This is the fifth in a series of seven posts about regulatory compliance priorities and enforcement trends. The first post was about the Commodity Futures Trading Commission (CFTC). The second post was about the Federal Trade Commission (FTC). The third post was about the Securities & Exchange Commission (SEC). Last week’s post was about the Food & Drug Administration (FDA). Today’s post will be about the U.S. Department of Agriculture (USDA). Next week’s post, on Thursday January 25, will be about the Environmental Protection Agency (EPA). Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).
Tag: regulatory
This is the fourth in a series of seven posts about regulatory compliance priorities and enforcement trends. The first post was about the Commodity Futures Trading Commission (CFTC). The second post was about the Federal Trade Commission (FTC). Last week’s post was about the Securities & Exchange Commission (SEC). Today’s post will be about the Food & Drug Administration (FDA). Next week, on Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA). On Thursday January 25, the post will be about the Environmental Protection Agency (EPA). Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).
The Food & Drug Administration (FDA) is the US regulator charged with supervising and enforcing federal laws concerning food, tobacco, dietary supplements, medications and medical treatments and devices, cosmetics, and animal and veterinary products, among other related products and devices related to public health and food safety concerns. The FDA was created in 1938 by the Federal Food, Drug and Cosmetic Act, which gave the FDA oversight on food, drugs, and cosmetics and now constitutes of the major bodies of federal securities law it is responsible for enforcing. Other significant statutes within the purview of the FDA – either wholly or partially, in collaboration with other federal supervisory and regulatory entities – include the Public Health Service Act (from 1944, concerning the prevention of foreign communicable diseases within the US) and the Controlled Substances Act (from 1971, creating federal US drug policy).
The food, medical, and veterinary products that fall under the regulatory purview of the FDA represent a significant proportion of the consumer goods imported into, purchased within and used in the United States, meaning that the FDA has broad reach into people’s everyday lives and therefore wide oversight duties to ensure adequate protections. Food, drugs, cosmetics, and vitamin supplements are the largest categories of consumer products regulated by the FDA. The FDA’s regulatory powers are broad in scope, including a huge array of business practices, from development, testing, and manufacturing to advertising, labeling, marketing, sales, and supply chain safety. Enforcement of standards, oversight and monitoring of practices, approval of products, and handling of violations gives the FDA a heavy footprint in its covered industries.
- Homeopathic drugs: The mandate of the FDA to regulate a variety of medicines and related treatments extends to addressing homeopathic drugs. These products are widely available to consumers but previously have been lightly regulated. Given burgeoning consumer protection concerns due to public harm from products that do not have any value as medical treatment and can in fact injure people or make them sick, the FDA is planning to take a more active role in the homeopathic drugs market. Since the 1980s, the FDA has had a policy of not using the full weight of its enforcement authority with homeopathic drugs because their impacts were thought to be so minor that they could not be dangerous. However, as more people have started using these homeopathic remedies, the risks and need for protection, especially for infants, children, and elderly people, have grown. Last year children were sickened and even died from using homeopathic teething remedies sold at CVS due to poisoning from belladonna, which the medicines contained in dangerous proportions. Testing, approval, oversight practices, or some combination of the above are apparently necessary for ensuring that these products do not hurt people, contain the ingredients they are supposed to in the amounts they should, and can provide medical benefit to support the health-related claims made by the manufacturers to consumers: FDA to target ‘potentially harmful, unproven’ homeopathic drugs under new proposal
- Cryotherapy: On a similar note, cryotherapy – immersion in a chamber cooled to as low as -132 degrees Celsius to treat inflammation and all kinds of other ailments and discomforts – has been spreading in popularity and caught the attention of the FDA. Cryotherapy is often billed as a kind of spa treatment and has won the endorsement of athletes and celebrities for its health benefits. However, the FDA has reacted skeptically to these claims, especially as people have been injured by unprofessional service providers or attempts to administer cryotherapy “treatments” to themselves. If people continue to view cryotherapy and other popular science type activities and procedures as giving them some medical or curative benefit, which seems likely, then the need for the FDA to intervene by setting standards and providing oversight will grow alongside the popularity: The spread of cryotherapy
- Opioid epidemic: The FDA is well-positioned to contribute to efforts in containing the public health emergency of opioid drug abuse. The FDA is responsible for overseeing both the number of prescriptions issued and the introduction of drugs to curb and treat addiction. Overhaul of the system in which opioids are prescribed, and the rationale behind the length of prescriptions, is in the reform jurisdiction of the FDA. This system would likely be funded by the pharmaceutical companies that make opioids, similar to what is already done to pay for other similar programs covered by the FDA’s enforcement authority. Prescription intervention as well as the expedition of new versions of drugs to treat addiction will be priorities of the FDA on its upcoming regulatory agenda: FDA plans to curb prescriptions to fight opioid epidemic
- Gene therapy: Apart from approval of drugs, the FDA is also tasked with approving medical treatments. Gene therapy has been a hot topic in bioethics for years, with questions about the use of stem or other cells from humans having dogged the technology’s development for years, but having promising treatments for genetic diseases now finally in its pipeline. The FDA recently approved the first genetic therapy for an inherited disease, a rare form of childhood blindness. The price of the approved treatment is currently astronomical, at almost $1 million, but the hope is that the FDA approval will open the door for further development that could lead to lower prices and improved benefits over a lifetime. FDA openness and speed in considering and approving these technologies will certainly have an encouraging impact on the innovation within the field and the introduction of further treatments using gene therapy and improving upon knowledge and practices around it: FDA approves first gene therapy for an inherited disease
- Food safety and recalls: Finally, the FDA’s food safety and recall programs may be an active area for reform and extended consumer protections going forward. The FDA’s broad authority for food safety inspections has been critiqued in the past for culminating in uneven enforcement efforts. Most recently, the Office of the Inspector General at the Department of Health and Human Services and the Government Accountability Office have both exposed shortcomings in the FDA’s enforcement of food safety policies. Inspections, follow-up on food safety violations, and supervision of and collaboration with state-level regulatory personnel have all been found lacking: Watchdog audits fire warning shots at the FDA’s food safety program
Addressing these deficiencies in the oversight process, and following with substantive improvement in the food recall process, has major implications for consumer safety. The recall process in particular is crucial for ensuring that any gaps from the production and distribution processes oversight that are not filled, are caught before contaminated and dangerous food and supplements are sold to consumers. However, audits have found that the recall process is not up to muster, indicating that they take way too long to kick off and that the FDA does not do enough to compel companies to cooperate with their warning letters and issue recalls: The FDA Is Still Scary Slow at Food Recalls
Be sure to check back next week for a round-up on USDA regulatory compliance.
