On April 28, the CFPB issued a letter to banking and industry groups in response to an inquiry by the Mortgage Bankers Association (MBA) and other groups seeking additional clarification on the Know Before You Owe rule. In response to industry concerns, the CFPB announced that it had begun drafting a Notice of Proposed Rulemaking (NPRM) and anticipates it will be issued in late July. The NPRM will incorporate some of the CFPB’s existing informal guidance, as well as make adjustments to the text and commentary for additional certainty and clarity. The MBA and others have praised the CFPB’s response, and particularly that the proposed rulemaking is on an expedited track.
On April 28, the CFPB published a draft of its Student Loan Payback Playbook. According to the CFPB, the Payback Playbook is designed “to help borrowers understand their options and exercise their right to a student loan payment they can afford" and “put[s] into practice the statement of principles for student loan servicing” jointly released by the CFPB, the Department of Education and the Department of the Treasury last fall.
On April 27, the Financial Accounting Standards Board voted to move forward with its Current Expected Credit Loss (CECL) standard, but to delay effectiveness by one year. Banks that file periodic reports with the Securities and Exchange Commission(SEC) will now have until 2020 to implement CECL, while non-SEC filers will have until 2021. Early adoption will be permitted starting in 2019. The final standard is expected to be published in June 2016 in order to give banks and their accountants and auditors sufficient time to review and prepare for the changes by the effective dates. The CECL standard would accelerate the time at which expected credit losses would be recognized compared to the current standard, which generally requires that a loss be probable (or be incurred) before being recognized.
On April 26, the U.S. House of Representatives passed a bill (H.R. 4096) that would amend the Volcker Rule to permit a hedge fund or private equity fund to share the same name, or a variation of the same name, as a banking entity that is an investment adviser to the hedge fund or private equity fund, if (1) the investment adviser is not an insured depository institution, a company that controls an insured depository institution, or a company treated as a bank holding company for purposes of the International Banking Act of 1978 relating to nonbanking activities of foreign banks; (2) the investment adviser does not share the same name, or a variation of it, as an insured depository institution, a company that controls an insured depository institution, or a company treated as a bank holding company for the specified purposes of the International Banking Act of 1978; and (3) the name does not contain the word "bank." The bill was passed by voice vote and its prospects for passage in the Senate are unclear.
On April 25, the SEC’s Division of Investment Management issued a No-Action Letter permitting sub-advisers in an investment advisory program for which a related person qualified custodian is the primary adviser (or an affiliate of the primary adviser) to forgo the annual surprise examination by an independent accountant required by custody Rule 206(4)-2 (the Rule) under the Investment Advisers Act of 1940, provided the primary adviser is responsible for complying with the Rule and other conditions are satisfied. The other conditions include: (i) the sole basis for the sub-adviser having custody is its affiliation with the qualified custodian and the primary adviser; (ii) the primary adviser will comply with the Rule, including an undertaking to submit to a surprise examination by an independent accountant registered with the Public Company Accounting Oversight Board (PCAOB); (iii) the sub-adviser does not (a) hold client funds or securities itself, (b) have authority to obtain possession of clients’ funds or securities, or (c) have authority to deduct fees from clients’ accounts; and (iv) the sub-adviser will continue to be required to obtain from the primary adviser or qualified custodian a written internal control report from an independent accountant registered with the PCAOB on an annual basis.
On April 27, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2016-13, reminding national banks and federal savings associations of their obligation to provide regulators full and unimpeded access to their books and records. Communications technology, such as encryption and data deletion, should not be used in a way that limits examiner access to bank records.
On April 27, the Office of Inspector General of the Federal Deposit Insurance Corporation (FDIC) updated its Financial Institution Employee’s Guide to Deposit Insurance. The guide is a resource for bank employees to understand the FDIC’s rules and requirements for deposit insurance coverage. The guide contains basic information about deposit insurance and general principles of coverage as well as details of particular account types.
Enforcement & Litigation
On May 3, FINRA and MetLife Securities Inc. (MetLife) agreed in a FINRA Letter of Acceptance, Waiver and Consent to pay a $20 million fine to FINRA and $5 million to certain MetLife customers holding variable annuity (VA) contracts. FINRA found that from 2009 to 2014, MetLife negligently misrepresented or omitted one or more material facts in 72 percent of at least 35,500 replacement VA applications MetLife approved, including: (i) falsely representing that the recommended replacement VA was less expensive than a customer’s existing VA contract, (ii) failing to disclose that the replacement VA could reduce or forfeit certain guarantees in the existing VA contract such as accrued death benefit values and guaranteed income benefits, among other benefits and (iii) understating the future value of customers’ existing contractual guaranteed death benefit in a disclosure statement required by New York’s Regulation 60. Among other findings, FINRA also noted that MetLife failed to implement reasonable supervisory systems, written procedures or training to ensure (a) that it and its registered representatives used accurate information regarding the costs and guarantees on VA replacements, (b) the suitability of the proposed replacement and (c) the accuracy of disclosure and account statements given to its customers. MetLife consented to entry of FINRA’s findings without admitting or denying the charges.
Goodwin Procter News
Did you know that sharing certain information in the diligence process of a transaction can pose significant antitrust risk? Many assume that once a deal is signed, it is full steam ahead and the two entities, previously competitors, can start behaving in unison. They would be wrong. Careful attention to the diligence and integration planning processes in any transaction is essential. Failing to take heed can mean fines of up to $16,000 per day per violation, civil lawsuits and allegations of collusion, and derailment of the underlying transaction. Please see the client alert prepared by Goodwin’s Antitrust & Competition team for more information.
Laura Hodges Taylor, a partner in Goodwin’s Financial Institutions Group, authored an article entitled, “Why Working Mothers Shouldn’t Hide Their Home Lives” for Motto, a blog showcasing women leaders by the editors of TIME.