Fed Proposes Guidelines For Access to Master Accounts and Payment Services
On May 5, in response to an increased number of inquiries and access requests from companies with fintech and other narrow purpose charters, the Federal Reserve invited public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks. The guidelines take the form of six principles that Reserve Banks would be expected to consider when reviewing requests by institutions for accounts and services, which are:
- Whether the institution is legally eligible to maintain an account at a Federal Reserve Bank and has a “well-founded, clear, transparent and enforceable legal basis for its operations”;
- Whether the provision of an account and services would present or create undue credit, operational, settlement, cyber or other risks to the Reserve Bank;
- Whether the provision of an account and services would present or create undue credit, liquidity, operational, settlement, cyber or other risks to the overall payment system;
- Whether the provision of an account and services would create undue risk to U.S. financial stability;
- Whether the provision of an account and services would create undue risk to the overall economy by facilitating activities such as money laundering, terrorism financing, fraud, cybercrimes or other illicit activities; and
- Whether the provision of an account and services to an institution would adversely affect the Federal Reserve’s ability to implement monetary policy.
In the event the Federal Reserve grants an access request, “it may impose (at the time of account opening, granting access to service, or any time thereafter) obligations relating to, or conditions or limitations on, use of the account or services as necessary to limit operational, credit, legal or other risks posed to the Reserve Banks, the payment system, financial stability or the implementation of monetary policy or to address other considerations.”
Comments on the proposal are due within 60 days after publication in the Federal Register.
Funding for PPP Loans Is Exhausted For Lenders Other Than CDFIs and MDIs
The SBA informed various banking trade associations that funding for PPP loans has been exhausted and that, effective May 5, 2021, the PPP application portal is no longer accepting loan applications from any lenders other than MDIs and CDFIs. The SBA has reserved approximately $6 billion in funding for previously submitted PPP loan applications, subject to hold codes that have yet to be resolved. In addition, approximately $8 billion remains available for PPP loans to be made by CDFIs and MDIs. Loan applications that have not yet received an SBA loan number have not been approved. Banks with applicants in this situation should consider referring these applicants to MDIs and CDFIs.
SBA Updates Guidance on PPP Whole Loan Sales
On April 30, the SBA issued a procedural notice extending its guidance on how lenders may sell whole PPP loans. The guidance reaffirmed that lenders participating in the PPP may sell all of their interest in PPP loans to other participating lenders and that the SBA’s prior written consent is not required for these sales. The procedural notice discusses, among other things, eligible purchasers, documentation requirements, servicing obligations and notice (but not approval) requirements to the SBA. The SBA emphasized that the procedural notice “applies to lender merger and acquisition transactions where the lender has PPP loan(s) in its portfolio.”
FinCEN Renews GTO Targeting Major U.S. Metro Areas
On April 29, FinCEN again renewed its Geographic Targeting Order (GTO) requiring title insurance companies to file reports identifying the individuals behind companies used to purchase residential real estate in covered markets in cash transactions of $300,000 or more. The GTO covers the following markets: the California counties of San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara; the Florida counties of Miami-Dade, Broward and Palm Beach; the Illinois county of Cook; the City and County of Honolulu, Hawaii; Massachusetts counties of Suffolk and Middlesex; the Nevada county of Clark; the New York City boroughs of Bronx, Brooklyn, Manhattan, Queens and Staten Island; the Texas counties of Bexar, Tarrant and Dallas; and the Washington county of King. The GTO is part of an effort to combat money laundering in furtherance of the Bank Secrecy Act by tracking illicit funds and gathering information. The GTO includes instructions for completing the required reports and is effective May 5, 2021 through October 31, 2021.
FINRA Amendments to Private Placement Filer Form for Filings Required by Rules 5122 and 5123 to Become Effective on May 22
In Regulatory Notice 21-10, FINRA announced that it had adopted amendments to the form that member firms use to file information and materials with respect to private placements, subject to Rules 5122 and 5123 for which there is no filing exemption, together with an explanation of terms used in the form. FINRA Rule 5122 imposes disclosure and filing requirements for members that sell a private placement of an unregistered security issued by a broker-dealer or a control entity. “Control” by an entity is defined for purposes of that rule as meaning ownership of 50% or more of another entity, after the closing of the subject private placement. Rule 5123 imposes filing requirements for private placements by persons other than a broker or a control entity. Filing must be made by the date of first offer in a Rule 5122 private placement and within 15 days after the first sale in a Rule 5123 private placement. Both rules have several exemptions (in most cases, identical) for various types of offerings, including offerings to qualified institutional buyers and qualified purchasers. The amended form, which must be used starting May 22, requires additional information about (1) contingency offerings (such as offerings with minimum capital commitments to close), (2) disciplinary history of the issuer, its principals and affiliates, (3) intended use of proceeds and (4) whether the private placement will involve a private securities transaction of an associated person, subject to FINRA Rule 3280.
In the Notice, FINRA stated that it intends to use its member supervision examinations to obtain information about the private placement business of its members, including private placements that are exempt from Rules 5122 and 5123.
FINRA Reminds Members About Requirements When Using Predispute Arbitration Agreements for Customer Accounts
On April 21, FINRA issued Regulatory Notice 21-16 reminding member firms of requirements applicable to predispute arbitration agreements in customer accounts. In the Notice, FINRA states that member firms generally are not permitted to include in customer agreements provisions that:
- Limit the location of arbitration hearings, for example, by requiring that they be held in a particular city or state;
- Seek to shorten or extend the applicable statute of limitations;
- Limit a customer’s right to pursue class actions in court;
- Limit the ability to file a claim or limit the authority of arbitrators to make certain kinds of awards, such as awards for punitive damages or awards for losses that do not arise from the member’s gross negligence or intentional misconduct; or
- Contain indemnification or hold harmless provisions seeking to require the customer to indemnify the member from all claims and losses arising out of the agreement, where the provisions would have the effect of limiting the customer’s ability to bring a claim against the member that the customer would otherwise have been entitled to bring.
FINRA noted that including provisions like those discussed in the Notice could result in disciplinary action against the member.
Litigation and Enforcement
U.S. Supreme Court Significantly Restricts FTC Civil Enforcement Powers in AMG Capital Decision
The U.S. Supreme Court dealt a blow to the U.S. Federal Trade Commission (FTC) in a recent decision that eliminated the agency’s ability to seek monetary remedies in enforcement actions in federal court. This new ruling has significant implications for the FTC’s enforcement efforts, particularly in antitrust cases involving “pay for delay” and similar practices. Following this sudden halt to an enforcement tool used for decades, Congress is considering legislation explicitly granting the FTC power to obtain equitable monetary remedies in federal court. Read the client alert to learn more.
Goodwin at the NRS Spring Compliance Conference
Join us at the NRS Spring 2021 Compliance Conference for Investment Advisers and Broker Dealers, where industry experts will address how firms can successfully navigate the disruptive currents of regulatory change and adapt procedures to compliance programs. Goodwin partner Nick Losurdo will participate in the “FINRA Examination of Broker Dealers” panel, focusing on the strategic planning required for a successful examination in today’s work environment, along with best practices for working with and responding to the examiners and managing the post-examination process. Learn more about the conference and register today.
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