Weekly RoundUp
December 9, 2015

Financial Services Weekly News

Congress Attaches Financial Services Legislation to Transportation Act. On Nov. 3 both houses of Congress passed the “Fixing America’s Surface Transportation Act” or “FAST Act,” and the president signed the Act into law on Nov. 4. Division G of the Act (sections 71001-89003, excerpt available here) contains amendments to a variety of laws affecting securities transactions, community banks, SBIC advisers and privacy notices, as well as other unrelated laws. One significant securities law amendment is contained in section 76001, which provides a new exemption, in section 4(a)(7) of the Securities Act of 1933 (Securities Act) and related section 4(d), for sales of unregistered securities in secondary transactions to accredited investors (discussed in this client alert at the time of its original passage in the House). The FAST Act will also ● amend section 6(e)(1) of the Securities Act to shorten the period for public filing before an initial public offering by an emerging growth company from 21 days to 15 days, and provide a grace period for emerging growth companies that cease to be emerging growth companies after filing a confidential or publicly filed registration statement but before commencing the initial public offering, permitting them to be treated as emerging growth companies until the public offering or the passage of one year after the change in status; ● require the SEC to revise its instructions to Forms S-1 and F-1 within 30 days to permit an issuer to omit historical financial information otherwise required by Regulation S-X in certain cases; ● require the SEC to revise Form S-1 within 45 days to permit smaller reporting companies to incorporate certain information by reference; ● require the SEC to adopt amendments within 180 days to modernize and simplify Form 10-K and Regulation S-K; ● require the SEC to carry out a study of the requirements of Regulation S-K to determine, among other things, how to modernize and simplify the requirements, issue a report to Congress of the conclusions of its study not later than  360 days after enactment of the Act and issue a proposed rule to implement the recommendations of the report not later than 360 days after delivering the report to Congress. On the banking side the FAST Act will: ● provide an exception to the annual Gramm-Leach-Bliley Act privacy notice requirement (a financial institution is not required to send an annual privacy notice if the institution only discloses nonpublic personal information in accordance with certain exceptions from the Gramm-Leach-Bliley Act that do not require an opt-out to be provided and if the institution has not changed its policies and practices since the most recent privacy disclosure provided to consumers); ● authorize certain privately insured credit unions to become members of a Federal Home Loan Bank; ● raise from $500 million to $1 billion the total asset threshold below which a “well capitalized” and “well managed” depository institution may qualify for an extended 18-month examination cycle; ● grandfather nonqualifying capital instruments issued by institutions with total consolidated assets of less than $15 billion as of March 31, 2010 from being phased out of regulatory capital as would otherwise have been required by Section 171 of the Dodd-Frank Act (the Collins amendment); ● permit the Nationwide Multistate Licensing System and Registry to process background checks for financial services providers other than mortgage-license applicants; and ● create a process to petition the Consumer Financial Protection Bureau to designate an area as “rural” for purposes of the ability to repay rule.

Regulatory Developments

FINRA Proposes to Adopt Capital Acquisition Broker Rules

On Dec. 4 FINRA filed with the SEC a proposal to create a separate rule set that would apply to firms that meet the definition of “capital acquisition broker” and elect to be governed under that rule set. A capital acquisition broker would be one that, among other things, advises on securities offerings or other capital raising activities and acts as placement agent in private offerings, advises companies on the purchase and sale of a business or assets or regarding its corporate restructuring, divestiture or merger, advises on the selection of investment bankers, provides fairness opinions and effects merger and acquisition transactions. New capital acquisition brokers would be required to file a new member application like other member firms, but would be subject to a reduced set of FINRA rules. Existing member firms that agree to limit their activities would be able to convert to capital acquisition broker status without undergoing a lengthy continuing membership application process.

European Commission Proposes Reforms to Prospectus Regime

The European Commission has announced proposals to introduce significant reform of the EU prospectus regime that applies to companies issuing shares or debt securities to EU purchasers. The key proposals call for: ● increasing the threshold for smaller fundraisings not requiring a prospectus from €100,000 to €500,000, although Member States will be able to set higher thresholds for their domestic markets, up to a maximum of €10 million (from €5 million currently); ● creating a lighter prospectus regime for smaller companies with market capitalization of less than €200 million; ● encouraging shorter prospectuses with better information for investors; ● providing a new simplified prospectus for secondary issues; ● creating a fast track and simplified frequent issuer regime, including five day fast-track approval for each new security issue by companies that want to list shares or issue debt and that regularly maintain an annually updated "Universal Registration Document" (URD), containing required information on the company; and ● establishing The European Securities and Markets Authority as a single access point for all EU prospectuses, providing searchable online access to all prospectuses approved in the European Economic Area. The proposals will now go before the European Parliament and the EU Council. It is reasonably likely that the EU will look to implement the proposals soon.

FDIC Issues Revised Compliance Examination Manual

The FDIC has issued a revised Compliance Examination Manual to reflect recent supervisory guidance. The revised manual includes new guidance concerning Matters Requiring Board Attention, guidance on evaluating consumer harm, including a new “Assessment of Risk of Consumer Harm,” and other matters relevant to examinations of FDIC supervised institutions.

Federal Reserve Board Adopts Final Rule Addressing Capital Instruments of Nontraditional Holding Companies

The Federal Reserve Board (FRB) has adopted a final rule that provides guidance on how capital instruments issued by depository institution holding companies that are not organized as stock corporations (such as partnerships and limited liability companies) may qualify as common equity tier 1 capital under the FRB’s capital adequacy rules. It also provides an exemption from the FRB’s capital adequacy rules for estate trusts that are savings and loan holding companies (SLHCs) and Employee Stock Ownership Plans (ESOPs) that are holding companies. In the adopting release that accompanied the final rule the FRB stated that it intends to develop alternative capital standards for SLHCs that are estate trusts and will measure compliance with its capital rules by ESOPs by evaluating the capital adequacy of the sponsoring banking organizations. To permit nontraditional holding companies to evaluate and conform their capital structure to regulatory requirements, the rule permits holding companies other than stock corporations to treat certain nonqualifying equity interests as common equity tier 1 capital until July 1, 2016.

Enforcement & Litigation

CFPB Orders Subprime Credit Reporting Company and Owner to Pay $8 Million Penalty

The CFPB fined subprime credit reporting agency Clarity Services $8 million for alleged violations of the Fair Credit Reporting Act and the Consumer Financial Protection Act. In addition to the fine, the Dec. 3 consent order requires Clarity Services to halt the practices identified in the order – including obtaining credit reports without a permissible purpose and failure to investigate consumer disputes – and to implement policies and procedures to ensure future compliance.

Goodwin Procter News

Client Alert: Top 6 Themes from Goodwin Procter’s 4th Annual Banking Symposium

Goodwin Procter’s Banking practice issued a client alert detailing the top 6 themes discussed at the 4th Annual Banking Symposium, hosted by Goodwin Procter LLP on Nov. 19, 2015. At the Symposium, leaders from more than 20 banking institutions, along with an expert group of panelists and moderators, recently gathered to share how community banks can best take advantage of opportunities presented by technological and generational change. The symposium explored how to expand customer relationships, enhance competiveness and increase profitability through innovation, partnerships and community engagement.