Weekly RoundUp
March 16, 2016

Financial Services Weekly News

Cordray Defends the CFPB. In a speech delivered at the annual convention of the Consumer Bankers Association, Consumer Financial Protection Bureau (CFPB) director Richard Cordray defended, and in some cases promoted, the CFPB’s record in several key areas. Director Cordray defended the CFPB’s practice of regulating through enforcement orders by stating that “it would be ‘compliance malpractice’ for executives not to take careful bearings from the contents of [enforcement] orders about how to comply with the law and treat consumers fairly.” The director attributed the “positive change” in the credit card market to “improved regulation, improved industry practices, and more cautious consumer behavior,” and credited mortgage reform for the “strengthened” mortgage market. Dismissing “undue fears people had about legal liability under the Qualified Mortgage rule, or market paralysis due to streamlining the mortgage disclosure forms,” he simultaneously stated that mortgage credit was “too tight.” Director Cordray conspicuously avoided any discussion of a possible link between the costs and burdens of these additional regulations and what he characterized as “tight” mortgage and consumer credit.

Regulatory Developments

FDIC Adopts Final Rule to Increase Deposit Insurance Fund to Statutorily Required Level

On March 15, the Federal Deposit Insurance Corporation (FDIC) approved a final rule to increase the Deposit Insurance Fund to the statutorily required minimum level of 1.35%. The final rule largely adopts the proposed rule, which was published for comment in the Federal Register in November, with minor changes. "The FDIC is taking a balanced approach that maintains stable and predictable deposit insurance assessments," FDIC Chairman Martin J. Gruenberg said. "At the same time assessment rates will decline for all banks, larger institutions will pay a surcharge over a period of time. With these surcharges, the Deposit Insurance Fund is expected to reach the statutory minimum level ahead of the statutory deadline of 2020, reducing the risk that the FDIC will have to raise rates unexpectedly in the event of stress in the financial sector."

SEC Publishes Guidance for Funds’ Disclosures Regarding Market Risk Conditions

On March 10, the SEC published an IM Guidance Update addressing the importance of funds providing investors with adequate information regarding changing market conditions in registration statements and other public disclosures. Noting first the SEC’s longstanding emphasis on the general importance of preventing risk disclosures from growing stale, the Guidance proceeds to specifically suggest a series of steps that funds should take to ensure that their market risk disclosures remain sufficiently informative, including: (1) monitoring market conditions that specifically impact a fund and reassessing in light of the new information; (2) determining whether these changed market conditions are material information for investors; and (3) promptly updating shareholders regarding relevant, material risks, either by communicating these risks through prospectuses and shareholder reports or through less formal (but more immediate) means, such as website disclosures and letters to shareholders. The Guidance also suggests that several recent events (including FOMC developments and the Puerto Rican debt crisis) should prompt funds to consider whether certain of their specific risk disclosures are still materially accurate – pointing specifically to interest rate risk, liquidity risk, duration risk, and Puerto Rican debt risk.

FINRA Reports on Assessment of Membership Application Rules and Processes

On March 11, FINRA announced that it had issued a report on its assessment of the new and continuing membership application rules and processes. The assessment process was initiated by FINRA Regulatory Notice 15-10, issued in March 2015, requesting comments on the membership process, and involved discussions with selected member firms and a survey of all member firms that included questions about the firms and their views on the efficiency and effectiveness of the membership process. FINRA concluded that the “rules governing its Membership Application Program (MAP) have been effective in meeting their investor-protection objectives, and there are opportunities to make the rules and related processes more efficient.” The report states that the assessment phase will be followed by an action phase, in which FINRA will consider specific rule proposals or other initiatives resulting from its assessment.

OCC Proposes to Remove “Outdated or Unnecessary” Provisions of Certain Rules

On March 14, the Office of the Comptroller of the Currency (the OCC) proposed to remove "outdated or unnecessary" provisions of certain rules to reduce regulatory burden on national banks and federal savings associations. Specifically, the OCC proposed to:

  • remove notice and approval requirements for certain changes in permanent capital involving national banks;
  • simplify certain licensing rules for business combinations involving federal mutual savings associations;
  • clarify national bank director oath requirements;
  • remove unnecessary burden with respect to federal savings associations’ fidelity bond activities;
  • revise certain fiduciary activity requirements for national banks and federal savings associations, including increasing the asset size limit for minifunds;
  • remove certain financial disclosure requirements for national banks;
  • remove certain unnecessary regulatory reporting, accounting, and management policy requirements for federal savings associations;
  • remove unnecessary requirements in the electronic activities rule for federal savings associations;
  • integrate and update OCC rules for national banks and federal savings associations relating to municipal securities dealers, Securities Exchange Act disclosures, securities offering disclosures, and insider and affiliate transactions;
  • permit the electronic submission of filings required under the Securities Act of 1933 and the Securities Exchange Act of 1934; and
  • update recordkeeping and confirmation requirements for national banks’ and federal savings associations’ securities transactions.

The proposal is part of the OCC's decennial review of its rules required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). While federal financial regulatory agencies are conducting the EGRPRA review jointly, the OCC chose to move forward with these proposals on its own now rather than delaying proposed changes until the completion of the EGRPRA review at the end of the year. Comments must be received by May 13, 2016.

FINRA’s 2016 Regulatory and Examination Priorities Letter – Part 1

On March 9, FINRA released the first podcast in a three-part series about FINRA’s 2016 Regulatory and Examination Priorities Letter. The examination priorities letter was discussed in the January 13, 2016, edition of the Roundup.

CFPB Director Cordray Speaks to Consumer Bankers Association

On March 9, CFPB Director Richard Cordray gave a speech to the Consumer Bankers Association in which he, among other things, defended the CFPB’s policy of regulation through enforcement; asserted that more effective regulation has created a safer, more affordable credit card market; contended that reforms in the mortgage market have improved lending practices and leveled the playing field among industry participants; and previewed the CFPB’s 2016 agenda in areas such as prepaid accounts, small dollar loans, the use of arbitration clauses in consumer financial contracts, overdraft fees, debt collection practices, addressing discrimination in auto lending practices, and checking account access.

Enforcement & Litigation

FINRA Fines Raymond James for Privacy Violation

On March 8, FINRA fined Raymond James $500,000 for violations of consumer privacy. According to FINRA, the company violated Regulation S-P by asking newly recruited broker-dealers to provide customer information without ensuring that the broker-dealers had adequate permission to share that information. In addition to the fine, the company agreed to review its internal controls for compliance with Regulation S-P.

Goodwin Procter News

Partner Paul Delligatti Nominated for Mutual Fund Industry Rising Star Award

Goodwin Procter is proud to announce that partner Paul Delligatti has been nominated by the editors of Institutional Investor’s Fund Action and Fund Directions as a Rising Star of Mutual Funds, an annual award honoring up-and-comers whose accomplishments in, and contributions to the industry make them stand out among their peers and position them as future leaders. The winners will be announced on April 26, 2016, at the 23rd Annual Mutual Fund Industry Awards dinner and ceremony taking place at the Cipriani 42nd Street in NYC.

Partner Dan Glosband Featured on ABI Spring Meeting Panel

Dan Glosband was invited to speak at ABI’s 34th Annual Spring Meeting, April 14-17 in DC, on the topic of “Baha Mar’s Dismissal, and Everything Else New and Exciting in Cross Border and Chapter 15 Cases,” which touches on cutting edge chapter 15 and other cross-border cases.