The California Department of Business Oversight (DBO) has released a redacted letter in which it advised a licensed money transmitter that funds held by the money transmitter in a custodial capacity at a bank would qualify as “eligible securities” for purposes of the California Money Transmission Law. By way of background, the Money Transmission Law requires a licensed money transmitter in California to hold “eligible securities,” including cash, in an amount not less than the amount of all outstanding money received for transmission in California. In 2013, the statute was amended to permit a licensee to hold the funds in a custodial capacity as an agent of its customers in a pooled account titled in the name of the licensee for the benefit of its customers. However, application of this rule to a particular licensee is subject to a determination by the DBO based on the amount, nature, quality and liquidity of the licensee’s assets, the amount of the licensee’s liabilities and the history of the licensee’s compliance with applicable federal and state law. The recently released letter constitutes such a determination and may be helpful to licensees that wish to use similar arrangements.
As previously reported, the SEC approved the consolidation of NASD Rule 2711 and NYSE Rule 472 as FINRA Rule 2241 (Research Analysts and Research Reports), addressing conflicts of interest relating to the publication and distribution of equity research reports. FINRA recently released Regulatory Notice 15-30 which provides background and discussion of the rule, and announces that certain provisions of the rule become effective on September 25, 2015, with the rest effective on Dec. 24, 2015.
As previously reported, the SEC approved the adoption of FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) to address conflicts of interest relating to the publication and distribution of debt research reports. FINRA recently released Regulatory Notice 15-31 which provides background and discussion of the rule, and announces that the rule will become effective on Feb. 22, 2016.
As reported in last week’s Roundup, FinCEN has issued a proposed rule that would treat certain investment advisers as financial institutions for purposes of its anti-money laundering (AML) regulations. Bill Stern, partner in Goodwin’s Financial Institutions Group, has prepared a client alert providing a detailed overview of the proposed rule.
Enforcement & Litigation
A federal district court has issued a preliminary injunction preventing a final rule issued by FinCEN from taking effect as scheduled on Aug. 28, 2015. Section 311 of the USA PATRIOT Act authorizes the Secretary of the Treasury to require U.S. financial institutions and financial agencies to take one or more special measures against any foreign financial institution determined to be “of primary money laundering concern.” Last year, FinCEN, a bureau of the U.S. Treasury Department, issued a notice of finding in which it determined that reasonable grounds exist to conclude that FBME Bank, Ltd. (FBME) is a financial institution of primary money laundering concern, and FinCEN followed up earlier this summer by issuing the final rule prohibiting financial institutions from maintaining any correspondent account that is established, maintained, administered or managed in the United States for or on behalf of FBME, effectively cutting off access to the U.S. financial system to FBME. The final rule also requires each financial institution to apply special due diligence to its foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving FBME. In response to the issuance of the final rule, FBME filed suit in federal court, alleging that FinCEN did not comply with the Administrative Procedures Act and acted in an arbitrary and capricious manner in issuing the final rule and further claiming that the final rule violates FBME’s due process rights. While the court indicated that it would not “second guess” FinCEN’s determination that FBME is of primary money laundering concern or its determination to impose the special measure, the court granted the preliminary injunction because it found that FinCEN had not appeared to satisfy certain requirements of the Administrative Procedures Act. While the court’s action is unusual and may force FinCEN to take additional steps in this and other cases to demonstrate compliance with the Administration Procedures Act, the case does not appear likely to meaningfully limit FinCEN’s authority to make determinations or impose special measures under Section 311 of the USA PATRIOT Act.