Weekly RoundUp
August 1, 2018

Financial Services Weekly News

OCC to Accept Fintech Charters; Treasury Endorses “Regulatory Sandbox” to Encourage Financial Innovation.  The Office of the Comptroller of the Currency (OCC) announced on July 31 that it would begin accepting applications for special purpose national bank charters (Fintech Charter) from Fintech companies engaged in the business of banking. The agency released a Policy Statement and a Supplement to its Licensing Manual addressing how it would consider applications from Fintech companies seeking to operate through a Fintech Charter. The Licensing Manual Supplement is very similar to the draft Licensing Manual Supplement that the OCC released for comment in March 2017 and which Goodwin addressed in a client alert.

In a separate but related development, the U.S. Treasury Department (Treasury), on the same day as the OCC’s announcement, issued its fourth report to President Trump under Executive Order 13772, which identified certain “Core Principles” to guide regulation of the U.S. financial system and directed the Secretary of the Treasury to issue reports to the President on how existing laws, regulations, policies and other actions support the Core Principles. Additional details about the OCC’s announcement and the Treasury’s report will be included in a client alert to be published in the coming days by Goodwin’s Financial Industry and Fintech practices.

Regulatory Developments

New York Regulator Adopts Suitability and Best Interests Regulations in Life Insurance and Annuity Transactions

On July 18, the New York Department of Financial Services (NYDFS) issued new regulations (the Regulations) adopting a “best interest” standard of care for investment professionals licensed to sell life insurance and annuity products to New York state residents. Effective August 1, 2019, the Regulations provide that any transactions with respect to such products must be in the “best interest” of the consumer and appropriately address the insurance needs and financial obligations of the consumer at the time of the transaction. Under the Regulations, an insurer is deemed to act in the “best interest” of a consumer when, among other things, the recommendation to the consumer “is based on an evaluation of the relevant suitability information of the consumer and reflects the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the circumstances then prevailing.” In addition, only the interests of the consumer must be considered by the insurer in making a recommendation. The insurer’s receipt of compensation or other incentives is permitted under the new standard, provided that they do not influence the recommendation. According to a statement from the NYDFS, the Regulations are designed, in part, to fill regulatory gaps to protect New York consumers in the wake of the rollback of the Department of Labor’s “Fiduciary Rule” and related exemptions, which were officially vacated by the U.S. Court of Appeals for the Fifth Circuit in June 2018. Insurance commissioners in other states are considering potentially establishing similar “best interest” standards of care in their own states.

Federal Reserve Launches Consumer Compliance Supervision Bulletin

The Federal Reserve recently launched its new Consumer Compliance Supervision Bulletin, which aims to provide bankers, institutions and other interested readers with high-level summaries of important consumer protection issues. The new publication is an addition to other Federal Reserve publications, including the Consumer Compliance Outlook and Outlook Live. The new publication will provide helpful information for institutions on navigating consumer compliance risks, examiners’ observations on relevant topics, and developments in consumer protection. The first publication issued for July 2018 includes, among other things, discussions of fair lending practices and unfair and deceptive acts and practices regarding student financial products and services and loan officer misrepresentations. The July edition also highlights new policy and regulatory developments in the Military Lending Act and the Uniform Interagency Consumer Compliance Rating System.

OCC Updates Business Combinations Booklet

On July 31, the OCC issued a revised “Business Combinations” booklet of the Comptroller’s Licensing Manual, which makes minor technical corrections and notes one process update.  Specifically, the update clarifies that the public comment period for a filing subject to the Bank Merger Act is generally 30 days after the newspaper publication and that the newspaper notice should direct the public to the OCC’s Weekly Bulletin for additional information about the filing, including the closing date of the comment period. Notice of a combination application subject to the Bank Merger Act generally must be published three times in a newspaper of general circulation in the community or communities where the main or home offices of the banks involved in the transaction are located. In the updated booklet, the OCC reminded applicants that significant adverse comments may result in delays in processing an application, and that applicants need to consider the possibility of such delay when planning a target date for consummating a transaction or systems conversions.

Client Alert: DOJ Extends Application of FCPA Corporate Enforcement Policy to Successor Companies in Mergers and Acquisitions

In its continuing efforts to encourage companies to self-report Foreign Corrupt Practices Act (FCPA) violations, the Department of Justice (DOJ) has announced that it intends to apply the principles of its FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions. Accordingly, successor companies that voluntarily disclose such wrongdoing to the DOJ, cooperate with a government investigation of the conduct, and enact effective remedial measures will be positioned to benefit from the principles of the policy, including being presumed eligible for a declination of prosecution. The announcement made clear that the FCPA Corporate Enforcement Policy will apply to companies that uncover corrupt conduct through due diligence in advance of an acquisition as well as to companies that learn of such conduct subsequent to an acquisition. This extension of the policy to mergers and acquisitions was announced on July 25, 2018, by Deputy Assistant Attorney General Matthew S. Miner of the Criminal Division of the Department of Justice, at the American Conference Institute’s Eighth Global Forum on Anti-Corruption Compliance in High-Risk Markets, held in Washington, D.C. For more information, read the client alert issued by Goodwin’s White Collar group.

Goodwin News

Cryptocurrency: Regulatory and Compliance Considerations for Regulated Entities in Vermont – August 6

Join Michael Pieciak, Commissioner of the Vermont Department of Financial Regulation, and members of Goodwin’s Digital Currency & Blockchain Technology practice for a discussion of cryptocurrency covering various regulatory and compliance considerations. Commissioner Pieciak will moderate the discussion and Goodwin partner William Stern and counsel David Solander will address topics relevant to investment advisers, broker-dealers and banking institutions. For more information, visit the event website.

MBA Regulatory Compliance Conference 2018 – September 16-18

The Mortgage Bankers Association brings together inside and outside counsel, compliance officers, company executives, government relations professionals, policy directors, and quality assurance professionals to discuss current topics impacting the mortgage industry’s regulatory environment for this three-day conference. Goodwin is a sponsor and Tony Alexis, partner in Goodwin’s Financial Industry practice and head of the Consumer Financial Services Enforcement practice, will be speaking on the “Applied Compliance: Trends in RESPA Section 8 Compliance” track. Sabrina Rose-Smith, partner in Goodwin’s Financial Industry and Consumer Financial Services Litigation practices, will be speaking on the “Emerging Compliance Risk: Navigating State UDAP Laws” track.

Fiduciary Investment Advisors 2018 Annual Conference – September 20-21

Goodwin partner Michael Isenman will be a panelist at the Fiduciary Investment Advisors (FIA) 2018 Annual Conference. Mike will be a speaker on the panel, “401(k)/403(b) Mock Deposition: How to Protect Against & Prepare for Defined Contribution Litigation.” For more information, visit the event website.

This week’s Roundup contributors: Jessica Craig and Andrew Zutz.