Weekly RoundUp
April 25, 2018

Financial Services Weekly News

Appointments Clause Revisited. As we noted in a previous edition of the Roundup, Raymond Lucia was fined and barred from the industry by the Securities and Exchange Commission (SEC) for material misrepresentations to clients regarding, among other things, his investment strategy used to manage his clients’ money. Lucia had argued that the presiding administrative law judge (ALJ) was not appointed “by the President, head of a department or court of law” and was consequently in violation of the Appointments Clause, U.S. Const. Art. II, § 2, cl. 2. On April 23, the U.S. Supreme Court (SCOTUS) heard oral arguments in Lucia v. SEC, in which SCOTUS considered whether ALJs are “inferior officers” subject to the Appointments Clause. All eyes are on SCOTUS to see how they will rule in determining the constitutionality of the authority wielded by ALJs. Also this week, the SEC voted on standard of conduct proposals for broker-dealers and investment advisers; the Senate voted to overturn the Consumer Financial Protection Bureau’s (CFPB) indirect auto lending guidance; and the CFPB and the Office of the Comptroller of the Currency (OCC) settled with a national bank for $1 billion over its auto and mortgage lending practices. Recent developments are covered below.

Regulatory Developments

SEC Issues Standard of Conduct Proposals

On April 18, the SEC voted to propose a three-part regulatory package that includes: 1) a new regulation best interest that would prohibit broker-dealers from putting the financial or other interest of the broker-dealer ahead of the retail customer; 2) a new Form CRS which would require both investment advisers and broker-dealers to provide disclosure highlighting details about their services and fee structures; and 3) proposed interpretive guidance that would establish a federal fiduciary standard for investment advisers.

Client Alert: Recent Series of Regulatory Developments Regarding Implementation of the SEC’s Liquidity Rule and Related Requirements

The SEC and its staff recently have taken a series of regulatory actions regarding the implementation of the new liquidity rule, including (1) a proposal to amend certain reporting and disclosure requirements relating to the liquidity rule, (2) adoption of an interim final rule delaying by six months the compliance dates for certain elements of the liquidity rule, and (3) issuing responses to frequently asked questions which provide guidance on various interpretive and implementation issues under the liquidity rule. This alert summarizes the critical elements of the recent series of regulatory actions and is intended to serve as a reference for those who wish to review all of these various elements in a single document. For more information, read the client alert issued by Goodwin’s Investment Management practice.

Doug Scheidt to Leave SEC After 32 Years

On April 20, the SEC announced that Douglas Scheidt, an Associate Director and the Chief Counsel in the Division of Investment Management, will retire from the SEC at the end of September. Mr. Scheidt has led the Division’s Chief Counsel’s Office for over 21 years.  Chairman Jay Clayton described Mr. Scheidt as an insightful and innovative leader.

Senate Votes to Overturn CFPB Indirect Auto Lending Guidance

On April 18, by a 51-47 vote, the U.S. Senate passed a resolution of disapproval (S.J. Res. 57) under the Congressional Review Act (CRA) relating to “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” The resolution of disapproval would invalidate the CFPB’s 2013 guidance on indirect auto lending, which imposed limits on how and what indirect lenders pay car dealers who provide financing and how much discretion dealers have to set loan terms and rates. The vote was made possible by a December 5, 2017, ruling by the Government Accountability Office (GAO) that the guidance constituted a rule for CRA purposes, which restarted the 60 legislative day period during which rules are subject to review and repeal under the CRA. The resolution of disapproval will now move to the House of Representatives for its consideration.

Enforcement & Litigation

CFPB and OCC Settle With National Bank for $1 Billion Over Auto and Mortgage Lending Practices

On April 20, the CFPB and the OCC each announced settlements totaling $1 billion with a national bank resulting from a coordinated action between the two agencies. The OCC found that deficiencies in the bank’s enterprise-wide compliance risk management program constituted reckless, unsafe, or unsound practices in violation of Section 5 of the Federal Trade Commission (FTC) Act. View the Enforcement Watch blog post.

Massachusetts Case Against Equifax Survives Motion to Dismiss

On April 2, the Superior Court of Suffolk County, Massachusetts denied Equifax, Inc.’s motion to dismiss the Commonwealth’s case against it related to the company’s widely publicized 2017 data breach. Although the ruling does not determine who will ultimately prevail in the action, it outlines several key considerations for any company that stores consumer data. View the LenderLaw Watch blog post.