This is the fifth and final post in a series of five posts on the topic of fraud in sports. The first post, from December 5, was about cheating in marathons and how incidences of it are exposed, investigated, and disclosed to the public. The second post, on December 12, was about fraud and falsification among thru-hikers within the long-distance hiking community. The third post, from December 19, was about fraud in sports from gambling and betting. Last week’s post focused on fraud in sports via game/match fixing. Today’s post will be about major doping scandals in different sports and will discuss the ways some very high-profile athletes cheated by doping, how their uses of performance enhancing drugs were supported or not identified by various institutions, and how individuals impacted for various reasons by doping have dealt with this in the aftermath.
Doping has been a controversial topic in the sports world for decades, as scandals over the use of performance-enhancing substances in various athletic programs have recurred unrelentingly. Revelations of doping by athletes, both on their own and as part of national athletic programs that have sponsored and aided them in taking drugs to artificially aid their performance, have been in the news constantly. Heroes from sports have been knocked off their public pedestals as the truth of their cheating and drug use has been revealed. Olympians and world champions have lost their medals and records, while state athletic systems have put the chances of future athletes, now innocent of any wrongdoing, of competing on the world state at risk because of prior systematic unethical decision-making. Athletes who competed “clean” have been robbed of their moments of glory and missed out on professional opportunities they would have had, if they had not been bested by other athletes competing unfairly while taking performance-enhancing drugs. Sponsors have invested in athletes based upon unreliable, misrepresented statistics. Above all, the integrity of the game for other participants as well as spectators has been impaired and thrown into great doubt and uncertainty.
The ways athletes dope are as varied as the sports and events in which the fraud takes place. The one reliable fact about the fraudulent use of performance-enhancing drugs in professional sports is that ongoing administrative efforts to test for it and oversee institutional protections against it are seriously lacking. Regulatory bodies, whether part of the athletic programs or connected to national programs or international organizations, are often inadequately supervised, incompetent for the task, or insufficiently resourced. Until major change takes place in the control frameworks and supervisory structures which exist to protect the integrity of sports from cheating and dishonesty, doping scandals will continue to undermine the credibility of athletic programs and events.
- The Russia doping scandal has been in the news unrelentingly for several years, stemming from accusations of state-sponsored doping during the 2014 Winter Olympics in Sochi, Russia. Claims of systematic doping in Russia, supported by the state system there which for decades has been well-known as one of the most intense and involved national programs in the world, have dogged the state officials, the athletes both from past delegations and with future ambitions of competing, and the International Olympic Committee (IOC). After investigations which have been dogged every step of the way with unreliable information from state-sponsored anti-doping testing centers and repeated discrediting of various athletes from past Olympics, the IOC decided to ban Russia from sending an official delegation to the 2018 Winter Olympics in Pyeongchang, South Korea. Russian athletes will still be eligible to attend as neutral delegates, but pride of representing their country or the opportunity to stand on a medal podium for it will not be possible. This story will continue to unfold and promises to hold only further dishonor and disappointment on many sides: Russia doping scandal
- For sure the continuing drama with Russia’s state sport system will go on right away, as Russia is hosting the 2018 World Cup. This creates an uncomfortable situation for FIFA. In the aftermath of the IOC banning Russia from the 2018 Winter Olympics under the cloud of doping suspicions, public outcry has grown for FIFA to consider banning or punishing Russia in the 2018 World Cup as well. This is a considerably more awkward proposition, as Russia is the host of the upcoming 2018 World Cup, and FIFA is no stranger to its own controversies from legal accusations of corruption and bribery by its officials in various countries. It is difficult for FIFA to ignore that the current controversy around Russia stems from when Russia hosted the Olympics in 2014. Russia hosting the World Cup in 2018, then, is fraught with concerns about integrity of game play if the host country fields a team. Barring the Russian delegation from competing in an event their country is hosting is hard to imagine, but may be just the sort of consequence that could make necessary change begin to take root: After IOC Bans Russia From Winter Olympics, FIFA Has To Decide About World Cup
- Despite his once-storied history as a cyclist, cancer survivor, and inspiring public figure, Lance Armstrong is best-known now for something much less honorable. His enduring legacy as of now is of having doped for years, evaded being caught by any testing efforts, denied it constantly and extremely publicly, and then faded from the public eye upon convincingly being exposed as a cheater and a liar. While much has been written about the puzzling and complex psychology of someone who would pull off such a brazen and persistent fraud while holding himself out as the paragon of honesty and motivation for achievement, one of the more interesting questions has always been how he got away with it for so long. It was definitely a team effort, and subsequent reports have shown that indeed Armstrong and those who supported him and benefited from his ongoing performance created a wide-spread doping program in which they studied and exploited weaknesses in the anti-doping system and brazenly avoided detection and testers: Report Describes How Armstrong and His Team Eluded Doping Tests
