Weekly RoundUp June 17, 2015

Financial Services Weekly News

Editor's Note

SEC Opens a Dialogue on Exchange-Traded Products: The SEC is seeking public comment with respect to how exchange-traded products (ETPs) are traded and priced, as well as how the SEC can provide sufficient oversight of the increasingly complex universe of ETPs. The SEC’s June 12, 2015 release (Release) notes that since the arrival of conventional, index-tracking exchange-traded funds (ETFs), which are a type of ETP, in 1992, ETPs have grown significantly in aggregate market capitalization (currently surpassing $2 trillion), trading volume and complexity. Although the SEC has previously solicited public comment in the context of a proposal (not adopted) relating to ETFs as recently as 2008, the universe of ETPs now includes a wide array of inverse, leveraged, and active products. Further, ETPs now hold portfolios of commodities, currencies, futures, options, and other exchange-traded derivatives. The SEC therefore believes the time is ripe to gather information regarding the oversight of the listing and trading of ETPs on national securities exchanges. Although ETPs are governed by various securities laws (including, in some cases, the Investment Company Act of 1940), the focus of the SEC’s request centers on the listing of ETPs on exchanges and the trading of ETPs on exchanges and other venues. The SEC is requesting comments on a variety of matters that generally fall within the following categories: (1) the arbitrage mechanism and market pricing; (2) exemptive and no-action relief under the Securities Exchange Act of 1934; (3) exchange-listing standards; and (4) the use of ETPs by investors, and the ways in which ETPs are recommended or sold to investors, particularly retail investors. Comments are due 60 days from the Release’s publication in the Federal Register.
Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

CFTC Provides No-Action Relief from Introducing Broker and Commodity Trading Advisor Registration to Non-U.S. Persons Who Advise on or Facilitate Swaps Transactions for Certain International Institutions

The Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission (CFTC) announced on June 5 that it had issued a no-action letter providing relief from registration as an introducing broker or commodity trading advisor for persons located outside the United States that facilitate swap transactions for International Financial Institutions (IFIs) that have offices in the United States. In the letter, DSIO states that the relief is appropriate in light of the unique attributes and status of IFIs, and in consideration of international comity. In the letter, DSIO has listed the entities defined as IFIs, including such institutions and organizations as the International Monetary Fund, International Bank for Reconstruction and Development, European Bank for Reconstruction and Development and the International Development Association.

CFTC Extends Temporary No-Action Relief for Swap Dealers and Major Swap Participants from Compliance With Reporting Obligations

The CFTC Division of Market Oversight announced on June 15 that it had issued Staff Letter 15-38, extending the time-limited relief previously provided in Staff Letter 14-90, expiring on June 30, 2015, to June 30, 2016. The relief is provided to Swap Dealers (SDs) and Major Swap Participants (MSPs) from the obligation to report valuation data for cleared swaps as required by section 45.4(b)(2)(ii) of the CFTC’s regulations. The no-action relief applies to: (1) all SDs and MSPs that are reporting counterparties under regulation 45.8, for the purposes of regulation 45.4(b)(2)(ii), and (2) all cleared swaps for which the SD or MSP has the obligation to report valuation data under regulation 45.4(b)(2)(ii).

FDIC Seeks Comment on Proposal to Refine How Small Banks are Assessed for Deposit Insurance

On June 16, the FDIC issued a Notice of Proposed Rulemaking (NPR) and request for comment on proposed refinements to the deposit insurance assessment system for small insured depository institutions. The proposed rule would affect banks with under $10 billion in assets that have been FDIC insured for at least five years. It would base assessments on a model estimating the probability of failure over three years using data from the financial crisis and prior years. That model would be revenue neutral, so that it does not change the aggregate assessment revenue collected from small banks. The FDIC has published an online assessment calculator that will allow institutions to estimate their assessment rates under the proposal. Comments are due within 60 days of publication in the Federal Register.

Agencies Finalize Revisions to the Capital Rules Applicable to Advanced Approaches Banking Organizations

The FRB, the FDIC, and the OCC finalized revisions to the regulatory capital rules on June 16. The final rule, applicable only to certain large, internationally active banking organizations (advanced approaches banking organizations), makes changes to aspects of the advanced approaches rule, including the calculation requirements for risk-weighted assets for advanced approaches banking organizations. Many of the changes enhance the consistency of the advanced approaches rule with international capital standards. The revised rule goes into effect on October 1, 2015.

Interagency Policy Statement on Standards for Assessing Diversity Policies and Practices Published in the Federal Register

As reported in last week’s Roundup, federal agencies issued a final policy statement establishing joint standards for assessing the diversity policies and practices of the entities they regulate. Notice of the statement has since been published in the Federal Register.

Enforcement & Litigation

FinCEN, FDIC and U.S. Attorney’s Office Penalize West Virginia Bank for BSA Violations

The Financial Crimes Enforcement Network (FinCEN) on June 15 announced the assessment of a $4.5 million civil money penalty against Bank of Mingo of Williamson, West Virginia (Mingo), for willfully violating the Bank Secrecy Act (BSA). FinCEN found that Mingo had severe and systemic failures in many aspects of its anti-money laundering (AML) program. As a result of these failures, FinCEN found that Mingo processed millions of dollars in structured and suspicious cash transactions through the institution.  According to FinCEN, Mingo serviced high-risk customers without effectively monitoring their accounts for suspicious activity. In one example cited by FinCEN, Mingo was aware of a high volume of unusual cash transactions conducted by a corporate customer, yet failed to file the requisite currency transaction reports (CTRs) or suspicious activity reports (SARs). That customer conducted over $9 million worth of structured transactions through Mingo’s Williamson Branch. The manager of that branch was convicted in April 2014 of knowingly making a false statement to federal law enforcement agents during an investigation of that scheme to evade BSA reporting requirements. FinCEN coordinated its enforcement action with actions by the FDIC and the U.S. Attorney’s Office for the Southern District of West Virginia. The total penalty of $4.5 million will run concurrently with a $3.5 million penalty by the FDIC, of which $2.2 million is concurrent with the amount forfeited pursuant to the deferred prosecution agreement with the U.S. Attorney’s Office.