Weekly RoundUp
June 30, 2022

SEC Announces Spring 2022 Regulatory Agenda

In This Weekly Roundup Issue. The U.S. Securities and Exchange Commission’s (SEC) Office of Information and Regulatory Affairs released its Spring 2022 Regulatory Agenda; the Office of the Comptroller of the Currency (OCC) reported on key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2022; the SEC adopted rules to requiring electronic filings for investment advisers and institutional investment managers; the Financial Crimes Enforcement Network (FinCEN) provided clarity to banks on how to apply a risk-based approach to conducting customer due diligence (CDD) on independent Automated Teller Machine (ATM) owners or operators; the Consumer Financial Protection Bureau (CFPB): (1) published an Advance Notice of Proposed Rulemaking targeting excessive credit card late fees; (2) updated Regulation V in support of survivors of human trafficking; (3) issued a new interpretive rule affirming states’ ability to police credit reporting markets; and (4) issued an advisory opinion affirming prohibition on debt collection fees not authorized in underlying agreement; the Board of Governors of the Federal Reserve System (Federal Reserve) announced the final timeline and details for implementation regarding the adoption of a new message format; and the SEC requested information and comment on Advisers Act of 1940 (Advisers Act) regulatory status of index providers, model portfolio providers, and pricing services. These and other developments are discussed in more detail below.

The Roundup will be on hiatus next week in recognition of the Fourth of July holiday. We will resume publication on Thursday, July 14.

Regulatory Developments

SEC Announces Spring 2022 Regulatory Agenda

On June 22, the Office of Information and Regulatory Affairs released the Spring 2022 Unified Agenda of Regulatory and Deregulatory Actions on June 22, 2022. The SEC has a lengthy list, discussed in a recent Goodwin client alert, that includes the following proposed rules that impact investment advisers to private funds and registered investment companies:

Investor Advisers Act/Investor Advisers:

Final Rule Stage:

  • Amendments to Form PF that would, among other things, introduce new “current reports” by all private fund advisers and certain hedge fund advisers, lower the threshold to be a “large private equity fund adviser” and, expand the reporting requirements of such advisers;
  • Heightened regulation of private funds that would significantly increase the compliance and reporting requirements of private fund advisers, and prohibit or restrict certain actions by private fund advisers that involve conflicts of interest and preferential treatment of investors;
  • Enhanced environmental, social and governance (ESG) disclosure requirements and related policies and procedures by advisers to both private funds and registered investment companies that consider ESG factors; and
  • New rules under the Investment Advisers Act and Investment Company Act that would require investment advisers to adopt and implement policies and procedures reasonably designed to address cybersecurity risks.

Proposed Rule Stage:

  • Regulation D and Form D improvements, including updates of the “accredited investor” definition under the Securities Act;
  • Amendments and additions to the Custody Rule under the Investment Advisers Act; and
  • Digital engagement practices for investment advisers, which are rules related to the use of predictive data analytics, differential marketing and behavioral prompts.

Investment Company Act/Registered Investment Companies:

Final Rule Stage:

  • Streamlining reports under the Investment Company Act, with respect to shareholder reports, annual prospectus updates, fee and risk disclosures, and fee information in advertisements; and
  • Money market fund reforms including, but not limited to, removing liquidity fee and redemption gate requirements, increasing the minimum liquidity requirements for money market funds, and addressing how money market funds should handle a negative interest rate environment.

Proposed Rule Stage:

  • Amendments to Rule 35d-1 under the Investment Company Act, which applies to names used by registered investment companies;
  • Changes to regulatory requirements relating to registered investment companies’ fees and fee disclosures; and
  • Changes to regulatory requirements relating to registered open-end funds’ liquidity and dilution management.