Years after his precipitous fall from grace, Armstrong is seeking to rehabilitate himself in the public eye by doing a podcast and seeking a return to his position as the foremost expert in Tour de France inside knowingly and cycling expertise. With his race victories erased by the disclosure of his doping that got him to them, Armstrong is seeking both a platform and an identity, and wants to connect both to the sport in which he was once an idol. However, the dishonesty of his eminence in the Tour de France while he was cheating to sustain his achievements make it difficult to imagine redemption or even revisionist acceptance of his actions to bring visibility to the sport of cycling: Lance Armstrong: ‘A man with no platform is a lost man’
- Chris Fromme is a successor to Lance Armstrong in the world of professional cycling. For years, cycling has been tormented by disclosures of doping and the impact of drug abuse on the sport. Athletes have been discredited and records vacated seemingly without end. Fromme is one of the stars of a cycling squad, Team Sky, which is very vocal about their zero-tolerance policy for doping and their commitment to clean racing. So, if his drug test results that indicate he’s doped are upheld, he could be subject to a yearlong ban and major reputational risk for both himself and his team. Fromme is arguably the biggest superstar in cycling since Armstrong, so if he ends up discredited too, then professional cycling will have a major existential crisis on its hands. An overhaul of cycling’s doping rules and enforcement practices to improve and simplify doping regulations could both improve credibility and ensure more transparency and clarity in the system in the future: The Only Solution To The Chris Froome Problem Is The One Cycling Will Never Accept
- Like cycling, track and field is another sport which has been oppressively troubled by allegations of doping and dishonesty. Athletes in track and field were disproportionately impacted by the Russian doping scandal as it unfolded during the 2016 Summer Olympics in Rio, Brazil and showed that the world records, qualification times, and even prior medal-winning races lacked integrity due to the participation of athletes who were on drugs. Many track and field stars, including some whose own careers had been negatively impacted by dopers who won medals and impacted sponsorship and professional chances they should have had, thought this was the moment for reform in anti-doping supervision and regulation. However, this change has not come, and the opinion of athletes in the sport is unanimously that current drug testing schemes and rules are inconsistent and insufficient, do not work or represent the interests of athletes, and are therefore not fair to anyone: We Asked Veteran Track & Field Athletes How To Possibly Fix The Doping Problem
One possible solution which has been bandied about is a reset of the annual records in track and field events to reflect only those from after 2005, which is when new anti-doping standards in track and field were implemented. This may be an attempt at radical fairness, but it may be too much about optics and not enough about substance, and therefore not the right move to truly address and promote credibility in the sport: Track And Field May Scrap Its Records Because Of Doping Scandals. Is That A Good Idea? Newer testing technologies, re-testing of old results to catch and bring to justice prior cheaters, and cultural encouragement of whistleblowers could all be better to improve the odds of catching sports dopers or discouraging them from cheating at all: Sports Doping Cheats Fear Whistle-Blowers and Retests
If you enjoyed this series, look back to the ethical leadership in sports coaching series from last year. Check out the last post in that series, which includes links to all the previous in the set. In March, a new series on sports and ethics will begin, this time focused on integrity in game play and discussing topics such as the ethics of tanking, referee bias, penalty embellishment, and much more.
This is the third in a series of seven posts about regulatory compliance priorities and enforcement trends. The first post was about the Commodity Futures Trading Commission (CFTC). Last week’s post was about the Federal Trade Commission (FTC). Today’s post will be about the Securities & Exchange Commission (SEC). On Thursday January 11, the post will be about the Food & Drug Administration (FDA). On Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA). On Thursday January 25, the post will be about the Environmental Protection Agency (EPA). Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).
The Securities & Exchange Commission (SEC) is the US regulator charged with enforcing federal securities laws and supervising the securities industry, including the market exchanges. The SEC was created in 1934 by the Securities Exchange Act, which is one of the bodies of federal securities law it is now responsible for enforcing. Other significant statutes within the purview of the SEC include the Investment Company Act of 1940 (regulating registration and conduct of investment companies), the Investment Advisers Act of 1940 (regulating registration and conduct of investment advisory organizations), and the Sarbanes-Oxley Act of 2002 (regulating accounting practices of public companies and ensuring investor protection).
As indicated by this last piece of legislation, which was introduced into law in the aftermath of a series of corporate scandals such as the Enron bankruptcy, the regulatory scope of the SEC has grown in both breadth and depth as a reaction to financial frauds and crises of the last two decades. This increased emphasis on the role of the SEC in reaction to these events aligns with the SEC’s mandate, which is three-pronged: investor protection, maintenance of fair, orderly, and efficient markets, and facilitation of capital formation. Ensuring that investors can retrieve and rely on information provided by public companies and in the markets in order to make their investment decisions is a major priority for the SEC. Maintaining a level playing field in the markets is therefore the SEC’s objective, and preventing or eliminating market abuse and unfair corporate practices contributes to achieving this goal.
From both its Washington, D.C. headquarters and its regional office, the SEC offers education programs, promulgates rules and guidelines, conducts investigations, supervises self-regulatory organizations in the trading and markets industries, oversees disclosures by public companies, and brings enforcement actions in light of suspected violations of federal securities laws and regulations. Based on this diverse range of activities, the SEC is responsible for exacting competent authority over a wide variety of issues and interests that comprise its regulatory agenda and rule-enforcement practices.
