Weekly RoundUp
December 5, 2018

Financial Services Weekly News

In This Issue.  The Securities and Exchange Commission (SEC) adopted rules and amendments designed to promote research on mutual funds, exchange-traded funds (ETFs), registered closed-end funds, business development companies (BDCs) and other similar investment funds;  the federal banking agencies announced they are seeking public comment on a proposal to raise the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000; and the Office of the Comptroller of the Currency (OCC) released its Semiannual Risk Perspective for Fall 2018 and announced that it would cut bank assessments for 2019. These and other recent developments are covered below.

Regulatory Developments

SEC Adopts FAIR Act Rules and Amendments Promoting Research Reports on Investment Funds

On November 30, the SEC announced that it had adopted rules and amendments designed to promote research on mutual funds, ETFs, registered closed-end funds, BDCs and other similar investment funds. The rules and amendments generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions. This new safe harbor is similar to a safe harbor that currently exists under rule 139 of the Securities Act of 1933 for research reports about public companies. The SEC took this action in furtherance of its mandate in the Fair Access to Investment Research Act of 2017 (FAIR Act). With regard to these new rules and amendments, SEC Chairman Jay Clayton stated, “[o]ur response to this legislation is crafted to facilitate more informed decision making, which in turn should improve the quality of a market that has become important to our Main Street investors.” The rule becomes effective 30 days after publication in the Federal Register.

Federal Banking Agencies Seek Public Comment on Proposal to Raise Appraisal Exemption Threshold for Residential Real Estate Transactions

On December 4, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the OCC (together, the Agencies) announced they are seeking public comment on a proposal to raise the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. The appraisal threshold has remained unchanged since 1994, and the Agencies believe an increase would provide burden relief without posing a threat to the safety and soundness of financial institutions. Comments will be accepted until 60 days after publication in the Federal Register.

OCC Report Discusses Key Risks for Federal Banking System

On December 3, the OCC released its Semiannual Risk Perspective for Fall 2018, in which the agency reported credit, operational, compliance, and interest rate risks are key themes for the federal banking system in 2018. Highlights from the report include:

  • Credit quality remains strong, but the OCC is monitoring the origination quality of new loans, the potential for increased lender complacency within credit risk identification and management, and the potential embedded risks from successive years of eased underwriting.
  • Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment.
  • Compliance risk is elevated as banks manage money laundering risks and comply with amended consumer protection requirements.
  • Rising interest rates and increased competition for deposits may result in changes in funding mix or costs.

Notably, the report also highlights the emerging risk posed by the growth in nonfinancial corporate debt, and includes a credit underwriting assessment supplement.

OCC Cuts Bank Assessments for 2019 and Revises Refund Policy

On November 30, the OCC announced that it is cutting the marginal rates in its General Assessment Fee Schedule by 10%, beginning with assessments due March 31, 2019. The OCC expects the reduction to shrink assessments collected from national banks, federal savings associations, and federal branches and agencies of foreign banks (Banks) by more than $90 million in 2019.

In addition, the OCC revised its assessment refund policy. Semiannual assessments are due March 31 and September 30, and they respectively cover the six-month periods beginning January 1 and July 1. Under the revised refund policy, if a Bank leaves the federal banking system during the first half of a semiannual assessment period, the OCC will issue a refund to the Bank for the second half of the Bank’s semiannual assessment; but if a Bank leaves the federal banking system in the second half of the assessment period, no refund will be issued. As a result, Banks will not be required to pre-pay for three months of supervision after exiting the OCC’s jurisdiction.

Client Alert: EU Regulators Publish Guidelines On GDPR Territorial Scope

On November 16, the European Data Protection Board (Board) (comprised of EU member state data protection authorities), published draft guidelines on the territorial scope of the GDPR (Guidelines).The Guidelines provide interpretive comments with illustrative use cases and are open for public consultation until January 18, 2019. Following public consultation, the Board is expected to issue final guidelines. The GDPR’s extraterritorial reach has been a thorny grey area for non-established organizations, and critical questions remain unanswered. For more information, read the Client Alert issued by Goodwin’s Privacy and Cybersecurity practice. 

Client Alert: ISS Releases 2019 Voting Policy Updates

In November 2018, Institutional Shareholder Services (ISS) released updates to its 2019 U.S. voting policies, which will be effective for meetings on or after February 1, 2019, and a preliminary list of frequently asked questions (FAQs) relating to U.S. compensation policies for 2019. ISS’s announced changes for 2019 relate to board gender diversity, management proposals to ratify existing charter or bylaw provisions, non-employee director compensation, and equity plan provisions, among others. For more information, read the Client Alert issued by Goodwin’s Public Companies practice.

Enforcement & Litigation

Supreme Court Grants Cert in TCPA Junk Fax Case to Determine Whether the Hobbs Act Trumps the Chevron Doctrine

On November 13, the Supreme Court granted certiorari in PDR Network, LLC v. Carlton & Harris Chiropractic (No. 17-1705), to answer the question whether the Hobbs Act required the district court to accept the Federal Communication Commission’s (FCC’s) legal interpretation of the Telephone Consumer Protection Act (TCPA). At issue are two competing doctrines, which are the subject of a circuit split, and which the Supreme Court is now expected to clarify. Applying Chevron USA, Inc. v. Nat. Res. Def. Council, Inc. (467 U.S. 837 (1984)), some circuits have held that a district court may review an unambiguous statute on its face, and is not required to defer to (or even consider) administrative regulatory guidance interpreting the same statute. By contrast, the Hobbs Act (28 U.S.C. § 2342), grants Courts of Appeals exclusive jurisdiction to review final orders of the FCC (as well as rulemaking from certain specified other agencies). The question before the Supreme Court is whether, by vesting circuit courts with original jurisdiction to review agency rulemaking, Congress also intended to require district courts to follow agency rulemaking that is relevant to the statute under review. View the LenderLaw Watch blog post.

Goodwin News

PLI’s Nuts and Bolts of Corporate Bankruptcy 2018 – December 17

Businesses in financial distress are not an unusual sight these days, and as a result, it is essential for attorneys of all levels and in all practice areas to become familiar with the fundamental tenets of bankruptcy law. Whether you are just starting out in your career, thinking about broadening your practice area to include this field, or want to be able to spot the issues when advising your clients, this program will provide you with an essential foundation. Hear from a premier faculty of experts who will arm you with the practice tips and basic concepts every bankruptcy attorney needs. Learn how to guide your clients through this complicated process, and find out what questions to ask your clients. Learn when it is time for a distressed company to consider bankruptcy and discover when reorganization is an option. This course is perfect for attorneys who want to learn or re-learn how to counsel their clients on bankruptcy issues in the most effective manner. Partner Michael Goldstein is speaking at the event. Click here for event details.

This week’s Roundup contributors:  Alex Callen, MacCary Laban, and George R. Schneider