Weekly RoundUp
April 4, 2024

SEC Adopts Reforms Relating to Investment Advisers Operating Exclusively Through the Internet

In this Issue. The Securities and Exchange Commission (SEC) adopted reforms relating to investment advisers operating exclusively through the internet; the Financial Crimes Enforcement Network (FinCEN) issued a request for information related to existing requirements for banks under the Customer Identification Program (CIP) Rule; the Federal Deposit Insurance Corporation (FDIC) released the March 2024 edition of its Consumer Compliance Supervisory Highlights and announced updates to its Consumer Compliance Examination Manual; the Consumer Financial Protection Bureau (CFPB) released its Consumer Response Annual Report; and a Texas judge blocked the revised Community Reinvestment Act (CRA) rules. These and other developments are discussed in more detail below.

Regulatory Developments

SEC Adopts Reforms Relating to Investment Advisers Operating Exclusively Through the Internet
On March 27, the SEC amended the rule permitting certain internet investment advisers to register with the SEC (the “internet adviser exemption”). The amendments eliminate the current rule’s de minimis exception approach and require internet investment advisers relying on the rule to:

  • maintain at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client; and
  • provide advice to all of its clients exclusively through an operational interactive website and make certain corresponding changes to Form ADV.

An adviser relying on the internet adviser exemption must comply with the rule, including the requirement to amend its Form ADV to include a representation that the adviser is eligible to register with the SEC under the internet adviser exemption, by March 31, 2025.

“These amendments modernize a 22-year-old rule to better protect investors in a digital age. These changes better reflect what it means in 2024 truly to provide an exclusively internet-based service. This will better align registration requirements with modern technology and help the Commission in the efficient and effective oversight of registered investment advisers.”
‒ Gary Gensler, Chair, SEC

FinCEN Seeks Comments on CIP Requirements
On March 28, FinCEN issued a request for information on a proposal to allow banks to collect a partial Social Security number (SSN) from a customer that is both an individual and a U.S. person, and then to use a reputable third-party source to obtain the full SSN prior to opening an account for the customer, rather than collecting a taxpayer identification number, which FinCEN views, under the current CIP Rule, as requiring banks to collect the full SSN. Written comments are due by May 28, 2024.

FDIC Issues March 2024 Consumer Compliance Supervisory Highlights
On March 28, the FDIC released the March 2024 edition of its Consumer Compliance Supervisory Highlights to provide transparency with respect to the FDIC’s activities and to help supervised institutions remain informed of current regulatory issues. This edition describes supervisory observations, including risk mitigation tips, regulatory developments, and consumer compliance resources. It also includes a summary of the overall results of the FDIC’s consumer compliance examinations in 2023 and an overview of consumer complaint trends.

FDIC Updates Its Consumer Compliance Examination Manual
On March 28, the FDIC announced updates to its Consumer Compliance Examination Manual, which serves as a reference for FDIC staff, bankers, and members of the public on the agency’s examination procedures. The FDIC updated sections regarding: (1) how it communicates findings to supervised institutions; (2) how it will enforce the Expedited Funds Availability Act and its implementing Regulation, Regulation CC; and (3) its interpretation of the FTC’s 1976 Holder-in-Due-Course Rule on preservation of consumer claims against retail sellers.

CFPB Releases 2023 Consumer Response Annual Report
On March 29, the CFPB released its Consumer Response Annual Report, which analyzes consumers complaints submitted to the CFPB during 2023. Consumers submitted more than 1.3 million complaints concerning over 3,400 companies for review and response. Issues focused on identity theft, debt collection practices, federal student loan servicers, and credit or consumer reporting.

Litigation & Enforcement Developments

Texas Federal Judge Blocks Enforcement of Revised CRA Rules 
An Amarillo, Texas, judge issued a preliminary injunction blocking enforcement of recent new CRA rules. The new rules increased the law’s impact beyond where banks offered physical branches to include other areas where they conducted retail lending. US District Judge Matthew Kacsmaryk noted in the ruling that “…since 1978…[the agencies] limited themselves to areas surrounding deposit-taking facilities.”

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