- Cryptocurrencies: The hot topic of 2017, digital currencies derived from blockchain technology such as bitcoin and Ethereum will likely endure in the public attention in 2018 as well. Regulators worldwide have sounded a cautious note about the potential risks of the cryptocurrency markets, and widespread legitimate use of the payment service technology as a disruptor to the banking sector is still in its infancy. There is no unitary approach to protection of users who transact in cryptocurrencies on platforms that do not treat them as customers and supervision of markets where companies use initial coin offerings (ICOs) to offer their tokens without the rigors of securities registration to the public. Innovation has been prioritized over strict supervision; some balance between the two, rather than supremacy of one over the other, needs to be struck. The SEC has issued a concise and clear statement on its preliminary opinion of cryptocurrencies, stopping short of bringing them all into their regulatory scope as securities but providing definitive guidance on its views and a clear indication of the direction its future treatment could take: The SEC Chair’s Cryptocurrency Warning: 5 Things to Know
- Whistleblowers in Silicon Valley: As discussed in this previous post about the CFTC, the SEC has a powerhouse whistleblower program. This has enabled the SEC to encourage individuals to step forward to anonymously report misconduct, corruption, and fraud in exchange for employment protections and compensation. Due to the concentration of the SEC on the securities industry, traditionally these whistleblowers have come from the financial services industry (for an overview of some significant whistleblowers in recent history from this sector, check out this post). However, there’s a new proving ground for whistleblowers who may stand to take advantage of the SEC’s program: Silicon Valley. Venture capital firms and huge private companies which take funds from investment companies or individuals – including Uber, Airbnb, and many other digital giants – are all subject to the rule-making and enforcement authority of the SEC: Silicon Valley could be the next hotspot for SEC whistleblowers
- Cybersecurity as facilitation of market abuse: 2017 was the year of several very public and damaging scandals involving cybersecurity lapses and data breaches. It remains to be seen in 2018 how the disclosure and reporting expectations and requirements for companies suffering hacks and intrusions may be refined or expanded in the wake of public outrage. One concerning theme which emerged in a number of the cases was the perception of or possibility for insider dealing. This was either due to material knowledge of company executives about the breaches before they were publicized or the theft of financial data by hackers. The SEC’s Market Abuse Unit’s Analysis and Detection Center will probably keep busy identifying and analysing patterns in trades that could be suspicious due to their connection or temporal proximity to cyberattacks: SEC, DOJ charge seven with insider trading off stolen bank data
- Prioritizing investor protection amid regulatory rollback: Ponzi schemes, misrepresentations to investors, and fraudulent corporate practices are not going to vanish from the markets any time soon. In fact, as business becomes increasingly global and complex in nature, the risks of these events only grows. At the same time, the overall trend in the United States is toward a regulatory ebb. The emphasis is on leaner and more targeted regulatory action rather than an expanded or wide-ranging supervisory framework. The question remains how major cases such as the SEC’s recent suit against Woodbridge Group over a massive Ponzi scheme will be handled amid this regulatory relaxation: SEC sues bankrupt Woodbridge Group over $1.2 billion Ponzi scheme
- Enforcement decline: Finally, and on a related note, many recent commentators have pointed to a decline in SEC enforcement actions as evidence that the agency’s regulatory touch will be diminished in the near term. However, these numbers may be deceptive; indeed, it could be true instead that this perceived decline is not due to regulatory inaction but quite the contrary. Instead, it could be because of pipeline efficiency in clearing investigation and enforcement actions in the recent period: Has The SEC Gone Soft Under Trump? Enforcement Actions Are Down, But That’s Deceptive
Be sure to check back next week for a round-up on FDA regulatory compliance.
This is the second in a series of seven posts about regulatory compliance priorities and enforcement trends. Last week’s post was about the Commodity Futures Trading Commission (CFTC). Today’s post will be about the Federal Trade Commission (FTC). On Thursday January 4, the post will be about the Securities & Exchange Commission (SEC). On Thursday January 11, the post will be about the Food & Drug Administration (FDA). On Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA). On Thursday January 25, the post will be about the Environmental Protection Agency (EPA). Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).
The Federal Trade Commission (FTC) is the US regulator charged with supervisory authority to protect consumers as well as enforce antitrust laws to avoid monopolies and ensure competitive business practices. Created in 1914 by the Federal Trade Commission Act, the FTC is an independent regulatory agency with the purpose to monitor the markets for anticompetitive developments and investigate and eliminate those where they emerge. Avoiding monopolies, known as trust, was a major political focus at the time the FTC was created and eliminating these large, anti-competitive business entities, known as “trust busting,” was an important priority for President Woodrow Wilson. The creation of the FTC was intended to bring an administrative efficiency to regulating interstate trade so that these trust and antitrust matters could be determined more expediently by the regulatory agency instead of working their way slowly through the courts.
In its current state, the FTC has broad supervisory authority over business practices where consumer protection or competitive processes are involved. The mandates of its various bureaus include protecting consumers against unfair or fraudulent acts or practices, enforcing existing antitrust laws, and reviewing pending mergers. These issues come from consumer and business reports, pre-merger notice filings, press reports, and congressional inquiries.
The FTC’s enforcement actions extend to individual companies, groups of companies, or industries with the main objective of addressing series consumer fraud or harm and preventing anti-competition business developments. With such a far-reaching set of interests, the issues and focuses that characterize the FTC’s regulatory agenda and enforcement priorities are equally diverse.
- Consumer DNA testing services and privacy: Companies offering DNA testing services for everything from ancestry to genetic diseases to potential allergies to nutritional needs have become very popular in recent years. Most of these services involve consumers using a kit at home to collect samples of hair, skin, or saliva, which they then send to the company. The company then tests the samples itself or sends them to a third-party lab service for testing and then compiles results and analytical data into a slick, branded presentation that is sent back to the customer to study. If these services were performed in the traditional setting of a doctor’s office, the customer would be treated as a patient and would therefore be afforded commensurate protections and have expectations of privacy and informed consent for the collection, use, and storage of their genetic material. In the retail DNA testing service business, however, the duty owed to consumers is more dubious and the practices of companies less closely supervised or disclosed. As the popularity and prevalence of these tests continues, the FTC will likely look to standardize and investigate business practices of these companies: Senator Calls on FTC to Investigate DNA Ancestry Companies
- Use of consent decrees: The public and courts are taking a closer look at the often widespread use of settlement agreements by regulatory entities. The FTC typically uses these in enforcement actions in the data-privacy arena when companies experience breaches that puts consumer information security at risk. Consumers having their data stolen in cybersecurity compromises of payment systems or other retail financial data records. Settlement agreements and consent decrees are meant to apply to individual companies in federal-level, case-specific circumstances only, but the legal precedent has evolved for this common law practice to be potentially applied to establish liability under state law as well. In the continued use of consent decrees, the FTC needs to elucidate clearly what standards apply to constitute a violation and when and where liability may exist: Federal Court’s Embrace Of FTC Data-Breach Settlements As ‘Common Law’ Treads On Due Process
