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Weekly RoundUp
September 9, 2015

Financial Services Weekly News


District Court Orders SEC Rulemaking Required by Dodd-Frank Act. Section 1504 of the Dodd-Frank Act amends the Exchange Act to require publicly traded oil, gas and mining companies, called “resource extraction issuers,” to disclose, in annual reports to the SEC, payments made to foreign governments or the federal government for the commercial development of oil, natural gas or minerals. Section 1504 also requires the SEC to issue a rule implementing the new disclosure requirements not later than 270 days after enactment of the Dodd-Frank Act. The SEC’s statutory deadline was April 17, 2011. On May 11, 2012, Oxfam America, Inc. filed its first suit under the Administrative Procedure Act (APA) alleging that the SEC had unlawfully withheld and unreasonably delayed promulgation of the final disclosure rule. The SEC subsequently issued Rule a3q-1, implementing the public disclosure requirement, and Oxfam stipulated to dismissal of its case. However, the American Petroleum Institute filed sued against the SEC in the District of Columbia requesting that the district court vacate the final disclosure rule, which the court did on July 2, 2013, remanding the matter to the SEC for further proceedings. The SEC has not yet adopted a new rule. Oxfam instituted a new action in the U.S. District Court for the District of Massachusetts on September 18, 2014, once again seeking an order compelling the SEC to promulgate a final extraction payments disclosure rule. On Sept. 2, 2015, the court issued a Memorandum and Order holding that the SEC had unlawfully withheld agency action within the meaning of APA Section 706(1), requiring the court to “compel agency action.” While the court did not read the statute as giving it discretion to decide whether to compel the SEC, it concluded that it did have discretion to order an appropriate remedy. Although Oxfam had requested that the SEC be ordered to adopt a final rule by a date certain, the court instead ordered the SEC to file with the court, within 30 days, an expedited schedule for promulgating the rule and stated that it would make further orders as necessary. It will be interesting to see whether other parties bring cases to compel SEC rulemaking. The court’s analysis indicated that the clearest case is one in which Congress has mandated a deadline for SEC action. Oxfam may be a good example of the type of party that would bring such an action: not an entity regulated by the SEC but interested in the subject matter of the regulation. Oxfam America v. Sec. Exch. Comm’n, No. 14-13648 (D. Mass. filed Sept. 2, 2015).
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Regulatory Developments

DOL Releases Transcripts of Fiduciary Standard Hearings

The Department of Labor (DOL) has released the transcripts of the hearings held by the agency in August on its proposed fiduciary rule. The final comment period on the rule will close Sept. 24, 2015.

SEC Proposes Amendment to Swap Data Repository Rule

On Sept. 4, the SEC voted to issue a proposal to amend Rule 13n-4 under the Exchange Act to implement the Exchange Act requirement that security-based swap data repositories make data available to certain regulators and other authorities on a confidential basis, on the condition that the regulator or other authority provide indemnification to the security-based swap repository and the SEC for any expenses arising from litigation relating to the information provided. The proposal includes an exemption from the indemnification requirement for certain regulators either because they are unable to provide indemnification or because access by the SEC to data repositories of certain foreign regulators requires that in return the foreign regulators have “immediate and continuous access to all of the information needed [from, e.g., U.S. securities-based swap repositories] for the exercise of their duties.” Comments on the proposal are due 45 days after publication in the Federal Register.

MSRB Proposes to Apply Gifts Rule to Municipal Advisors

On Sept. 2 the Municipal Securities Rulemaking board (MSRB) announced that it had filed a rule proposal with the SEC seeking approval to apply MSRB Rule G-20, which provides limitations on business-related gift-giving by municipal securities dealers, to municipal advisors. The proposed amendments also would add a new provision to specifically prohibit both dealers and municipal advisors from seeking reimbursement for certain entertainment expenses from the proceeds of an offering of municipal securities. In addition, the MSRB is seeking to extend to municipal advisors related books and records requirements through proposed amendments to MSRB Rule G-8.

MSRB Links Effective Date for Best-Execution Rule to Publication of Guidance

The MSRB announced on Sept. 3 that it is linking the effective date of its new “best-execution” rule for retail investor transactions to the publication of implementation guidance so that municipal securities dealers will have sufficient time to review the forthcoming guidance. The MSRB filed documents with the SEC to establish the effective date of the new rule four months from the publication date of the MSRB’s implementation guidance. MSRB Rule G-18, on best execution, with related amendments to MSRB Rules G-48 and D-15, requires dealers to seek the most favorable terms reasonably available for their retail customers’ transactions.

FINRA Issues Guidance on Filing Requirements and Review of Regulation A Offerings

On Sept. 8 FINRA published Regulatory Notice 15-32 to provide guidance regarding the FINRA filing requirements and review procedures that apply to firms that participate in Regulation A+ offerings. Specifically, FINRA’s Corporate Financing Rules require firms that participate in Regulation A+ offerings to file with FINRA information specified in the rules. FINRA’s Communications with the Public Rule and its Suitability Rule also apply to a firm’s participation in these offerings. FINRA also reminds firms that communications with the public concerning a Regulation A+ offering of direct participation program (DPP) securities must be filed with FINRA.

Enforcement & Litigation

FinCEN Reaches $8 Million Settlement with Casino for Lax Anti-Money Laundering Controls on High Rollers

On Sept. 8 the Financial Crimes Enforcement Network (FinCEN) announced a settlement with Desert Palace, Inc. d/b/a Caesars Palace, in which Caesars agreed to pay an $8 million civil money penalty for what FinCEN described as its willful and repeated violations of the Bank Secrecy Act (BSA). FinCEN alleged that “the casino allowed a blind spot to exist in its compliance program for private gaming salons, which are reserved for Caesars’ wealthiest clientele, who may gamble millions of dollars in a single visit, and which openly allowed patrons to gamble anonymously.” The casino agreed to conduct periodic external audits and independent testing of its anti-money laundering (AML) compliance program, report to FinCEN on mandated improvements, adopt a rigorous training regime, and engage in a “look-back” for suspicious transactions.

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