Weekly RoundUp
July 15, 2015

Financial Services Weekly News

House Unanimity on Financial Legislation. Yesterday the U.S. House of Representatives unanimously passed a suite of bills intended to ease some regulatory requirements under the Dodd-Frank Act and to further reduce reporting and registration requirements under the JOBS Act. H.R. 1408 would require the Federal banking agencies to conduct a study of the appropriate capital requirements for mortgage servicing assets for nonsystemic banking institutions. H.R. 1334 would increase the shareholder threshold for Exchange Act registration for savings and loan companies to be the same as is currently the case for bank holding companies: 2,000 shareholders and $10 million in assets, with deregistration allowed at and below 1,200 shareholders. H.R. 2064 would amend the Securities Act to permit emerging growth companies (EGCs) to submit plans for a pre-IPO road show to the SEC 15 days before the road show instead of the current 21 days, and to add a grace period for issuers that cease to be EGCs after submission of a confidential registration statement permitting them to complete their IPOs as EGCs. H.R. 1723 would direct the SEC to revise Form S-1 to permit a smaller reporting company (as defined in SEC Rule 405) to incorporate by reference in a registration statement filed on that form any documents that the company files with the SEC after the effective date of the registration statement. H.R. 432 would make it clear that an adviser to both SBICs and venture capital funds would not be required to register as an investment adviser, and preempt state registration of advisers to SBICs that are exempt from federal registration. H.R. 1847 would amend the Exchange Act and Commodity Exchange Act to repeal the indemnification requirements for regulatory authorities to obtain access to swap data required to be provided by swaps entities under those Acts. This amendment was reportedly required to enable data sharing with foreign regulators in jurisdictions in which the concept of indemnification does not exist or the regulator is otherwise unable to provide it. The bills now move to the Senate. Given the unanimous votes, it appears likely that the bills will pass in the Senate and be signed into law by the President.

Short Take: Chair White on Chief Compliance Officers. Last week we reported on statements by SEC Commissioners Gallagher and Aguilar on the impact of SEC enforcement actions on chief compliance officers (CCOs) and the need to support the work of CCOs. Chair White also addressed the issue in brief remarks at the Compliance Outreach Program for Broker-Dealers sponsored by the SEC on July 14. In describing the guidance the SEC provides to broker-dealers about compliance and the examination process, Chair White said: “To be clear, it is not our intention to use our enforcement program to target compliance professionals,” for whom, she said, the SEC has “tremendous respect.” She added that being a CCO “does not provide immunity from liability, but neither should our enforcement actions be seen by conscientious and diligent compliance professionals as a threat.” The SEC, she said, does not “bring cases based on second guessing compliance officers’ good faith judgments, but rather when their actions or inactions cross a clear line [and] deserve sanction.”

Regulatory Developments

CFPB Outlines Guiding Principles for Faster Payment Networks

On July 9, the CFPB released an outline of its guiding Consumer Protection Principles (Principles) for protecting consumers as the private sector develops faster payment systems. The CFPB is advocating for the development of faster and safer consumer payment capabilities in both new and existing payment systems. The Principles outlined include: (1) consumer control over payments; (2) data and privacy protection and transparency; (3) fraud and error resolution protections; (4) transparency of information about transaction status and costs, risks, funds availability and security of payments; (5) affordability and transparency of costs associated with using various systems; (6) broad accessibility to consumers; (7) faster clearing and settlements to decrease risk of overdraft and declined transactions; (8) strong built-in protections to safeguard against and respond to data breaches, and limiting value of payment credentials to reduce worth to fraudsters; and (9) strong accountability mechanisms that effectively curtail system misuse.

CFTC Proposed Rule on Cross-Border Margin Published in Federal Register

In the July 1 issue we reported that the CFTC had voted to propose a rule that would apply the CFTC’s margin requirements for uncleared swaps in the context of cross-border transactions. That proposal was published in the Federal Register yesterday. Comments are due on September 14, 2015.

SEC Provides No-Action Relief For Funds of Funds to Invest in Assets Other than Securities Defined in the 1940 Act

In a June 29 No-Action Letter, the staff of the SEC provided assurance to Northern Lights Fund Trust (the “Trust”) that it would not recommend enforcement action under Sections 12(d)(1)(A) and (B) if a fund-of-funds that is a series of the Trust (the “Fund-of-Funds”) operates in a manner that complies with all of the provisions of Section 12(d)(1)(G) of the 1940 Act and in accordance with all of the provisions of Rule 12d1-2 under the 1940 Act, except for Rule 12d1-2(a)(2) to the extent that it restricts the Fund-of-Funds from investing in assets that might not be securities under the 1940 Act. Prior to the issuance of the no-action relief, such a fund-of-funds was limited to pursing its investment objectives through investments in securities as defined in Section 2(a)(36) under the 1940 Act (“Securities”). Under this no-action letter, in addition to Securities, funds-of-funds will be permitted to invest in assets, such as real estate, futures contracts and other financial instruments, that might not qualify as securities under the 1940 Act. In providing the no-action assurances, the staff of the SEC noted that in 2008 it had proposed amendments to Rule 12d1-2 which, if adopted, would permit the relief provided in the no-action letter and that the SEC has issued exemptive relief to other fund complexes of the kind that would have been provided by the proposed amendments to Rule 12d1-2.

FINRA Proposes to Establish New Securities Trader and Securities Trader Principal Categories

On July 8 the SEC published Release No. 34-75394, notice of filing by FINRA of a proposed rule change to establish the Securities Trader and Securities Trader Principal registration categories. The change would replace the Equity Trader registration category and Series 55 qualification examination with the Securities Trader registration category and a new Series 57 qualification examination and amend NASD Rule 1022(a) (General Securities Principal) to add the Securities Trader Principal registration category. This is being done in part to coordinate with the registration categories and qualification examinations of the national securities exchanges, such as NYSE and CBOE. The national securities exchanges use a Proprietary Trader qualification examination (Series 56), and FINRA states in its release that it expects the national securities exchanges to submit rule changes to replace the Series 56 examination with the Series 57. Comments on the FINRA rule proposal are due 21 days after publication in the Federal Register.

FINRA Requests Comment on Proposed Rule to Require Member Websites to Link to Broker Check

As noted in the July 1 issue, FINRA has proposed a change to FINRA Rule 2210 that would require each of a member’s websites to include a readily apparent reference and hyperlink to BrokerCheck. The proposed rule was published in the Federal Register on July 13, and comments are due on or before August 3.

Enforcement & Litigation

Webinar - Tibble v. Edison: Implications of the Supreme Court's First ERISA Fee Decision

On July 23 from noon to 1 p.m. EDT, Goodwin Procter partners Jamie Fleckner and Scott Webster will host a complimentary webinar discussion on the Ninth Circuit's Tibble v. Edison, Int'l decision, highlighted in our quarterly newsletter, ERISA Litigation Update. They will analyze the implications of that ruling for ERISA litigation and fiduciary decision-making. To register for the webinar please click here.