- Venue shopping for overlapping antitrust review: As noted in this post, major merger and acquisition activity is at a high pitch in the markets right now. Many large companies are seeking to merge with or acquire another and in lots of cases, regulatory review is exhaustive and detailed. Regulators seek concessions, order sales or exclusions to assets, delay transactions, and influence deals in both the press and Congress. In this intense environment, companies looking to merge with or acquire another approach these transactions hoping for the lightest regulatory touch possible. As there are overlapping supervisory schemes, companies can attempt to shop for the friendliest regulator who might green-light the planned transaction. The FTC and the Department of Justice (DOJ) both conduct antitrust reviews. The perception in the marketplace is that the FTC review may be easier to pass or less burdensome in terms of settlement requirements than that of the DOJ. Therefore some large companies – such as CVS in its planned deal with Aetna – would prefer to be subject to the FTC to improve their odds of passing muster: CVS likely wants FTC antitrust review, not Justice Department, of Aetna deal
- Occupational licensing reform: Portability of occupational licenses – such as those required for nurses and accountants – has long-been a challenging political and business issue. States have wildly varying educational and experiential standards for achieving and maintaining these licenses, often making it very hard for professionals who need them to work to move between states that have differing licensure requirements. Military spouses in particular often find themselves shut out of work due to family relocations. On the other end, consumers could be potentially harmed due to unmet expectations for professional service standards in states where the licensing schemes are more lax or supervisory enforcement is inadequate compared to others. Short of a concerted effort by multiple individual states, there is an authority vacuum in the task of making a coherent and coordinated system out of this patchwork of rules, tests, and qualifications. The FTC could be the appropriate regulator to intercede in these circumstances and create a reformed federal unifying system that would function to provide access to work as well as protect consumers’ interests: The Onerous, Arbitrary, Unaccountable World of Occupational Licensing
- Net neutrality: Finally, nearly any discussion of US federal regulatory compliance hot topics at the end of 2017 is incomplete without mention of one of the biggest themes of the time, net neutrality. As the Federal Communications Commission (FCC) is pulling back from rule enforcement on net neutrality, both the FCC and the public expect the FTC to take up a more prominent role. The obvious areas where the FTC would have jurisdiction would be those concerning information security, principally data privacy, as well as competitive practices of service providers as well as other digital companies. Time will tell what approach the FTC intends to take in filling this enforcement void: After Net Neutrality: The FTC Is The Sheriff Of Tech Again. Is It Up To The Task?
Be sure to check back next week for a round-up on SEC regulatory compliance.
This is the first in a series of seven posts about regulatory compliance priorities and enforcement trends. Today’s post will be about the Commodity Futures Trading Commission (CFTC). On Thursday December 28, the post will be about the Federal Trade Commission (FTC). On Thursday January 4, the post will be about the Securities & Exchange Commission (SEC). On Thursday January 11, the post will be about the Food & Drug Administration (FDA). On Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA). On Thursday January 25, the post will be about the Environmental Protection Agency (EPA). Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).
The Commodity Futures Trading Commission (CFTC) is the US regulator charged with supervisory authority over the futures and option markets. Created in 1974 by the Commodities Futures Trading Act, the CFTC is an independent regulatory agency with the purpose to monitor and protect the markets by prohibiting fraudulent activity or other misconduct and to control against risk from these. In the aftermath of the 2008 global financial crisis and the markets reforms which were implemented during the economic recovery, the CFTC has played a more prominent role in the largely unregulated general derivatives (contracts that derive their value from the performance of an underlying entity, such as an asset, index, or interest rate) and specifically, swaps (derivative contracts where two counterparties exchange cash flows of each other’s financial instruments) markets, to encourage transparency and gradually move toward a more stringent supervisory framework.
The CFTC’s principal mission is to ensure the successful and efficient operations of the futures markets, by keeping competition fair and preventing market abuse or other threats to financial integrity and efficacy. As the futures markets and particularly the derivatives and swaps markets are very international, the CFTC collaborates heavily with international partners and oversees a huge variety of diverse financial institutions and service providers, including exchanges, clearing houses, dealers, and commodity pool operators.
The CFTC has often been seen as the smaller, less powerful or prominent cousin agency to the Securities and Exchange Commission (SEC). However, as the CFTC refines its position within the financial regulatory landscape of the global markets and within the US economy, certain issues and emphases have emerged which distinguish the CFTC.
- Bitcoin: The CFTC made headlines in November 2017 in paving the way for CME Group and Cboe Global Markets Inc to trade bitcoin futures contracts. Investors and markets professionals all over the world have been waiting for the first regulatory verdicts in the US on how cryptocurrencies markets may be handled. The CFTC has answered this boldly, indicating a permissive attitude toward the trading practices coupled with a strict expectation for robust monitoring and reporting to enable oversight of the famously volatile and active bitcoin trading markets. The CFTC had already declared in 2015 that it would treat bitcoin as a commodity, and the ensuing years have shown US financial regulators struggling to agree on what the cryptocurrency is in terms of financial markets and what risks and protections might be applicable for those wishing to invest or speculate in it. The CFTC has chosen to give the futures trading a yellow light, allowing it to go ahead with a cautious eye toward the intense enforcement and investor protection needs that could arise and obtaining assurances from the exchanges that they will proactively cooperate and share the necessary data with the CFTC: Bitcoin Futures Are Coming and Regulators Are Racing to Catch Up
- Whistleblowers: While far outpaced by the SEC’s much more well-known and publicized whistleblower program, the CFTC’s program was created at the same time as the SEC’s, by the post-financial crisis Dodd-Frank Act in 2010. In 2017, while still modest in comparison to the SEC, the CFTC is having a banner year for payments of whistleblower rewards. These rewards come from sanctions imposed by the CFTC due to validated whistleblower claims against CFTC-covered organizations. This represents a reporting increase by whistleblowers to the CFTC of 70 percent over 2016, indicating that whistleblowers are recognizing the value of the CFTC as an enforcement body. Therefore this uptrend in handling of whistleblower claims could likely continue: Why Wall Street Should Worry About the CFTC Whistleblower Program
- Deregulation: The overall trend in the US is toward a preference for fewer or more efficient and targeted regulations. This is a clear reversal especially in the financial markets, where in the years after the global financial crisis the momentum was toward more complex and far-reaching regulatory and supervisory oversight on the economy and market participants. This was a reasonable and necessary response to not only the recession but the numerous and varied financial scandals and frauds that were uncovered and damaged the markets and society’s trust in the financial systems. These risks and root causes of misconduct and abuse are still present, so balancing a regulatory posture which prefers a lighter touch against the need for investor protector and facilitation of transparent and equitable markets is a challenge for all regulatory agencies, including the CFTC: CFTC Enforcement Actions Drop Sharply in 2017
- MiFID II: The revised Markets in Financial Instruments Directive, or MiFID II, is a wide-sweeping set of EU financial regulatory rules coming into effect in January 2018. These new regulations will have huge impact on the way banks and other financial institutions interact with and make money from the markets. While these are European laws, the globality of the markets means that regulators and market participants all over the world are contending with how to handle these new supervisory guidelines. The Futures Industry Association (FIA) has been actively lobbying the CFTC on behalf of its members, including large banks such as Goldman Sachs and Morgan Stanley, to confirm that the new European requirements will not bring expensive new limitations in the US as well: Wall Street Has New MiFID Migraine, Now in Futures Market
