information.
On August 2, 2016, the Department of Defense (“DOD”) rolled out new requirements for defense contractors that provide electronic parts and assemblies containing electronic parts. The new rules impose significant risks on DOD contractors. One clause mandates a specific purchasing hierarchy, with requirements to purchase from the original manufacturer or authorized suppliers thereof when available. When an original source is not available, contractors are now required essentially to “vouch” for their suppliers, assuming all the risks if a vendor delivers a counterfeit or suspect counterfeit part. Simultaneously, DOD issued a second clause, which requires certain covered contractors in the DOD supply chain to establish and maintain an acceptable electronic part detection and avoidance system. Failure to implement an effective plan may disqualify a vendor from providing products to the DOD. These new rules come very close to imposing a near “strict liability” standard on DOD contractors, asking them to essentially guarantee the supply chain. Cross your heart and hope to die.
On May 18, 2016, the Department of Defense issued Conforming Change 2 of the “National Industrial Security Operating Manual” (“NISPOM”). NISPOM Change 2 requires all U.S. government contractors who require access to U.S. classified information to implement an Insider Threat Program (“ITP”) that will gather, integrate and report relevant information related to potential or actual insider threats among cleared employees by November 30, 2016. Insider threats – a growing phenomenon – arise when employees or contractors exploit legitimate access to an organization’s data for unauthorized or malicious purposes. Much of the impetus for the new rule appears to be a valid concern about large-scale thefts of classified data, as exemplified by Edward Snowden’s release of a vast trove of sensitive documents stolen from the U.S. National Security Agency.
On August 25, 2016, the United States Department of Labor (“DOL”) and Federal Acquisition Regulatory (“FAR”) Councils published “Guidance for Executive Order 13673, ‘Fair Pay and Safe Workplaces’” (“final rule”). See 81 Fed. Reg. 58562. Also referred to as the “blacklisting” rule, it imposes strict disclosure guidelines and requires that both prospective and existing contractors – as well as subcontractors – disclose violations of federal labor laws that resulted in administrative merits determinations, civil judgments, or arbitral awards or decisions. The final rule also requires that contractors and subcontractors disclose specific information to workers each pay period regarding their wages and also prohibits contractors from requiring that their workers sign arbitration agreements that encompass Title VII violations and claims of sexual assault or harassment.
Volume IX – Unclassified Contracts? Foreign Buyers Still Make a Difference
Last month, we discussed the extent to which a foreign buyer can introduce an unacceptable level of foreign ownership, control, or influence (“FOCI”) that, absent mitigation, will render the target ineligible for the facility security clearances needed to perform classified work. This month, we look at foreign ownership through a broader lens. Specifically, we consider how the United States regulates the proposed acquisition of a U.S. business by a foreign interest, irrespective of whether classified contracts and classified information may be involved in the planned transfer.
Volume VIII – Foreign Buyers Do Make a Difference
Not every potential buyer is a U.S. corporation controlled by U.S. interests. It is important, both for the buyer and the seller, to understand the implications of foreign ownership, control, or influence (“FOCI”) on the feasibility of a sale to foreign interests and the processes that apply to such sales. As the title of this posting makes clear, foreign buyers do, in fact, make a difference.
Volume VII—Investing in Small Businesses
Numerous government contracts programs support small businesses. There are prime contracts set aside for various categories of small business entities. Agencies have small business contracting goals and take them very seriously. Prime contractors often are incentivized, through evaluation factors, to propose significant small business participation. They can also face liquidated damages for failing to make good faith efforts to comply with their small business subcontracting plans. These programs promote economic growth by incentivizing investment in small business entities.
The primary obstacle to investing in small businesses, from a government contracts perspective, is that it is quite easy to lose small business size status as the result of a corporate transaction. The difficulties arise from the doctrine of “affiliation.”