Weekly RoundUp
March 21, 2024

FinCEN Publishes an Administrative Ruling Regarding Customer Identification Program and Customer Due Diligence Requirements for Designated Beneficiaries of Individual Retirement Accounts

In this Issue. The Financial Crimes Enforcement Network (FinCEN) published an administrative ruling regarding customer identification program and customer due diligence requirements for designated beneficiaries of individual retirement accounts; Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra delivered remarks on standard setting in an open banking system at the Financial Data Exchange Global Summit; and the Securities and Exchange Commission (SEC) charged two investment advisers with making false and misleading statements about their use of artificial intelligence (AI).

Regulatory Developments

FinCEN Publishes an Administrative Ruling Regarding Customer Identification Program and Customer Due Diligence Requirements for Designated Beneficiaries of Individual Retirement Accounts

On March 15, FinCEN issued an administrative ruling affirming that broker-dealers must comply with Customer Identification Program (CIP) and Customer Due Diligence (CDD) requirements when distributing to a beneficiary of IRA funds inherited as part of a charitable estate. The ruling confirms that such broker-dealers must implement a CIP enabling them to verify the identity of each customer. Specifically, for legal entity customers, broker-dealers must collect a name, address, and employer identification number, at a minimum. These broker-dealers must also establish and maintain written CDD requirements to identify and verify the beneficial owners of legal entity customers by obtaining the same information.

CFPB Director Delivers Remarks on Standard Setting in an Open Banking System at the Financial Data Exchange Global Summit

On March 13, CFPB Director Rohit Chopra delivered remarks at the Financial Data Exchange Global Summit about the importance of setting industry standards, specifically with respect to data standards and sharing protocols, as the US shifts to an open banking system under the CFPB’s proposed Personal Financial Data Rights rule intended to empower consumers to more seamlessly switch between financial products by giving consumers rights to access their data. Emphasizing the need for standard-setting in financial services and open banking, Chopra warned of the dangers to competition in open banking when dominant firms with prevailing market power weaponize industry standards to limit consumers’ exercise of their rights. To prevent large incumbents from too heavily influencing standards in their favor, the CFPB plans to codify which attributes (e.g., board composition, funding structure, independence from powerful players) standard-setting organizations must demonstrate to be recognized by the CFPB as a standard-setting organization under the rule and then have those organizations apply for recognition – all before the rule is finalized in the fall.

Enforcement and Litigation Developments

SEC Charges Two Investment Advisers with Making False and Misleading Statements About Their Use of AI

On March 18, the SEC announced that it settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making false and misleading statements about their use of AI. The SEC found that the two firms falsely marketed to their clients that they were utilizing AI in particular ways when, in fact, they were not. Both firms were also found to have violated the Marketing Rule, which prohibits registered investment advisers from disseminating advertisements that include untrue statements of material fact. Both firms consented to the entry of orders finding that they violated the Advisers Act and paid a fine; the firms did not admit or deny the SEC’s findings.

“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing’.”

‒ Gurbir S. Grewal, Director of the SEC’s Division of Enforcement

Check Out Goodwin’s Latest Industry Insights

New Client Alert: SEC Climate Rules Stayed by Fifth Circuit – For Now

On March 6, the SEC adopted expansive new climate disclosure rules (the “Rules”). As noted in our March 12, 2024 client alert summarizing and analyzing the new Rules, litigation challenging the Rules was already pending. Additional litigation seeking to strike down the Rules is currently pending in four federal courts of appeals—the US Courts of Appeals for the Fifth, Sixth, Eighth and Eleventh Circuits—and we expect that additional challenges will be filed in the federal courts of appeal. In addition, the US Courts of Appeals for the Second and DC Circuits are considering challenges by environmental groups claiming that the Rules do not go far enough. To read the full alert, click here.

New Insight: Dos and Don'ts of Interacting with Bank Regulators

Supervision is a daily fact of life for bank boards and management. In this insight, Goodwin’s banking team offer strategies for how both board members and members of management can ensure that the supervisory process goes as smoothly as possible. To read the full list, click here.

Latest Fintech Flash: The CFPB’s “Junk Fees” Initiative: Recent Developments and Trends

In January 2022, the CFPB announced an initiative to “Save Americans Billions in Junk Fees.” Since then, the CFPB and other regulatory agencies have expended significant effort, through new rulemaking and increased regulatory scrutiny, on discouraging these types of fees. In this edition of Fintech Flash, we examine two new rules recently proposed by the CFPB that are aimed at curbing types of junk fees that banks and other depository institutions may levy on consumers; we also evaluate their impact on covered institutions. To read more on this initiative, click here.

Latest Consumer Finance Insights Blog Post: Chamber of Commerce Sues CFPB To Eliminate or Enjoin $8 Late Fee Cap

On March 7, the US Chamber of Commerce (Chamber) joined five other trade associations to sue the Consumer Financial Protection Bureau (CFPB) and its director Rohit Chopra in Texas Federal District Court, seeking a court order declaring a recent CFPB rule arbitrary and capricious, vacating the rule, and enjoining its enforcement. In a previous post, Goodwin reported that on March 5, the CFPB issued a rule (Final Rule) setting an $8 threshold on late fees that larger credit card issuers (those with over one million open credit accounts) may charge. The Final Rule, published in the Federal Register on March 15, 2024, will become effective 60 days later unless enjoined or vacated. To learn more about this update, read Goodwin’s latest Consumer Finance Insight blog post.

Corporate Transparency Act (CTA) Resource Center
Go-to resource with on-demand webinars and compliance toolkit.

Consumer Finance Insights (CFI) Blog
The latest on consumer finance regulation, litigation, and enforcement. 

Fintech Flash
The latest news and developments for the rapidly evolving fintech industry – which often can change in a flash. 

Bank Failure Knowledge Center
Timely updates on important developments following the March 2023 US bank failures.


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