In continuation of this, one important area in which the CFTC has already been deal-making with the EU in anticipation of the approaching MiFID II application is with derivatives trading venues. The European Commission and the CFTC have agreed upon mutual recognition of trading venues so that those in the United States can benefit from an equivalence decision recognizing them as eligible for compliance with MiFID II requirements by virtue of their satisfaction of CFTC requirements: EU and CFTC Implement Mutual Recognition of Derivatives Trading Venues - Blockchain: Apart from regulating bitcoin as a commodity, the CFTC hopes to benefit from the technology that underlies cryptocurrencies, blockchain. The CFTC has voluminous amounts of data from the diverse market platofrms and service providers that it supervises and has historically struggled to parse and study these huge troves of data efficiently and meaningfully. The CFTC hopes that the reporting reliability, transparency, and information security offered by the ledger technology blockchain can enable better review and analysis of this data. Traditional procurement requirements have often dogged attempts to implement more advanced or emerging technologies, but one of the priorities of the CFTC and other US government agencies currently is to leverage innovation such as from financial technology (fintech), regulatory technology (regtech), and supervisory technology (suptech): CFTC Looks to Blockchain to Transform How It Monitors Markets
Be sure to check back next week for a round-up on FTC regulatory compliance.
Many of the contemporary challenges to the meaning of human life and the responsibility of organizations, individuals, regulators, and even governments to contend with them on a legal or regulatory level come from technology. Indeed, bioethics and design ethics are rich with ethical dilemmas caused by advancements of sophisticated technologies such as artificial intelligence and its many applications. However, there is one philosophical area that is in tension with societal existential constructs and is as old as life itself – aging and death.
The ethical dilemmas stemming from the legal and moral responsibilities humans have to themselves and each other as the end of life approaches are contentious and among the most difficult possible. These dilemmas go to the core of society’s moral ideas about the value of life, the extension of human rights throughout physical or mental incapacity due to age, and the treatment of patients and their bodies through and beyond death.
Legal guardians, funeral homes, hospitals, and other individuals and organizations working in and making profits from business related to aging and dying – encompassing legitimate activities as well as illicit ones – all have various duties to their clients and are subject to societal and legal expectations and norms. However, inspection and enforcement efforts are often uneven and struggle to keep pace with the challenges posed by abusive practices or organizational misconduct. Threats to the rights of individuals and the dignity and proper treatment – or at least clear and honest disclosures – that are expected by patients and their families, must be the focus of future regulatory scrutiny and improvement.
- Overreaching paternalism in guardianship of senior citizens is a highly disturbing trend which has been enforced by the courts in some jurisdictions. Legal guardians pay themselves from their wards’ estates; in some cases they have hundreds or even thousands of clients and force out family members or friends so that they can exert their control and get paid for it. Of course, this is a necessary system for the care of vulnerable senior citizens who need help administering their affairs. However, it is also ripe for misuse by opportunistic individuals, to the great detriment of the seniors they take on as wards and their loved ones. The financial and social abuses that can occur in these cases are frightening and appalling. Legal guidelines and supervisory scrutiny of these guardians should be standardized across jurisdictions to avoid undue harm to any population and to balance the commercial caretaking aspects of the activity with the rights and dignity of the individuals concerned: How the elderly lose their rights
- Funeral home regulation and inspection is currently a patchwork system at best. Gross abuses and lack of internal controls have been the subject of a number of recent investigatory reports. Employee misconduct or insufficient internal policies and procedures at an operation like a funeral home has obviously devastating potential to cause harm to families of departed individuals at a vulnerable and painful time in their lives. Following the loss of a loved one the thought that the personnel of the funeral home trusted with their body might store the remains improperly or misuse their organs and parts is a concept that is hard to even conceive. However, due to insufficient supervision and inconsistent regulatory and investigative practices, these terrible scenarios play out all too often. A coherent and cohesive regulatory framework with the strength to punish misconduct and enforce expectations of operating standards must be implemented: Gruesome Discoveries at Funeral Homes Put Spotlight on Spotty Regulations
- On a related note, the dark reality of the organ trade has been the subject of a number of recent investigatory reports as well. Far from just urban legends about crimes that can take place in far-off lands, body brokers are very real and operating in the United States. While many of them do conduct legitimate business for scientific or medical purposes, others trade illicitly or take advantage of individuals who unknowingly give their body parts upon death or those of their loved ones to be later sold for profit by brokers. Fraud and misrepresentation in this industry violates the dying wishes of individuals or the difficult decisions made by families. The ease with which these illicit transactions are conducted is shocking, with human limbs or organs being bought and sold like spare car parts by some individuals. Like funeral homes, an overarching regulatory system needs to be put in place to monitor and inspect these businesses and implement enforcement actions when necessary: The Body Trade
- Turning away from illicit or abusive activities to technological advancements that touch upon aging and death, the reach of artificial intelligence has begun to stretch into this area as well. Robots and robotic devices are no longer the figment of the imagination of a distant future. Many organizations are beginning to utilize them in rudimentary form for a variety of assistant-level activities and are trying to develop the AI technology to use it even more in the future. This extends to patient care as well; hospitals and nursing homes are now exploring using robots to assist nurses in treating patients. Machine learning may eventually be able to automate many aspects of basic care, removing human error and relieving non-robotic nurses to focus on more complex or individually-tailored care. This could be a great efficiency for hospital staffing in the future, but it remains to be seen how non-human interaction in the patient care arena will impact the aging experience. Compassion and humility are often of great mental importance when contending with the forces of aging and illness. A mix of human and robotic care of patients will need to be carefully devised to ensure that these needs are met: Hospitals Utilize Artificial Intelligence to Treat Patients
- Life extension has been a romantic subject of philosophical and scientific desire for millennia. For as long as people have been alive, they have tried to figure out ways to prolong or prevent dying, sometimes delving deeply into the mysterious and esoteric. Current quests in this area are focused on high-tech solutions. Silicon Valley has turned its most sophisticated efforts toward life extension in seeking to “solve for death.” At the very least, these attempts may derive a technology that greatly impacts aging or pushes human life expectancies far beyond the current normal range. Within a generation this may the force of great societal change that will redefine the needs of aging populations that live for longer and continue the quest to avoid death completely: Seeking eternal life, Silicon Valley is solving for death
As demonstrated by the foregoing stories, improper practices and abuses of power, as well as technological advancements, pose risks to the nature of aging and death as it is currently defined within society. Supervisory frameworks must be developed and strengthened to protect the most vulnerable of individuals and ensure that they and their families are not treated unjustly. Risk assessments and coherent, holistic regulatory guidance should be in place to ensure that these protections are upheld.
