Weekly RoundUp 1/14/2015 7:34:00 PM

Financial Services Weekly News

Editor's Note
Editor’s Note
Rich Matheny Comments on New Format of OFAC Sanctions List: On January 5, OFAC announced the release of a new format of its Specially Designated Nationals and Blocked Persons (SDN) List. With the new format’s increased flexibility and adaptability, OFAC aims to increase government efficiency and enhance sanctions compliance. New capabilities include advanced metadata, support for additional language scripts, a data dictionary of look-up values and a flexible “feature identifier” functionality that augments the currently available identification look-up values. The United States is the first U.N. member state to implement this advanced data model, developed by the U.N. and the Wolfsberg Group of International Banks. Rich Matheny, Goodwin Procter partner and head of the firm’s National Security and Foreign Trade Regulation Practice, commented on the new SDN List format in the Wall Street Journal. He noted the particular usefulness of the new format for financial institutions and other companies that conduct in-house sanction screenings and deal in large volumes of transactions across multiple sanctions regimes, and stated that the new format “could enable consolidation of the U.S., EU and other list-based sanctions regimes into a single, searchable file — the coveted ‘one-stop shopping’ solution.”

Regulatory Developments

SEC to Consider Security-Based Swaps Rules at January 14 Meeting

The SEC announced that at an open meeting on January 14, 2015 it intends to consider whether to (a) adopt final rules relating to security-based swap data repositories (SDRs), (b) adopt Regulation SBSR governing reporting of security-based swap information and public dissemination of security-based swap transaction, volume, and pricing information by registered SDRs, and (c) propose certain new rules, rule amendments, and guidance under Regulation SBSR to address, among other things, the reporting duties for cleared and platform-executed security-based swap transactions.

The SEC that at an open meeting on January 14, 2015 it intends to consider whether to (a) adopt final rules relating to security-based swap data repositories (SDRs), (b) adopt Regulation SBSR governing reporting of security-based swap information and public dissemination of security-based swap transaction, volume, and pricing information by registered SDRs, and (c) propose certain new rules, rule amendments, and guidance under Regulation SBSR to address, among other things, the reporting duties for cleared and platform-executed security-based swap transactions.

SEC Staff Extends No-Action Relief Permitting Broker-Dealers to Rely on Registered Advisers to Perform AML Customer Identification

The Staff of the SEC’s Division of Trading and Markets issued a no-action letter to the Securities Industry and Financial Markets Association (SIFMA) further extending January 2011 relief that specifies conditions under which a broker-dealer may rely on a registered investment adviser to satisfy the customer identification program (CIP) element of the broker-dealer’s anti money laundering (AML) program with respect to shared customers. The current extension will expire on the earlier of: (1) January 9, 2017, or (2) the date upon which comparable AML program requirements for investment advisers become effective. The no action relief notes FinCEN’s plans to propose AML program rules for investment advisers, as discussed in a separate item in this issue. 

The Staff of the SEC’s Division of Trading and Markets issued a letter to the Securities Industry and Financial Markets Association (SIFMA) further extending that specifies conditions under which a broker-dealer may rely on a registered investment adviser to satisfy the customer identification program (CIP) element of the broker-dealer’s anti money laundering (AML) program with respect to shared customers. The current extension will expire on the earlier of: (1) January 9, 2017, or (2) the date upon which comparable AML program requirements for investment advisers become effective. The no action relief notes FinCEN’s plans to propose AML program rules for investment advisers, as discussed in a separate item in this issue

SEC Announces 2015 Adviser Examination Priorities for Broker-Dealers, Investment Advisers and Transfer Agents

The SEC’s Office of Compliance Inspections and Examinations (OCIE) announced the 2015 examination priorities of its National Examination Program (NEP) for broker-dealers, investment advisers and transfer agents. (OCIE will address examination priorities for exchanges and SROs separately.) The priorities largely fall in three thematic areas: (1) retail and retirement investors, including (a) recommendations to invest retirement assets into complex or structured products and higher yield securities, (b) supervision of registered representatives and financial adviser representatives in branch offices, (c) alternative investment companies, and (d) fixed income fund exposure to interest rate increases; (2) assessing market-wide risk, including (a) cybersecurity compliance and controls, and (b) potential conflicts of interest arising out of prioritization of trading venues based on payments or credits for order flow; and (3) use of data analytics to identify potential illegal activity, including (a) excessive trading by introducing brokers and registered representatives and (b) failure to file suspicious activity reports (SARs) or filing incomplete or late SARs. Other examination priorities include newly registered municipal advisors, proxy advisory firms, and fees and expenses of private equity funds.

FDIC Provides Guidance on Identifying, Accepting, and Reporting Brokered Deposits

On January 5, 2015, the FDIC issued answers to frequently asked questions (or “FAQs”) about identifying brokered deposits and the circumstances under which they may be accepted. Section 29 of the Federal Deposit Insurance Act and Section 337.6 of the FDIC’s regulations restrict the acceptance of brokered deposits by FDIC-insured depository institutions that are not well-capitalized. The FAQs offer additional guidance on related topics, including persons who facilitate the placement of deposits, bank networks, listing services, exceptions to the definition of deposit broker, interest rate restrictions and applications for waivers. An insured depository institution that seeks further guidance about whether a particular deposit qualifies as a brokered deposit can look to the FDIC’s published advisory opinions or to the Study on Core Deposits and Brokered Deposits, which the FDIC issued in July 2011.

On January 5, 2015, the FDIC issued  (or “FAQs”) about identifying brokered deposits and the circumstances under which they may be accepted. Section 29 of the Federal Deposit Insurance Act and Section 337.6 of the FDIC’s regulations restrict the acceptance of brokered deposits by FDIC-insured depository institutions that are not well-capitalized. The FAQs offer additional guidance on related topics, including persons who facilitate the placement of deposits, bank networks, listing services, exceptions to the definition of deposit broker, interest rate restrictions and applications for waivers. An insured depository institution that seeks further guidance about whether a particular deposit qualifies as a brokered deposit can look to the FDIC’s published advisory opinions or to the , which the FDIC issued in July 2011.

FinCEN Semi-Annual Regulatory Agenda Includes AML Program Rulemaking for Certain Investment Advisers

In the December 22, 2014 Introduction to the Unified Agenda of Federal Regulatory and Deregulatory Actions, FinCEN lists among its regulatory priorities for fiscal year 2015 finalizing a notice of proposed rulemaking (NPRM), currently in draft form, that would “prescribe minimum standards for anti-money laundering programs to be established by certain investment advisers and to require such investment advisers to report suspicious activity to FinCEN.” FinCEN also notes that it has been working closely with the SEC on issues related to the draft NPRM. Publication in the Unified Agenda does not create a legal obligation to address the matters described or to do so within the timeframes specified.

Litigation & Enforcement

SEC Penalizes Exchanges for Failing to Properly Describe Order Types

On January 12, 2015 the Securities and Exchange Commission announced that EDGA Exchange and EDGX Exchange have agreed to pay a $14 million penalty to settle charges that their rules failed to describe accurately the order types. The penalty is the SEC’s largest against a national securities exchange, and the case is the SEC’s first principally focusing on stock exchange order types. The SEC found that the exchanges separately disclosed information about their order processes to some, but not all, of their members. In the SEC’s view, this uneven disclosure created a significant risk that not all market participants would understand how these order types operated, and therefore constituted a violation by the exchanges of Sections 19(b) and 19(g) of the Securities Exchange Act of 1934. Without admitting or denying the SEC’s findings, the exchanges agreed to accept a censure, pay the penalty, and cease and desist from committing these violations.