Welcome to Pillsbury’s Regulatory Playbook, where you’ll find news and insights on the regulatory trends that are driving markets and shaping businesses. Here, Pillsbury’s market-leading regulatory group illuminates critical developments at the intersection of law and policy. If you need to know what’s happening, why it’s happening and how to respond, consult the Playbook.
Trending IssuesNew OSHA Enforcement Guidance Could Subject Employers to More Citations and Increased Associated Penalties
On January 26, 2023, the Occupational Safety and Health Administration (OSHA) announced new enforcement guidance to effectively increase the number of citations it can issue. OSHA’s current typical practice is to issue a citation containing multiple “instances” of an alleged violation. For example, a citation alleging violation of a machine guarding standard will contain an instance for each machine not properly guarded. Following the new enforcement guidance, OSHA is now encouraged to issue a separate citation for each instance, naturally multiplying the associated penalties.
What to Expect from the New York Department of Financial Services in 2023
The New York Department of Financial Services (NYDFS) is responsible for the supervision of financial services companies operating in New York, including all New York state-chartered banks, insurance companies and producers, companies engaged in virtual currency activity, money services businesses, mortgage lenders and servicers, other non-depository lenders, credit reporting agencies and student loan servicers. According to its most recent annual report, NYDFS supervises approximately 3,000 financial institutions with assets exceeding $8.8 trillion.
SEC Enforcement: 2022 Year in Review
The SEC’s Enforcement Division had a banner year in 2022—Chair Gary Gensler’s first full year on the job—validating predictions that Chair Gensler’s tenure would usher in a new era of aggressive enforcement. We expect the Enforcement Division to continue its aggressive approach in 2023, as the staff pursues the Chair’s priorities including ESG, digital assets, cybersecurity and insider trading.
FCC Proposes Updates to Customer Proprietary Network Information Breach Reporting Requirements
The Federal Communications Commission (FCC) has proposed to update its data breach reporting requirements to address increasing security breaches in the telecommunications industry. In December 2022, the FCC released a Notice of Proposed Rulemaking (NPRM) launching a proceeding to improve the process for notifying customers and federal law enforcement of breaches that may have exposed customer proprietary network information (CPNI). In the NPRM, the FCC proposed several revisions to its data breach rules (which have not been updated since 2007) and seeks comment on those proposals.
FTC Announces Largest-Ever HSR Threshold Increases for 2023 Transactions and New Filing Fee Thresholds
As a result of the substantial increase in the U.S. Gross National Product (GNP) for 2022, the Federal Trade Commission (FTC) has announced the largest-ever year-over-year increase in the jurisdictional filing thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). For the first time since the FTC began adjusting the thresholds in 2005, the minimum size of transaction threshold will increase by more than $10 million, a 10.3% increase. The thresholds determine whether parties involved in proposed mergers, consolidations, or other acquisitions of voting securities, assets, or unincorporated interests must notify the FTC and the Antitrust Division of the Department of Justice (DOJ) of a proposed transaction and comply with a mandatory waiting period before the transaction may be consummated. The revised thresholds will take effect on February 27,2023. Until then, the current $101 million threshold is still in effect. EPA Tentatively Rejects the Center for Biological Diversity’s Petition to Regulate PVC as a Hazardous Waste
Introduction and Background
Few materials generate as much controversy as polyvinyl chloride (PVC). Versatile, durable and available at a comparatively low cost, PVC offers a wide range of advantages across numerous industries, cementing its place as one of the market’s most popular materials. For example, PVC’s rigidity and strength makes it a popular construction material, and its high chlorine content makes PVC fire-resistant. PVC is also present in food packaging, children’s toys, and other industrial, retail and commercial materials.
Recent Measures Establish Unprecedented Tax Increases on Real Property in California Cities
During the 2022 midterms, California residents approved an array of local ballot measures that increase city-level transfer taxes, as well as add other new taxes on real property in California cities. Below we summarize the effects of Measure ULA (Los Angeles), Measure GS (Santa Monica), Measure M (San Francisco) and Measure K (Palo Alto). We also provide a chart of notable, similar measures that passed in recent election cycles. How Are Digital Assets Regulated in the United States and Elsewhere?
Following the fall of FTX, the global spotlight on digital asset regulation has intensified. The key question—particularly in the United States—is whether and when digital assets should be subject to securities regulation. This debate is complicated by the variety of digital asset uses. As an example, a modified ERC-20 token standard on the Ethereum blockchain has been used to tokenize company shares with the ability to automate dividend payments, while the ERC-721 token standard has been used to create Non-Fungible Tokens (NFTs). These token use cases present entirely different functionalities and can be modified even further. How varied use cases are best regulated lies at the heart of the digital assets legal debate.