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Happy Thanksgiving!
Happy Thanksgiving from Compliance Culture!
In honor of the holiday, check out this article from Wired on the regulatory history of turkey in the United States: Why It’s So Tough to Keep Antibiotics Out of Your Turkey.
Marijuana has a complex legal and regulatory history in the United States. Originally widely deployed in a variety of medical and commercial uses, the regulation and eventual restriction of commonly-accepted preparations of hemp and cannabis began at the turn of 20th century with labelling requirements and a push to include cannabis in the definition of a “poison” for which a prescription would be required. By the 1930s a patchwork of state and national policies in law were in place and the criminalization of marijuana was underway in earnest. For the next 40 years any attempt at decriminalization or reclassification was unsuccessful. In the 1970s and 1980s, however, California began to slowly reduce penalties for possession under state law and work toward legalization for compassionate use in chronically-ill individuals, which became legal in the state in 1996.
Since then, the legalization of marijuana has been a matter of legislative interest in many states. This move toward decriminalization at first was limited to the medical use first legitimized in California state law, either for chronically-ill patients or for those suffering from a variety of illnesses for which marijuana has proven to be a desirable treatment in terms of effectiveness and cost. Advocacy in this area has eventually extended to non-medical use; in 2012, Colorado was the first state to legalize recreational use of marijuana for adults.
As of the writing of this post, medical marijuana is legal (to at least some extent) in 23 states plus the District of Columbia; in 8 states medical and non-medical marijuana is legal to sell and possess. As the below selection will show, momentum for decriminalization and handling of emerging legal markets invokes a wide variety of compliance issues which will need to be addresses for business and consumer protections and obligations.
- Given that medical marijuana was the initial purpose behind modern legalization and that it continues to be the most widely-accepted rationale for it, it follows quite logically that medical marijuana research would need to be recognized and facilitated by the law as well. Senator Orrin Hatch, a perhaps unexpected ally for legalization, introduced the Marijuana Effective Drug Study Act of 2017 to improve the research approval process and increase the national marijuana quota to provide supply for medical and scientific research into its potential health benefits. Because marijuana is still completely illegal at the federal level, it is subject to the most restrictive classification and therefore getting approval to study it or supply of it to study is very difficult. In order for the full efficacy of marijuana as medical and therapeutic treatment to be understood, these administrative burdens must be overcome: Senator introduces bill to make it easier to do medical marijuana research
- Due to the fact that, as stated above, marijuana is still totally criminalized at the federal level, and state efforts toward legalization vary widely, regulatory expectations are widespread across a cumbersome patchwork. Businesses hoping to join or exploit the marijuana market in states where it is legalized to some extent will confront a huge regulatory burden of rules, reporting and disclosure obligations, and licensure requirements. It will be crucial for existing or new owners of marijuana-based businesses to consider implementing compliance programs early and thoroughly so that they are not caught unaware by government expectations in their jurisdictions. Otherwise, a culture of operational non-compliance will reign, which could have devastating effect on business success rates amid supervisory enforcement actions for deficiencies: Marijuana Businesses, Particularly In California, Struggle To Navigate A Thicket Of Regulations
- Public sentiment is certainly trending toward legalization. Sixty-four percent of Americans now say that its use should be made legal, which is the highest level of public support that the pollster Gallup has found in the fifty years it has been recording this measure. Certainly high-profile ballot initiatives in a variety of states and increased media attention have come through to the average American and liberalized views on the matter. How will this impact regulatory outlooks? If the federal government comes around to legalization then some universal standard for controls framework and supervisory requirements may be in the future. If not, states will continue to be left to their own devices to create independent markets and risk controls within them: Record-High Support for Legalizing Marijuana Use in U.S.
- As the market for legal weed emerges, powerful people wanting to work within are starting to act like they would in any other industry – looking to garner competitive advantage and turn their companies into giants of the marijuana business. Marijuana is a valuable industry and can be seen as a crop, which means it has an agricultural supply chain like wheat or corn that can be exploited. Utility patents, intellectual property protection for crops, can be used by powerful organizations to corner the market on breeding of new varieties, conducting research, and even producing seeds to be licensed: The Great Pot Monopoly Mystery
- With governments addressing legalization of marijuana all across the United States, organizations are beginning to weigh in too on what their policies of use by their members and employees may be. One visible example of this is with the National Basketball League (NBA) where both the former commissioner David Stern and the current commissioner Adam Silver have expressed at least awareness that the league policies may eventually have to change. While marijuana is still a prohibited substance in the NBA irrespective of the purpose of use, Silver has said he wants to study it and Stern has opined that he feels players should be allowed to do what is legal in their states with respect to marijuana use: David Stern calls for NBA changes of marijuana rules
As states continue to move toward decriminalizing or outright legalization for marijuana for a variety of purposes, and other organizations contend with their own policies within that system, mechanisms for regulated markets will begin to emerge, presenting interesting regulatory compliance issues with no clear and easy precedent. Governments and businesses alike will need to contend with both the opportunities and the challenges this will present.