“When I think about the SEC's agenda, I’m driven by two public policy goals: continuing to drive efficiency in our capital markets and modernizing our rules for today’s economy and technologies.”
SEC Chair Gary Gensler

OCC Reports on Key Risks Facing Federal Banking System

On June 23, the OCC issued its Semiannual Risk Perspective for Spring 2022 (the report). The OCC highlights operational, compliance, interest rate and credit risks, among the key risks facing the federal banking system.

The report focuses on five main areas: the operating environment, bank performance, a special section on climate-related topics in emerging risks, trends in key risks, and supervisory actions. Highlights from the report include:

  • inflation, rising interest rates and other implications related to the pandemic and geopolitical environment;
  • operational risks such as cybersecurity;
  • regulatory and policy changes;
  • staffing risks due to increased turnover and labor market volatility; and
  • climate-related financial risks.

SEC Adopts Rule  Requiring Electronic Filings for Investment Advisers and Institutional Investment Managers

On June 23, the SEC adopted amendments (1) requiring certain documents filed by investment advisers, institutional investment managers and other entities to be filed electronically, and (2) modernizing Form 13F in terms of data reporting and instructions for confidential treatment requests. The following types of filings are to be submitted by electronic means: applications for orders under any section of the Investment Advisers Act, confidential treatment requests for filings made under section 13(f) of the Securities and Exchange Act of 1934, and Form ADV-NR through the Investment Adviser Registration Depository. The electronic filing requirements will be effective end of August 2022, and the changes to Form 13F will be effective on January 3, 2023. 

FinCEN Releases Statement on Bank Secrecy Act Due Diligence for Independent ATM Owners or Operators

On June 22, FinCEN issued a statement to provide clarity to banks on how to apply a risk-based approach to conducting CDD on independent ATM owners or operators. The CDD requirements are consistent with the elements set out in FinCEN’s 2016 CDD Rule. Some independent ATM owners and operators have reported difficulty in obtaining and maintaining access to banking services, which jeopardizes the important financial services they provide, including to persons in underserved markets. In light of this, FinCEN’s statement is to remind banks that not all independent ATM owner or operator customers pose the same level of money laundering, terrorist financing or other illicit financial activity risk, and not all independent ATM owner or operator customers are automatically higher risk.

CFPB Publishes Advance Notice of Proposed Rulemaking Targeting Excessive Credit Card Late Fees

On June 22, following prepared remarks by CFPB Director Rohit Chopra, the CFPB published an Advance Notice of Proposed Rulemaking for purposes of reviewing the Federal Reserve’s’ 2010 immunity provision for excessive late fees (now under the authority of the CFPB), determining whether adjustments are needed to address late fees and informing on potential revisions to Regulation Z, which implements the CARD Act and Truth in Lending Act. The CFPB is seeking input from card issuers, consumer groups and the public about credit card late fees, how card issuers determine these fees, whether they are reasonable and proportional, the potential deterrent effect of late fees, card issuers’ revenue and expenses, and the role late fees play in credit card companies’ profitability. The deadline for submitting comments is July 22, 2022.

CFPB Updates Regulation V in Support of Survivors of Human Trafficking

On June 23, the CFPB issued a final rule (and accompanying Fast Facts summary) updating the Fair Credit Reporting Act’s implementing Regulation V to aid survivors of human trafficking in opening bank accounts, accessing credit, and gaining employment by prohibiting any credit reporting company from providing in a credit report any adverse item of information about a survivor of trafficking that resulted from the trafficking after receiving a survivor’s submission of documentation. The final rule includes guidance for survivors on reporting having experienced a form of trafficking and submitting required “trafficking documentation” to credit reporting companies. The rule follows on Congress’s requirement that the CFPB issue implementing regulations within 180 days of the enactment of President Biden’s National Defense Authorization Act and Debt Bondage Repair Act, signed in December 2021.

