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Weekly RoundUp
October 28, 2015

Financial Services Weekly News


SEC Chair White on the Regulation of Private Fund Advisers After Dodd-Frank. Chair Mary Jo White of the SEC gave the keynote address at the Managed Fund Association meeting on Oct. 16, the same day that the SEC announced the report of the Risk and Examinations Office of the SEC Division of Investment Management on Private Fund Statistics for the fourth calendar quarter of 2014. White noted that before 2010, the SEC had relatively limited insight into private funds and the business of private fund advisers, not even knowing how many there were. As a result of the Dodd-Frank Act and the requirement that many more fund advisers register, the SEC now has information about private fund advisers from Form ADV and Form PF, filed confidentially by private fund advisers that each manage more than $150 million in private fund assets, that they did not previously have. The SEC has three full sets of annual Form PF data, as well as data from 11 sets of quarterly Form PF filings. Among the statistics that White cited were that more than half of all large hedge fund advisers reported aggregate economic leverage less than 2.5 times their total reported hedge fund net assets, and that fewer than 100 reporting hedge funds, representing less than $70 billion in combined assets (out of total net assets for all reporting hedge funds of $3.4 trillion), manage some portion of their funds using high-frequency trading strategies. Chair White discussed how the data is helping the SEC to understand the risk profiles of individual firms, the broader fund industry and the financial system as a whole, and in the remainder of her remarks, she discussed what the SEC staff has learned from the data, and from examinations of firms by OCIE, about individual firm risks, especially operational and compliance risks. Her discussion of operational risks and compliance risks, in particular, provides a good short summary of many of the issues being considered by OCIE and the enforcement staff.
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Regulatory Developments

SEC to Vote on Final Title III Crowdfunding Rules Oct. 30

The SEC has announced that it will vote on whether to adopt rules and forms related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III legislation. The SEC will also consider whether to propose amendments to Securities Act Rule 147 and Rule 504. Observers are waiting to see if the final rules will reduce the compliance burden on crowdfunding issuers and intermediaries (brokers and funding portals), including financial statement requirements that, in the proposed Rule 201, included audited financial statements for offerings over $500,000.

Department of Education Announces Final Student Banking Regulations

On Oct. 27 the Department of Education announced the publication of two regulatory packages first proposed earlier this year. The Cash Management regulation (unofficial text available here) includes requirements that institutions give students greater choice about how to receive their student aid and that institutions ensure that students are not charged excessive fees in making direct payments of Federal student aid. The Revised Pay As You Earn (REPAYE) Plan regulations (unofficial text available here) expand income-based repayment options for student borrowers. The new REPAYE plan will be available to borrowers starting December 2015.

FDIC Approves Joint Rule on Swap Margin Requirements

On Oct. 22 the FDIC approved the Joint Final Rule on Margin and Capital Requirements for Covered Swap Entities, which was adopted in conjunction with the Office of the Comptroller of the Currency, the Federal Reserve Board, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the Agencies). The purpose of the rule is to establish minimum margin and capital requirements applicable to registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants who enter into non-cleared swaps and security-based swaps. Sections 731 and 764 of the Dodd-Frank Act require the Agencies to adopt such rules to address the increased risk to swap entities and the financial system from entering into non-cleared swaps and security-based swaps. The rule will apply to entities supervised by the Agencies and will become effective on April 1, 2016.

Enforcement & Litigation

SEC Announces Enforcement Results for FY 2015

The SEC recently announced the results of its enforcement actions in fiscal year 2015. The SEC filed 807 enforcement actions in 2015 (up from 755), with penalties and disgorgements totaling approximately $4.2 billion (up from $4.16 billion). In the release, the SEC highlighted the broad range of misconduct covered, and the various “high impact, first-of-their-kind actions” pursued by the Commission.

New Business Litigation Reporter Available

The October 2015 edition of the Goodwin Procter Business Litigation Reporter is available. In addition to timely summaries of key cases and other developments in dedicated Business Litigation sessions and related courts nationwide, the current issue features a close look at some of the key issues associated with D&O insurance coverage for government investigations and discuss how to maximize that coverage if an investigation arises.

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