Efforts to Regulate Plastic Pollution Likely to Increase in 2023
Public concern regarding plastic pollution in the United States has continued to grow in recent years. While more traditionally centered on unmanaged plastic waste and U.S. recycling capacity, this has evolved to include issues such as microplastics, plastic-related chemicals, ESG and the environmental justice impacts of the plastics industry. In line with this growing concern, regulatory efforts aimed at addressing plastics have accelerated, and there was significant movement toward greater plastics regulation in 2022 at the state, federal and international levels.
Developments in Association Law 2021 – 2022
Striltschuk v. Hryckowian, 202 A.D.3d 497, 160 N.Y.S.3d 56 (2022)
Petitioners brought an action seeking to set aside the election results of directors, officers, and committee members of the not-for-profit Organization for the Defense of Four Freedoms for Ukraine, Inc.; petitioners also filed a motion for injunctive and declaratory relief. The court denied the petition, denied the motion, and dismissed the proceeding; the petitioners appealed. On appeal, the Supreme Court of New York, Appellate Division held that the petitioners fell short of meeting their burden under the New York Not-For-Profit Corporation Law of making “a clear showing” that judicial “interfere[nce] in the internal affairs of [the] corporation … is … warrant[ed].”
DOE Issues Final Rule on Part 810 Civil Penalties
On January 12, 2023, the U.S. Department of Energy (DOE) issued its final rule regarding procedures for imposing civil penalties for violations of DOE’s 10 CFR Part 810 regulations (Part 810), formally clarifying DOE’s authority to impose civil penalties for violations of Atomic Energy Act (AEA) section 57b. This final rule follows an October 3, 2019, Notice of Proposed Rulemaking (the “proposed rule”) on the same topic. The industry submitted comprehensive comments in response to the proposed rule, but the DOE largely left the proposed rule intact, only modifying one substantive portion of the rule (regarding burden of proof) in response to comments.
Economic Crime (Transparency and Enforcement) Act Provides Transitional Period
The Economic Crime (Transparency and Enforcement) Act which came into force last year provides a transitional period ending on January 31, 2023, during which overseas entities that own (or want to sell or transfer) or lease UK real estate must register the beneficial owners or managing officers of that overseas entity at Companies House. A failure to comply with the Act will expose the overseas entity and its officers to criminal sanctions and could potentially impact banks who have lent monies secured on the property.
FCC Proposes Rules to License Spectrum for Unmanned Aircraft Systems
The FCC’s proposed rules would provide licensed spectrum access to unmanned aircraft systems, allowing for riskier unmanned flights.
FCC Adopts Rules Requiring Broadband Providers to Display Point-of-Sale Labels and Proposes New Rules Promoting Equal Access to Broadband Services
New FCC rules require internet service providers (ISPs) to prominently display labels disclosing information about broadband prices, rates, data allowances and broadband speeds.
HSR Merger Filing Fees Significantly Increase for Transactions Valued at $500 Million or More; Highest Fee Increasing by 800%
The Merger Filing Fee Modernization Act (MFFM Act), included in the year-end omnibus spending bill that President Biden signed into law on December 29, 2022, updates the fee structure for filings submitted pursuant to the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) for the first time since 2001. Under the HSR Act, parties to certain mergers and acquisitions are required to report transactions valued in excess of the lowest filing threshold, currently $101 million, to the Federal Trade Commission (FTC) and Department of Justice (DOJ) and wait a proscribed period of time before closing.
Employers Take Note: FTC Releases Notice of Proposed Rulemaking Banning Worker Non-Competes
Citing its interest in promoting competition and opening up “better employment opportunities” for workers, the Biden Administration is moving forward with a proposal to prohibit a feature of many U.S. employment relationships valued by employers and of significant importance in M&A transactions: non-competition agreements. Rather than looking to Congress to enact legislation to achieve this goal, the Administration is relying on the authority of the U.S. Federal Trade Commission (FTC) to enforce and engage in rulemaking under existing antitrust laws.
Significant Changes to the SBIR and STTR Programs
On September 30, 2022, the SBIR and STTR Extension Act of 2022 (the Act) was enacted, reauthorizing the SBIR and STTR programs until September 30, 2025. The Act makes several significant changes related to national security risks and foreign influence in the programs. The changes include agency implementation of due diligence procedures, new offeror disclosure and ongoing contractor reporting requirements, and new award eligibility requirements, with an offeror’s or contractor’s omissions or misstatements resulting in repayment of the entire award amount, among other changes to the programs.
SEC’s Heightened Scrutiny of Rule 10b5-1 Plans and Final Rulemaking Focus Is on Insiders Rather than Issuers
Securities and Exchange Commission (the SEC or the Commission) Rule 10b5-1, adopted more than 20 years ago, made it possible for insiders of publicly traded companies (and other individuals and entities that have access to material nonpublic information (MNPI)) to establish written plans (Rule 10b5-1 plans) for trading in the company’s shares. Under Rule 10b5-1, if such a plan is established in good faith at a time when the trader is not aware of MNPI, the trader will have an affirmative defense against insider trading charges, even if actual trades made pursuant to the plan are executed at a time when the individual may be in possession of MNPI that would otherwise subject that person to liability under Section 10(b) of the Securities Exchange Act of 1934 or Rule 10b-5. By providing clarity regarding how persons—who otherwise may be presumed to have MNPI—can establish written plans that can reliably permit trading, Rule 10b5-1 enabled widespread adoption of trading plans by public company insiders or others who may have access to MNPI.
