On Oct. 15 FINRA published Regulatory Notice 15-37, requesting comment on proposed amendments to FINRA Rule 4512 (Customer Account Information) and the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults). The focus of the rules is on providing member firms with means to respond to situations in which they believe that financial exploitation of seniors and other vulnerable adults by other persons is occurring or may occur. Comments on the proposals are due by Nov. 30.
Goodwin Procter issued a client alert regarding the CFPB’s issuance of a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The new HMDA rule changes (1) the type of institutions that must collect, report, and disclose information about their mortgage lending activity, (2) what transactions are subject to the HMDA rule, (3) what information must be collected, recorded, and reported, and (4) the process for reporting and disclosing data. Because most of the substantive provisions of the final rule do not take effect until 2018, financial institutions have some (but not much) time to adjust their collection and reporting systems to comply with the new rule.
Goodwin Procter’s Private Investment Funds practice issued a client alert, written by partner David Watson, regarding the Commerce Department’s release of a new BE-180 Survey of Financial Services Transactions and related guidance. U.S. financial services providers – including most private fund managers – may be required to complete a survey of their cross-border financial services transactions as early as Nov. 1, 2015. The BE-180 benchmark survey collects detailed information about U.S. financial services providers' sales to, and purchases from, foreign persons of financial services transactions for the 2014 fiscal year.
Enforcement & Litigation
On Oct. 14 the SEC announced that it had settled enforcement actions with six firms based on alleged violations of Rule 105 of Regulation M, which prohibits persons from purchasing shares in public stock offerings after selling short the same stocks. Four of the firms, Harvest Capital Strategies LLC, J.P. Morgan Investment Management Inc., Omega Advisors, Inc. and Sabby Management LLC, are investment advisers registered with the SEC. Auriga Global Investors, Sociedad de Valores, S.A., is a foreign firm registered in Spain and War Chest Capital Partners LLC is an unregistered investment adviser. The firms were fined a total of more than $2.5 million, and War Chest Capital Partners, which had previously been sanctioned for Rule 105 violations, was also barred from participating in public stock offerings for one year. The SEC noted that the Division of Enforcement had taken a zero tolerance approach to Rule 105 violations, in what it called its Rule 105 Initiative, bringing enforcement actions on every violation over a de minimis amount that had come to its attention. As a result, the SEC stated, Rule 105 violations detected by the Division in the years after the commencement of the Initiative had decreased by approximately 90% over violations in the period prior to the Initiative.
On Oct. 13, FINRA announced enforcement action against Santander Securities LLC (Firm), which was settled with a Letter of Acceptance, Waiver and Consent (AWC). According to the AWC, FINRA found that from Dec. 2012 through Oct. 2013, the Firm used an inaccurate risk-calculation tool to assess the suitability of Puerto Rican municipal bonds. The Firm’s procedures did not require a review of the tool, which the Firm’s representatives used when recommending products to customers. FINRA also found that the Firm had failed to reasonably supervise employee trading in its Puerto Rico office for purposes of mitigating potential conflicts of interest. Because the Firm did not have adequate systems in place, it failed to detect approximately 400 customer orders that were filled from the proprietary holdings of the customers’ individual brokers. The Firm, which did not admit or deny the findings, consented to their entry and agreed to pay approximately $6.4 million in restitution and fines.
Goodwin Procter News
Laura Hodges Taylor, partner in the firm’s Financial Institutions Group, was honored by the Boston Business Journal on Oct. 20 as a 2015 Leader in Diversity in the Corporate Leadership Category. The Leaders in Diversity Awards is an annual program that honors companies and businesspeople for their leadership in promoting inclusiveness and economic opportunity.