FinCEN Proposes Form of Report to Collect Beneficial Ownership Information and Application to Obtain FinCEN IdentifiersOn January 17, FinCEN proposed a form of report to collect beneficial ownership information from reporting companies, pursuant to FinCEN’s final rule regarding beneficial ownership information reporting requirements published on September 30. (Read about the final rule here.) In addition, FinCEN proposed a form of application for individuals to obtain FinCEN identifiers. FinCEN expects 32.6 million entities to submit initial reports of beneficial ownership in 2024, the first year that the rule will be in effect. Comments to the proposed forms are due March 20.
FINRA Publishes 2023 Report on Exam and Risk Monitoring ProgramOn January 10, FINRA published its 2023 Report on FINRA’s Examination and Risk Monitoring Program. The report provides key insights and observations from FINRA’s Member Supervision, Market Regulation, and Enforcement programs, and it can be used by FINRA member firms to strengthen their compliance programs. There are four new topics covered in this year’s report: manipulative trading; fixed income – fair pricing; fractional shares; and regulation SHO. Additionally, the report introduces a new Financial Crimes Section. Other key topics in the report include: cybersecurity, complex products, regulation best interest and Form CRS, and mobile apps. As with prior year’s reports, each topic in the report outlines regulatory obligations, considerations, findings and observations from recent oversight activities, effective practices, and additional resources.
"This report represents a holistic approach to FINRA regulation, leveraging information from across our regulatory operations to provide member firms with information to help them enhance their core compliance programs."
–Greg Ruppert, Executive Vice President, Member Supervision at FINRA
CFPB Issues Guidance on Negative Option Marketing PracticesOn January 19, following an October policy statement on negative option marketing by the Federal Trade Commission, the CFPB published a Consumer Financial Protection Circular (Circular) providing guidance to combat negative option programs and dark pattern practices. The Circular affirms that when a company subject to the Consumer Financial Protection Act (CFPA) fails to disclose, clearly and conspicuously, the material terms of a negative option offer, fails to obtain the consumer’s informed consent, or misleads or impedes a consumer in canceling a recurring charge for a product or service, that company risks violating the CFPA’s prohibition on unfair, deceptive, or abusive acts or practices.
CFPB Updates Mortgage Servicing Examination ProceduresOn January 18, the CFPB published its updated Mortgage Servicing Examination Procedures. Among the changes made, the updated procedures:
- Incorporate relevant CFPB bulletins and interagency guidance, circulars, and advisory opinions released since the procedures’ prior update in June 2016;
- Focus examiners on additional issues featured in Supervisory Highlights, such as fees that servicers charge borrowers and misrepresentations related to foreclosure;
- Cover forbearances, loan modifications, and other tools that mortgage servicers used during the COVID-19 national emergency, including how servicers communicate with borrowers about homeowner assistance programs; and
- Encourage examiners to interview consumers when consumer complaints or examiner document review indicate potential violations (changing “may conduct interviews” to “should conduct interviews”).
Federal Reserve Introduces Details on Pilot Climate Scenario Analysis ExerciseOn January 17, the Federal Reserve introduced additional details on how its pilot climate scenario analysis (CSA) exercise will be conducted and the type of information on risk management practices that will be gathered over the course of the exercise. The Federal Reserve first announced the CSA exercise in a press release on September 29, 2022.
The six largest U.S. banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. The Federal Reserve will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned in order to deepen the Federal Reserve’s understanding of climate risk-management. As part of the CSA exercise, participating organizations will submit data templates, supporting documentation and responses to qualitative questions to the Federal Reserve by July 31, 2023.
The Federal Reserve expects to publish the insights gained from the pilot program at an aggregate level, reflecting lessons learned about climate risk management practices and how insights from scenario analysis will help identify potential risks and promote effective risk management practices; no firm-specific information will be released. The Federal Reserve has not provided a timeline for when to expect publication of findings.
Agencies Adjust Civil Penalties to Account for InflationRecently, the OCC and FinCEN provided notice in the Federal Register regarding adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule adjusts the maximum amounts of civil money penalties and provides a chart reflecting the inflation-adjusted maximum amounts associated with the penalty tiers for particular types of violations within each regulator’s jurisdiction. The OCC’s adjusted civil money penalties are effective as of January 4, 2023, for violations occurring on or after November 2, 2015. FinCEN’s adjusted civil money penalties are effective January 19, 2023.
Transfer-on-Death Designations: Potential PitfallsWhen used in consultation with an estate planning attorney, transfer-on-death (TOD) or payable-on-death (POD) designations on financial accounts can be valuable estate planning tools. However, these account designations have the potential to derail an estate plan when not coordinated properly with the overall plan. Consulting with an estate planning attorney is critical when considering a TOD/POD designation, and caution is required when opening financial accounts to avoid unwanted results.
Read more about this topic in a recent client alert.
Exempt Reporting Advisers Faced Significantly More SEC Enforcements in 2022The Securities and Exchange Commission (SEC) brought an unusually high number of enforcement actions against exempt reporting advisers in 2022 — that appears to be more than the prior three years combined and a record number for a single year. This uptick in SEC enforcement activity should serve as a reminder for exempt reporting advisers of the regulatory risks they face under the Investment Advisers Act of 1940 (Advisers Act) and other aspects of the federal securities laws.
Read more about this update in a recent client alert.
SEC Regulatory Agenda Showcases 52 Proposed and Final Rules by Spring 2023The SEC’s Fall 2022 “Reg Flex” agenda was recently published by the federal Office of Information and Regulatory Affairs (OIRA). Chair Gensler sets the agency’s agenda, which provides a glimpse into how the agency will prioritize its resources over the coming six months from a policy and rulemaking standpoint (recognizing that three of those months have already elapsed since the agency submitted this to OIRA in October 2022). The SEC has been moving at breakneck speed over the past 18 months, earning criticism of the Chair (including a report from the SEC Office of the Inspector General). The agenda suggests the SEC has no intention to slow its rulemaking pace in the coming months.
Read more about the SEC’s Regulatory Agenda in a recent client alert.
Broker-Dealer Compliance With Revamped Recordkeeping Requirements Begins May 3, 2023; FINRA Publishes Chart of “Most Significant Changes”The SEC recently amended Exchange Act Rule 17a-4 by adopting new recordkeeping requirements for broker-dealers. Most notably, the SEC will no longer require broker-dealers to maintain records in “write once, read many” or “WORM” format. Instead, broker-dealers have the option of utilizing a new “audit trail” alternative for their electronic recordkeeping systems. The changes also affect the use of third-party recordkeeping services and requirements related to timely production of records. The compliance date for broker-dealers is May 3, 2023.
For its part, FINRA recently published a chart summarizing what it deems as the “most significant changes” and other nuances between the legacy and amended rule. We have summarized a handful of those and added several of our own points. Firms should consider these differences, nuances, and other considerations as they determine how to adapt their processes to the new audit trail alternative (if they choose that path at all).
Learn more about the updates in a recent client alert.
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Samantha M. Kirby
Jiabao (Eva) Xu
Samantha M. KirbyPartnerCo-Chair of Banking and Consumer Financial Services
William McCurdySenior Attorney
William P. LaneAssociate