The Scope of the Proposed Disclosure and Reduction Requirements Concerning Greenhouse Gas Emissions Would Impose Substantial Compliance Obligations on Federal Contractors
On December 6, 2022, Pillsbury issued a client alert to notify government contractors that the Federal Acquisition Regulatory Council (FAR Council) recently issued a proposed rule that would require most federal contractors to make disclosures and representations regarding their greenhouse gas (GHG) emissions and for certain major contractors to also set science-based targets to reduce those emissions. Given the extensive scope of this proposed rule, our first client alert focused on outlining the identification and reporting requirements of GHG emissions that would be imposed upon government contractors. This client alert provides additional information regarding the nature of Scopes 1, 2, and 3 GHG emission categories, as well as some of the complexities associated with the reduction of GHG emissions in accordance with “science-based targets.”
SEC Adopts Broad Amendments to Rule 10b5-1 Protections and Section 16(a) Reporting
On December 14, 2022, the SEC adopted amendments and form updates relating to several topics first previewed in its proposed rulemaking on January 13, 2022. These amendments serve the SEC’s twin goals of eliminating loopholes for insider trading under the guise of Rule 10b5-1 trading plans (10b5-1 plans) and increasing public disclosure of trading in and equity grants of issuers’ securities while insiders are potentially in possession of material nonpublic information (MNPI). Through this rulemaking, the SEC is significantly altering the paradigm relating to adoption and modification of 10b5-1 plans and the affirmative defense such plans may provide against claims of fraud and insider trading. The SEC is also increasing disclosure requirements relating to the use of 10b5-1 trading plans by insiders and in connection with issuers’ equity grant practices, and for the first time, will require disclosure in an issuer’s annual report of its insider trading policy. The rule amendments also modify Forms 4 and 5 to require disclosure of whether a transaction was executed with the intent to satisfy the affirmative defense conditions of Rule 10b5-1, and to require disclosure of gifts on Form 4 within two business days.
Cal/OSHA COVID-19 Standards Are Here to Stay (For Another Two Years)
After numerous iterations and extensions of an emergency temporary standard, Cal/OSHA approved a non-emergency standard on December 15, 2022, set to take effect in January 2023.
Department of Energy Establishes the High-Assay, Low-Enriched Uranium (HALEU) Consortium
On December 7, 2022, the U.S. Department of Energy (DOE) established the High-Assay, Low-Enriched Uranium (HALEU) Consortium. HALEU (uranium enriched to between 5% and 20%) will be required by a large number of advanced reactor designs under development in the United States. However, domestic availability of HALEU is currently lacking and presents an obstacle to large-scale deployment of advanced nuclear.
Bankruptcy Court Denies Chapter 15 Recognition Request of Cayman Islands Joint Provisional Liquidators
In In re Global Cord Blood Corporation, No. 22-11347 (DSJ) (Bankr. S.D.N.Y.), the U.S. Bankruptcy Court for the Southern District of New York denied a petition for chapter 15 recognition of a Cayman Islands proceeding on the basis that it did not satisfy the statutory definition of a “foreign proceeding.” In reaching that conclusion, the Bankruptcy Court found that the joint provisional liquidators appointed in the Cayman Islands to oversee the proceeding had limited authority to investigate alleged corporate wrongdoing and recover assets, and were not authorized to pursue a reorganization. Further, although the joint provisional liquidators were authorized to liquidate the company, they had not, and hoped to never have to, initiate a liquidation because they believed that the company was solvent. The court thus found that the Cayman proceeding was “not a collective proceeding for the purpose of dealing with insolvency, reorganization, or liquidation,” and was instead “akin to a corporate governance and fraud remediation effort.”
SBA Issues Final Rule to Take Control of All Veteran-Owned Certifications
The Small Business Administration (SBA) is consolidating and making significant changes to the Veteran-Owned Small Business and the Service-Disabled Veteran-Owned Small Business programs, including the elimination of self-certification.
IRS Provides Highly Anticipated Wage and Apprentice Guidance for Applicable Tax Credits under the Inflation Reduction Act
On November 30, 2022, the Internal Revenue Service (IRS) published Notice 2022-61 (Notice) in the Federal Register providing further guidance on compliance with newly applicable wage and apprenticeship requirements under the Inflation Reduction Act (IRA), which taxpayers must comply with to receive the fully available tax credits for new renewable energy, energy storage, hydrogen, biogas, carbon capture projects and electric vehicle charging infrastructure projects.