Goodwin News

NRS Spring 2018 Compliance Conference – April 26

Join NRS at its Spring 2018 Conference – Compliance Agility: Risk, Resources & Technology, where industry experts will address how investment adviser and broker-dealer firms can successfully navigate the disruptive currents of regulatory change and adapt agile procedures to compliance programs.

ABA’s 2018 Digital Currency and Blockchain National Institute – April 27

Hosted by the American Bar Association, this special program is dedicated to an in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like bitcoin, and blockchain technology. Grant Fondo, partner and chair of Goodwin’s Digital Currency & Blockchain Technology practice, will be a featured speaker.

Our Aging Brains: Decision-Making, Fraud and Undue Influence – April 27

With over 70 million baby boomers retiring, elder financial exploitation has been labeled the “Crime of the 21st Century.” In this half-day event, we will explore the neuroscience, psychology, and legal doctrine of financial decision-making in older adults. How does the aging brain make financial decisions, and when is it uniquely susceptible? How can courts best use science to improve their adjudication of disputes over “competency,” “capacity,” and “undue influence”? Is novel neuroimaging evidence of dementia ready for courtroom use? This conference will bring together experts in medicine, science, and law to explore these important questions and chart a path forward for dementia and the law.

Consero 2018 Financial Services & Insurance Information Forum – April 29-May 1

Consero’s 2018 Financial Services & Insurance Litigation Forum will address current and looming legal and business challenges faced by today’s chief litigation officers, providing a one-of-a-kind opportunity to share best practices and strategies that will help lead their departments and companies in the right direction. Goodwin is a sponsor. For more information, please visit the event website.

Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference – April 29-May 2

MBA’s Legal Issues and Regulatory Compliance Conference gathers industry leaders to consider best practices, organizational changes needed to assimilate to final rules and knowledge to educate staff. Goodwin is a sponsor.

ACI’s Fintech Regulatory & Compliance Payments Conference – May 1-2

Join American Conference Institute for the Inaugural Fintech Regulatory & Compliance Payments Conference. This conference will bring together an unparalleled faculty of in-house counsel and compliance professionals, senior executives from industry-leading companies, high-level regulatory and enforcement officials, and top outside counsel specializing in payment systems and Fintech who will provide you with the key insights, proven strategies, and best practices necessary to navigate the legal, compliance, and technical hurdles arising from this brave new world. For more information, please visit the event website.

The Securities Law Questions Raised by #MeToo – May 2

Due in significant part to the recent #MeToo movement, a wave of workplace sexual harassment allegations has flooded the corporate arena along with increased publicity, which has forced companies to contemplate their public responses. Despite a dearth of guidance as to whether and when a public company should disclose details concerning a sexual harassment investigation of one of its executives, companies are not impervious to litigation for failing to disclose such information or for breach of fiduciary duty in connection with tolerating sexual harassment. Join Goodwin’s Deborah Birnbach, Paul Delligatti and Jennifer Fay as they evaluate sexual harassment investigations through the lens of federal securities laws and state fiduciary duty law. For more information on this webinar, visit the event website.

Massachusetts Bankers Association Annual Convention – May 3-6

The Annual Convention of the Massachusetts Bankers Association serves as a major activity of the association for banker/director education, as well as grassroots networking among member institutions and associate members. The program will include nationally recognized authorities addressing vital issues affecting the financial services industry in Massachusetts, New England and at the national level. Meeting sessions will cover topics relevant to managing a successful bank as well as understanding the local/global economy. Goodwin is a sponsor of this year’s program and will host a cocktail reception in conjunction with the conference on Thursday, May 3, at 5:00 pm ET. For more information on the reception and to register, please click here.

Consensus 2018 – May 14-16

At Consensus, CoinDesk’s 4th annual blockchain technology summit, professionals from leading industry startups, investment firms, financial services giants, global brands, academic institutions and policy groups will return to New York to discuss the evolving real-world applications of blockchain technology. The 2018 summit will feature three days of demos, networking and expert discussions regarding the most important commercial developments, technical innovations, and public policy issues; 250+ speakers; and 4,000+ attendees who are building the foundations of the blockchain and digital currency ecosystem. Goodwin is a Block Sponsor of the event. For more information, please visit the event website.

Pennsylvania Bankers Association Annual Convention – May 16-19

Goodwin will serve as a sponsor at the 2018 Pennsylvania Bankers Association Annual Convention. Samantha Kirby and Matthew Dyckman will speak on the “Mission Critical: The importance of Board Composition & Succession to the Future of the Enterprise” session. For more information, please visit the event website.

This week’s Roundup contributors: Will Lane.