Weekly RoundUp
April 22, 2015

Financial Services Weekly News

FINRA’s Retrospective Rule Review Process Continues. On April 16, FINRA announced that the FINRA Board of Governors had authorized FINRA to publish a regulatory notice requesting comment on proposed amendments to Rules 2210 (Communications with the Public) and 2214 (Requirements for the Use of Investment Analysis Tools) to revise the filing requirements pertaining to retail communications and Rule 2213 (Requirements for the Use of Bond Mutual Fund Volatility Ratings) to refine the scope of the disclosures required. The proposed amendments would narrow the new member firm filing window (currently requiring all materials to be filed for the first year) and would simplify filing requirements related to registered investment companies or families of investment companies, investment analysis tools, previously filed templates and bond fund volatility ratings requirements. This proposal comes a year after FINRA initiated the retrospective rule review process with Regulatory Notice 14-14 requesting comment on the effectiveness and efficiency of the Communications Rules. At meetings of the ABA Business Law Section in San Francisco last week, a member of the FINRA General Counsel’s office stated that a proposal with respect to the Gifts and Gratuities and Non-Cash Compensation Rules is expected to go before the Board of Governors soon. FINRA invited comment on those rules in Regulatory Notice 14-15. This week FINRA met with lawyers who represent clients in connection with the new member application (NMA) and continuing member application (CMA) processes, in conjunction with its request in Regulatory Notice 15-10 for comment on the effectiveness and efficiency of the member application rules. Among the comments FINRA heard were requests to speed the NMA process for uncomplicated registrations and to allow individuals to take qualification examinations without being registered with a member firm. The FINRA staff noted that they have already instituted a “fast track” review process for NMAs, CMAs and materiality consultations, and that they are considering a proposal for a basic knowledge examination that can be taken by unregistered persons and that could form the basis for shorter, subject specific examinations for registered persons and principals

Regulatory Developments

CFPB Finalizes Rule to Improve Credit Card Agreement Submission Process

The CFPB announced it had issued a final rule aimed at improving the way companies submit consumer credit card agreements to the Bureau. The rule temporarily suspends for one year the requirement that issuers send their credit card agreements to the CFPB on a quarterly basis. The CFPB stated that it will work on a more streamlined electronic submission system during the interim. Credit card issuers must resume quarterly submissions beginning April 30, 2016.

Federal Reserve Board Releases Additional Information on Operating Structure of LISCC Supervisory Program

The Federal Reserve Board issued SR Letter 15-7, which supplements previously released information regarding the Large Institution Supervision Coordinating Committee (LISCC) program, established in 2010 to oversee and supervise the largest, most systemically important financial institutions. The letter provides additional details on the supervisory program’s organizational structure, including the functions of its committees and other bodies that comprise the LISCC’s governance structure.

MSRB Files Proposed Rule G-42 Governing Conduct of Non-Solicitor Municipal Advisors

The Municipal Securities Rulemaking Board (MSRB) announced that on April 15 it filed a proposal seeking SEC approval of Rule G-42 (Duties of Non-Solicitor Municipal Advisors) establishing core standards of conduct for municipal advisors, providing guidance on the obligations and prohibitions that accompany their federal fiduciary duty to state and local governments, and clarifying their duties of care and fair dealing to clients. The MSRB also provided an executive summary of key provisions of the rule. Comments are due 21 days after publication of the rule filing in the Federal Register.

OFAC Issues Updated FAQs on Cuba-Related Sanctions

On April 16, OFAC issued updated Frequently Asked Questions (FAQs) pertaining to the Cuban Assets Control Regulations. The FAQs provide an overview of OFAC’s regulations with regard to the Cuba sanctions program and highlight what changes have been made to the program since the President’s December 17, 2014 Statement on Cuba Policy Changes.

Enforcement & Litigation

SEC Reaches Settlement with BlackRock for Failing to Disclose Conflict of Interest

The SEC announced that it had reached agreement with BlackRock Advisors, LLC and former chief compliance offer Bartholomew Battista to settle SEC claims that BlackRock failed to disclose to clients a conflict of interest involving the outside business activity of one of its portfolio managers, Daniel J. Rice, III. Mr. Rice founded the oil and natural gas producer Rice Energy L.P. in 2007 and later entered into a joint venture with Alpha Natural Resources Inc., (ANR). By 2011, ANR was the largest holding in Mr. Rice’s BlackRock Energy & Resources Portfolio. BlackRock was aware of Rice’s involvement in the joint venture, but failed to disclose Rice’s conflict of interest to the BlackRock funds’ boards of directors or to BlackRock advisory clients. BlackRock failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act concerning outside activities of its employees, and failed to have the funds’ chief compliance officer report Rice’s violations of BlackRock’s private investment policy to the funds’ boards of directors. Under the terms of the settlement, BlackRock agreed to pay a civil money penalty of $12 million to the SEC.

Quicken Loans Sues DOJ and HUD

On April 17, Quicken Loans filed a lawsuit in the U.S. District Court for the Eastern District of Michigan against the Department of Justice (DOJ) and Department of Housing and Urban Development (HUD) relating to a three-year-long investigation into Quicken Loans’ practices in making FHA-insured loans between 2007 and 2011. The complaint states that the DOJ and HUD threatened to bring a high-profile lawsuit against Quicken Loans if it did not consent to a large settlement and make public admissions of wrongdoing, including violations of the False Claims Act, that it did not commit. Quicken Loans is asking the court to reject the government’s improper sampling method used to evaluate the loans and to declare that Quicken Loans’ FHA loans during that period were properly underwritten and originated. (Goodwin Procter serves as counsel for the Plaintiff.)

Client Alert: SEC Applies Whistleblower Protections to Confidentiality Arrangements

Goodwin Procter issued a client alert addressing the SEC’s recent settlement of an enforcement action (reported in the April 8 Editor’s Note) in which the SEC found that restrictive language in a form confidentiality statement used with employees interviewed as part of the respondent firm’s internal investigation program improperly impedes whistleblowing activity in violation of Rule 21F-17 under the Securities Exchange Act.  In addition to analyzing the settlement, the client alert reviews other governmental agency action concerning confidentiality agreements and provides recommendations for responding to this development.