CFPB Issues New Interpretive Rule Affirming States’ Ability to Police Credit Reporting Markets

On June 28, the CFPB issued an interpretive rule affirming that the federal Fair Credit Reporting Act (FCRA) provides flexibility to states in protecting their local economies and residents by enacting state-level fair credit reporting laws that are stricter than the FCRA. Framed as examples, the CFPB suggested that states would be within their rights under the FCRA to: (1) govern whether eviction information or rental arrears appear in the content of credit reports; (2) enact protections against abuse and misuse of tenant screening report data; or (3) forbid a credit reporting company from including information about a person’s medical debt for a certain period of time after the debt is incurred. Recalling the 2007-2008 mortgage crisis and ensuing Great Recession, the CFPB recognized that federal preemption of state laws can stop state regulators from identifying dangerous patterns or mitigating market risks and affirmed that state laws tackling credit reporting problems would not be preempted unless they conflict with the FCRA or fall within narrow and targeted preemption categories enumerated within the statute. This interpretive rule follows on another from May 19 in which the CFPB encouraged states to pursue lawbreaking companies and individuals under the Consumer Financial Protection Act. The CFPB further encouraged states to consult with the organization whenever interpretation of federal consumer financial protection law is relevant to a state regulatory or law enforcement matter, pursuant to the State Official Notification Rule.

CFPB Issues Advisory Opinion Affirming Prohibition on Debt Collection Fees Not Authorized in Underlying Agreement

On June 29, the CFPB issued an advisory opinion affirming that section 808(1) of the Fair Debt Collection Practices Act and its implementing Regulation F, 12 CFR 1006.22(b) (FDCPA), prohibit debt collectors from charging consumers pay-to-pay or “convenience” fees for making payment a particular way – for example, online or by phone – or “any amount,” interest, fee, charge or expense whether or not it is incidental to the principal obligation, unless it is expressly authorized by the underlying agreement or expressly permitted by law. This prohibition extends to debt collectors that use payment processors who charge unauthorized fees and receive a kickback from the payment processor.

Federal Reserve Announces Final Timeline and Implementation Details for Adoption of New Fedwire Funds Service Message Format

On June 27, the Federal Reserve announced the final timeline and details for implementation regarding the adoption of a new message format entitled Fedwire Funds Service, ISO 20022 (the Service). The Service, which will be adopted on March 10, 2025, is a settlement system owned and operated by the Federal Reserve Banks and developed by the International Organization for Standardization, an independent, non-governmental organization that publishes standards for a range of industries. Adoption of the Service, according to the Board, will allow for enhanced efficiency of both domestic and cross-border payments due to greater interoperability among global payment systems. A richer set of payment data that may help banks and other entities comply with sanctions and anti-money laundering requirements will also be made available. The new message format is an industry standard that many global payment and messaging systems are adopting.

SEC Requests Information and Comment on Advisers Act Regulatory Status of Index Providers, Model Portfolio Providers, and Pricing Services

On June 15, the SEC issued a request for comment on certain information providers whose activities, in whole or in part, may cause them to meet the definition of “investment adviser” under the Investment Advisers Act. The request focuses on index providers, model portfolio providers, and pricing services. It describes those categories of information providers, noting that their role has grown in size and scope in recent years, and it seeks comment on whether they are providing “investment advice” and thus acting as investment advisers. The request also seeks comment on how existing rules should apply to certain categories of information providers that do not necessarily fit neatly into the SEC’s existing regulatory structure for investment advisers. The public comment period will remain open until August 16, 2022.

Litigation & Enforcement

SEC Brings First Ever Regulation Best Interest Litigation Against Broker-Dealer and its Personnel

The SEC recently charged a broker-dealer and five of its registered representatives with violating Regulation Best Interest related to recommendations and sales of an unrated, high-risk, and illiquid debt security to retirees and other retail investors, many of whom were on fixed incomes and had moderate risk tolerances. The SEC is seeking cease-and-desist injunctions, disgorgement of fees, and civil penalties against the firm and its registered representatives.

Read the client alert to learn more about the allegations and key takeaways.

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