Weekly RoundUp
February 24, 2016

Financial Services Weekly News

What Lies Ahead at the SEC. At the 45th annual SEC Speaks conference last week, Chair Mary Jo White addressed the attendees to discuss the state of the SEC, highlighting the SEC’s accomplishments during the past year, and forecasting its agenda for the coming year. Emphasizing the need to go “beyond disclosure,” Chair White noted the agency’s “big picture” tripartite mission of protecting investors; maintaining fair, orderly and efficient markets; and facilitating capital formation. With an increased budget to carry out its mission, Chair White noted areas of the SEC’s focus, among them: finalizing security-based swap rules, as required by the Dodd-Frank Act; continuing its rulemaking to further initiatives centered on the asset management industry, the structure of equity markets and the SEC’s disclosure regime; enhancing filings through expanded use of structured data; enforcement initiatives pertaining to complex financial instruments; promoting a uniform fiduciary duty for investment advisers and broker-dealers; and advancing a workable program for third-party reviews to enhance the compliance of registered investment advisers.

Although down two members, the Commission retains a quorum of three to advance the SEC’s agenda. It remains to be seen whether President Obama will appoint, and the Senate will consent to, two commissioners for a full panel before his presidency ends. Left to carry out the SEC’s agenda through examinations and inspections is new leadership at the agency’s Office of Compliance Inspections and Examinations (OCIE) having not long ago named Marc Wyatt as the Director of OCIE and leader of its National Exam Program, Jane Jarcho as Deputy Director of the National Exam Program and, just this past week, Daniel Kahl as Chief Counsel of the National Exam Program. We discussed OCIE’s exam priorities in our January 13 Roundup. It looks to be a very busy year for the SEC.

Regulatory Developments

CFPB Announces No-Action Policy for Innovative Consumer Products

On Feb. 18, the CFPB issued a final policy statement that permits some companies with innovative consumer products to seek No-Action Letters (NALs). Any company that wants to offer a financial product that promises “substantial consumer benefit,” but also has “substantial uncertainty” regarding the product’s legal status, may seek a NAL from the CFPB. The request should identify relevant facts and specific regulatory issues related to the product offering. The CFPB would review the request and, if granted, would produce a NAL stating the CFPB has no present intention to recommend enforcement or supervisory action regarding the specific product features and specific statutes or regulations at issue. The NAL would not waive any law or regulation, would not give the company an exemption from complying with any statutory or regulatory rules, and would not bind courts or the CFPB. The CFPB’s aim is that NALs will encourage companies to create novel consumer-friendly products even when regulatory uncertainty poses a potential barrier to offering those products.

FDIC and SEC Propose Rules for Liquidation of Covered Broker-Dealers Under Title II of Dodd-Frank Act

On Feb. 17, the FDIC and the SEC, in accordance with section 205(h) of the Dodd-Frank Act, jointly proposed a rule to implement provisions applicable to the orderly liquidation of covered brokers and dealers under Title II of the Dodd-Frank Act (Title II). According to the release, the rulemaking clarifies, for purposes of section 205(h): how the customer protections of SIPA will be integrated with the other provisions of Title II; the roles of the FDIC as receiver and SIPC as trustee for a covered broker-dealer; and the administration of claims in an orderly liquidation of a covered broker-dealer. Comments are due 60 days after publication in the Federal Register.

FINRA Commences Targeted Sweep of Firms’ “Cultural Values”

As noted in a recent Goodwin Procter client alert, FINRA strongly emphasized in its 2016 Regulatory and Examination Priorities Letter that assessing and ensuring adherence to “firm culture” among the organization’s members would be one of the agency’s top priorities in the upcoming year. FINRA has wasted no time backing up that promise; the agency has started sending targeted letters to certain broker-dealers which request, among other things, that those firms receiving the letters summarize (1) the key policies and procedures by which their firms establish cultural values, (2) how the firms measure the impact of these cultural values on the efficacy of their businesses, and (3) what processes the targeted firms use to identify and address breaches of firm cultural values. For firms mulling over how exactly to define their “cultural values,” the agency suggests that “one definition” could be “the set of explicit and implicit norms, practices and expected behaviors that influence how employees make and carry out decisions in the course of conducting the firm’s business.” While noting that firms are free to adopt alternate definitions of “firm culture” in responding to the agency’s examinations, firms must act fast in doing so, as firms receiving the targeted letters must reply to FINRA by March 21, 2016.

MSRB Requests Comment on Draft Guidance on Fair Pricing of Municipal Securities and Dealer Compensation

On Feb. 18, the MSRB issued a Regulatory Notice seeking comment on Draft Amendments to MSRB Rule G-30 (the Draft Guidance). The Draft Guidance is designed to more closely align the ways that the MSRB determines the “prevailing market price” of municipal securities with the way that FINRA determines the “prevailing market price” for other fixed-income securities, while allowing necessary adjustments to be made for inherent differences between these securities. The Draft Guidance would also amend existing regulation to require dealers to exercise “reasonable” diligence when assessing the reasonableness of transaction compensation, while newly requiring dealer compensation on a principal transaction with a customer to be computed in terms of the “prevailing market price” at the time of the transaction (as opposed to the current “inter-dealer market price”). Finally, the Draft Guidance would expand the text of Rule G-30 to add a significant mark-up policy. Comments on the Draft Guidance are due no later than March 31, 2016.

Federal Banking Agencies Request Comment on Expansion of 18-Month Exam Cycles

As reported in our Jan. 27 Roundup, the FDIC, OCC, and Federal Reserve Board (the Agencies) voted to approve a joint interim final rule that increases the number of small banks and savings associations eligible for an 18-month examination cycle rather than a 12-month cycle. Comments will be accepted for 60 days from publication in the Federal Register.

Goodwin Procter Releases “Consumer Finance Year In Review”

In 2015, the consumer financial services industry continued to face increasing pressure from regulators and enforcement agencies as well as ever-more creative litigation tactics from private litigants. Looking forward to 2016, financial services companies need not only to remain abreast of case law developments, regulatory guidance and rulemaking, and shifting legislative and enforcement priorities, but also to anticipate them. To help our clients stay competitive in this evolving legal landscape, we are proud to present our Consumer Finance Year In Review, which synthesizes our prior coverage of 2015’s most significant developments and actions from both our LenderLaw Watch and Consumer Finance Enforcement Watch blogs (subscribe below), and use our detailed industry and regulatory knowledge to offer our predictions on what the industry should expect during 2016 in several key spaces, including the mortgage, credit card, student, auto, debt collection, and payday areas. This review includes detail on litigation tactics and trends, federal and state enforcement activity, noteworthy appellate matters, and covers hot topics for online lenders and other Fintech companies.