One of the hottest topics of 2017 is blockchain. This advancing technology is seemingly the possible solution to every business problem conceivable. Companies across all industries – as diverse as banking to food production and seemingly everywhere in between – are experimenting with how they might be able to use blockchain to make their reporting and related processes more reliable or efficient. Many are even contemplating how they may take advantage of blockchain to market software applications to other companies, hoping to enter the profitable fintech (financial technology), regtech (regulatory technology), or suptech (supervisory technology) markets.
But what is blockchain? Most famously, it is the core technological component of the well-known cryptocurrencies, such as Bitcoin or Ethereum. Simply put, blockchain is an open list of records (which comprise the “blocks”) which are securely linked together with cryptography. As the blocks are all linked together and independently identified with references to their linked blocks, the data contained therein is extra safe from individual manipulation or alteration. This is a decentralized computing system which is incredibly useful for recordkeeping and records management activities, especially those where security is especially important such as identity management and medical records.
Due to the broad desirability of a secure and adaptable record maintenance technology, blockchain, which was initially developed only less than a decade ago, has been a disruptive influence in many industries already. Across all business areas, companies are looking to blockchain for possible benefits, all relevant to compliance, to their reporting processes.
- Transparency for pension fund reporting is one major potential use of blockchain. Following the Madoff scandal and other highly-publicized frauds in the investment management industry, there has been more pressure than ever in expectations for investor protection and reporting disclosures. Many pension funds have balked at public and supervisory demands for increased transparency due to the cost concerns for implementing additional reporting mechanisms in balance with very low profit margins. This reaction does not help to enhance trust between investor clients and this fraud-vulnerable industry. Therefore the decentralized, secure nature of blockchain offers appealing opportunities for filling this confidence vacuum. Blockchain-based platforms can get investors access to their own pension information without fears of data manipulation or increased cost burden on firms: How Blockchain is revolutionizing fraud prone industries
- On a related note, banks and other financial institutions have borne much of the competitive pressure blockchain has created with the advent of cryptocurrencies – but they also stand to benefit from this, if they can make the best of it. Cryptocurrencies such as Bitcoin are a compelling alternative to the centralized, traditional banking system for customers who desire extra security or anonymity. While cryptocurrencies have been traditionally depicted as a safe haven for illegitimate or even illegal payment activities, the mainstream attention on them has created a broader appeal and audience for them. As a response to the interest their customers have shown in cryptocurrencies, banks have started to delve into the potential for the blockchain technology. Some has invested in tech start-up companies concentrating on various blockchain applications while others have delved more deeply into relationships with fintech partners. At this point banks’ proprietary efforts have mostly been restricted to in-house research on potential use of blockchain, but inevitably competitive momentum will start to drive larger institutions toward developing their own projects in this space. These developments are likely to encourage efficiency, inspire leaner and more innovative business models, and serve the regtech and suptech goals of increasing cooperation with regulatory authorities. Ultimately this could help to modernize and improve the persistently staid and legacy-driven banking industry into a bolder and more transparent business model: How banks and financial institutions are implementing blockchain technology
- The advertising industry is newly subject to regulatory scrutiny with the upcoming EU privacy directive, the General Data Protection Regulation (GDPR). This law will apply to any organization doing business in, using technology in, or targeting the citizens of, any EU country, so it has a broad global reach. The GDPR will impose new requirements for handling and controlling private data, including protective and disclosure obligations. Therefore blockchain-based solutions, which can be both secure against manipulation or leakage, and distributed with open access so that users making disclosure requests can see the information directly for themselves. This will help to reduce the burden of this reporting as well as improve cost margins rather than coming up with expensive and vulnerable in-house solutions or outsourcing the reporting to third-parties with their own attendant risks: How Blockchains Can Help the Ad Industry Comply With the GDPR
- Commercial aviation is another industry looking to blockchain systems to help with its risks – this time in cybersecurity management. Airlines and support companies rely a lot on IT systems to do everything from fly and direct aircraft to book and manage passenger travel. These systems are highly imperfect, as system outages and computer crashes that lead to flight cancellations and stranded passengers show in the news each year. They are also vulnerable to cybersecurity risks where intruders could breach personal data, disrupt airline operations, or corrupt and steal client and aircraft information. Storing and protecting this data within vulnerable or old/legacy systems poses many cybersecurity challenges. The concept of tamper-proof blockchain technology is therefore compelling to the aviation industry for these obvious reasons. Blockchain could help to keep operational data safe and protect companies from cyberattacks. More importantly, pressure to adopt it could drive aviation companies to make the difficult yet very important technological updates and improvements to their systems which will serve safety and regulatory concerns alike: How Blockchain, Cloud Can Reinforce Cybersecurity in Commercial Aviation
- The pharmaceutical industry has long been vexed by inaccurate and unreliable supply chain tracking. It is especially vulnerable to stolen and counterfeit medication entering the supply chain untracked and finding its way to patients, putting their safety at risk. Tracking medicine with blockchain could change all this. A consortium of pharmaceutical companies, including major firms Genentech and Pfizer, are already collaborating together on a tool called the MediLedger Project, which seeks to manage the pharmaceutical supply chain and track medicines within it to ensure that drug deliveries are recorded accurately and transparently. This would take the current complicated and inefficient network of software management in the supply chain to the next level, securing the supply chain with an integrated and decentralized blockchain system. It could also enable sharing of essential information from companies to partners and customers without exposing sensitive business information, a challenge in the industry so far: Big Pharma Turns to Blockchain to Track Meds
There are many potential advantages from a compliance perspective to blockchain, which has the potential to enhance transparency, protect privacy, address various process-driven risks, and strengthen cybersecurity controls, among other benefits. As the technology advances time will tell how broad the applications of blockchain may be across these diverse industries with similar needs for compliance risk management.