Although it refused to make the relief permanent, the Staff of the SEC’s Division of Trading and Markets agreed to extend until September 30, 2015 no-action relief it had previously granted from the requirement in Rule 15c3-3 under the Securities Exchange Act of 1934 that a broker‑dealer obtain a customer’s prior written consent to include the customer’s free credit balances in a sweep program. Subject to a number of conditions, the relief allows a broker‑dealer to act on a customer’s oral instructions at account opening regarding participation in a sweep program. Securities Industry and Financial Markets Association, SEC No-Action Letter (February 5, 2015).
The SEC announced that in response to a mandate under the Dodd-Frank Act it voted to issue for public comment proposed rules that would require disclosure regarding whether any director, officer or employee of a company is permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held, directly or indirectly, by the director, officer or employee. The disclosure would apply to any proxy or information statement with respect to the election of directors. All issuers registered under Section 12 of the Securities Exchange Act of 1934 would be subject to the requirement, including smaller reporting companies, emerging growth companies, and listed closed-end funds, but not foreign private issuers or other types of registered investment companies, which include non-listed closed-end funds, open-end funds, and unit investment trusts. Comments are due no later than 60 days after the proposal is published in the Federal Register.
SEC filings that would have been due on February 14 will be due on Tuesday, February 17, since February 14 falls on a Saturday and the President’s Day holiday is the following Monday. Filings due on February 17 this year include Form 5, Form 10-Q (for non-accelerated filers with fiscal year ends other than December 31), Form 13F and certain Schedule 13G and Schedule 13G/A filings. The SEC’s EDGAR 2015 Filing Peak Schedule by Due Date provides due dates in 2015 for various forms and also information about the peak filing periods preceding those due dates.
The Financial Stability Oversight Council (FSOC) announced that it had adopted changes to its process for reviewing nonbank financial companies for potential designation and formalized related practices. Nonbank financial companies that are designated by FSOC are subject to consolidated supervision by the Federal Reserve Board and enhanced prudential standards. The changes are designed to provide for additional engagement between FSOC and companies that are being considered for designation or whose designation is undergoing annual review, and to enhance transparency to the public on the designations process. Information on the changes is available in FSOC’s Supplemental Procedures Relating to Nonbank Financial Company Determinations and in updates to its Frequently Asked Questions on Nonbank Designations. FSOC also voted to extend by 30 days to March 25, 2015 its request for public comment regarding potential risks to U.S. financial stability from asset management products and activities.
On February 4, 2015, New York’s Department of Financial Services (DFS) published its revised proposed BitLicense regulatory framework. The new framework incorporates previously announced changes made by Superintendent Benjamin Lawsky, including exclusions for software developers, miners, certain merchants, loyalty rewards programs and those who use blockchain technology for non-financial purposes. It also proposes the availability of a two-year conditional license for start-ups unable to comply immediately with the regulatory requirements. The latest framework updated definitions of “virtual currency,” “exchange service” and “gift card;” announced the cost of the license at $5,000; required identification of anyone with access to customer funds; reduced the length of recordkeeping to 7 years; relaxed capital requirements to permit holding of virtual currency; and exempted merchants using virtual currency for investment purposes. When the DFS publishes the regulations in the New York State Register, it will trigger a 30-day comment period open to the public.
On January 28, 2015, the FDIC issued a Financial Institution Letter encouraging depository institutions to take a risk-based approach when assessing individual customer relationships, as opposed to declining to provide banking services to entire categories of customers without regard to the risks presented by individual customers or the bank’s ability to manage such risk. Stressing the need to serve their communities, the FDIC indicated that while a financial institution may perceive a certain class of customers as risky, the institution may be well-equipped to manage that risk. The FDIC expects institutions to assess the risks posed by an individual customer on a case-by-case basis and to implement controls to manage the relationship commensurate with the risks associated with each customer. The agency also noted that isolated or technical violations of the Bank Secrecy Act, which are limited instances of noncompliance within an otherwise adequate system of policies and procedures, generally do not prompt serious regulatory concern or reflect negatively on an institution’s commitment to compliance.
Litigation & Enforcement
The February 2015 edition of the Goodwin Procter Business Litigation Reporter is available. In addition to timely summaries of key cases and other developments in dedicated Business Litigation sessions and related courts nationwide, the current issue features an in-depth look at potential personal liability for company directors and officers in the event of a data security breach.