Weekly RoundUp March 29, 2017

Financial Services Weekly News

Editor's Note

In This Issue. The Securities and Exchange Commission (SEC) was active this week, moving to shorten the settlement cycle for broker-dealer transactions from T+3 to T+2 and issuing updated guidance clarifying the safe harbor for inadvertent investment companies under the 1940 Act. Meanwhile, in litigation and enforcement news, the Consumer Financial Protection Bureau (CFPB) entered into a consent order with a credit reporting agency to resolve allegations of misrepresentation and the Federal Trade Commission (FTC) issued an order against a debt relief company regarding alleged misrepresentations. These and other recent developments are discussed below.

Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

Client Alert: SEC Shortens Settlement Cycle to T+2

The SEC has adopted an amendment that will shorten the standard settlement cycle for most broker-dealer transactions from T+3 to T+2. Related amendments to rules of the New York Stock Exchange, the Nasdaq Stock Market and the NYSE MKT approved by the SEC in February 2017 will become operative concurrently with this amendment. For more information, view the client alert issued by Goodwin’s Public Companies Practice.

SEC Division of IM Guidance: Safe Harbor for Inadvertent Investment Companies

The staff of the SEC’s Division of Investment Management issued a guidance update clarifying Rule 3a-2 under the Investment Company Act of 1940 (the 1940 Act), the “transient investment company” safe harbor, as it applies to holding companies (the Safe Harbor). Rule 3a-2 currently exempts issuers from the definition of an “investment company” for one year starting from the earlier of either (1) the date when the issuer owns securities or cash that exceed 50% of the issuer’s total asset value (the 50% Threshold), or (2) the date when the issuer owns or proposes to acquire investment securities that exceed 40% of the issuer’s total asset value (the 40% Threshold). However, because many holding companies hold securities of their subsidiaries routinely and continuously in an amount that constantly exceeds the 50% Threshold, such holding companies are effectively blocked from ever using the Safe Harbor. In the guidance update, the SEC clarified that the one-year period for holding companies will not be triggered until a holding company exceeds the 40% Threshold.

Banking Agencies Issue Joint Report to Congress Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996

On March 22, the member agencies of the Federal Financial Institutions Examination Council (FFIEC) issued a joint report to Congress detailing their review of rules affecting financial institutions. The review was conducted pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) by the Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), and in conjunction with the National Credit Union Administration (NCUA). EGRPRA requires the federal banking agencies, along with the FFIEC, to conduct a review of their rules at least every 10 years to identify outdated or unnecessary regulations. The report describes several joint actions planned or taken by the federal financial institutions regulators as a result of their EGRPRA review, including:

  • Simplifying regulatory capital rules for community banks and savings associations;
  • Streamlining reports of condition and income (Call Reports);
  • Increasing the appraisal threshold for commercial real estate loans;
  • Addressing appraiser shortages in rural areas;
  • Expanding the number of institutions eligible for less frequent examination cycles;
  • Clarifying guidance regarding flood insurance;
  • Increasing the major assets interlock threshold; and
  • Providing additional guidance on Regulation O.

The report also describes the individual actions taken by each agency to update its own rules, eliminate unnecessary requirements, and streamline supervisory procedures.

Enforcement & Litigation

CFPB Enters Into Consent Order With Credit Reporting Agency Over Alleged Misrepresentations

On March 23, the CFPB announced that it had entered into a consent order with a California-based credit reporting agency (CRA) and its subsidiaries, resolving allegations that the CRA deceived consumers by misrepresenting that the credit score reports that it marketed to consumers were used by lenders in determining a consumer’s credit worthiness. View the Enforcement Watch blog post.

FTC Issues Order Against Debt Relief Company for Alleged Misrepresentations

On February 27, the FTC entered into a stipulated order for permanent injunction and monetary judgment with defendants United Debt Counselors, LLC, a debt relief company, and its principals, banning the defendants from making misrepresentations about financial products and services and requiring the defendants to pay a $9 million penalty. The order concerns the FTC’s allegations that defendants—through mail advertisements and statements on their website and via telephone—misrepresented how much consumers’ credit card debt would be reduced when using the defendants’ services. View the LenderLaw Watch blog post.

Client Alert: Massachusetts Supreme Judicial Court Clarifies the Requirements for Shareholder Inspection Demands

In Chitwood v. Vertex Pharm. Inc., SJC-12101 (March 20, 2017), the Massachusetts Supreme Judicial Court (SJC) provided important guidance on the scope of the Massachusetts shareholder inspection statute, Mass. G.L. 156D § 16.02, as well as the requirements for a shareholder who makes a demand pursuant to the statute. The case is noteworthy as the SJC’s first-ever decision concerning the requirements of the Massachusetts inspection statute, and Massachusetts companies and practitioners will want to take careful note of the key distinctions between Massachusetts and Delaware law in this area, as highlighted by the Court’s opinion. Goodwin served as counsel to Vertex Pharmaceuticals Inc. (Vertex) in the case. For more information, view the client alert issued by Goodwin’s Securities Litigation and White Collar Defense Group.

Goodwin News

Goodwin + YES Boston’s Fintech Discussion 2017 – March 30

The Yale Entrepreneurial Society and Goodwin will host YES Boston 2017 for a panel discussion on financial technology and networking reception. Welcome and introduction remarks will be provided by Goodwin partner Bill Schnoor and Stephen Kelleher, Senior Director of BNY Mellon. The panelists include: Jeremy Allaire, Founder, Chairman and CEO of Circle Internet Financial, Inc., Sean Belka, SVP/Director of Fidelity Center for Applied Technology/Fidelity Labs, Ralph Dangelmaier, CEO of BlueSnap, Inc., Robert Erman, Managing Director/Head of Client Solutions Innovation BNY Mellon Technology Solutions, Sarah Hodkinson, VP Marketing of TripAdvisor, Inc. and Board Member of Radius Bank and Benjamin Malka, General Partner of F-Prime Capital. For further details, please email Events@goodwinlaw.com.

ACI’s 28th National Consumer Finance: Class Actions & Litigation Conference – April 4 - 5

Consumer financial services companies are facing unprecedented regulatory and enforcement scrutiny and mounting litigation, and there is no sign of change coming anytime soon. That is why it is essential that in-house and outside counsel have a mastery of new class action trends, emerging theories of liability, the latest enforcement actions and regulatory initiatives, and the most effective defense and settlement strategies. It is with this in mind that American Conference Institute has developed its 28th National Conference on Consumer Finance Litigation & Regulatory Enforcement returning to its New York City east coast location. Thomas Hefferon, chair of the firm's Consumer Financial Services Litigation Practice, will serve as co-chair of this conference and partner Sabrina Rose-Smith will be a speaker on the “Student Loans and PayDay Loans: Managing Increased Regulatory Scrutiny, Litigation, and Assessing Proposed Rules by the CFPB on Payday Loans” panel. For additional information, please visit the event website.

2017 Blockchain Technology and Digital Currency National Institute – April 10

The 2017 Blockchain Technology and Digital Currency National Institute will take place on April 10, 2017, in New York City. This special program is dedicated to in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like Bitcoin, and blockchain technology. It will be an informative and exciting opportunity for anyone interested in better understanding the interplay of the law, digital currencies and blockchain technology. The speakers and panels will explore topics including blockchain innovations and opportunities; emerging intellectual property issues; global regulatory efforts; and recent law enforcement actions. Grant Fondo, a chair of Goodwin’s Digital Currency and Blockchain Technology Practice and partner in Goodwin’s Securities Litigation and White Collar Defense Group, will be a featured speaker. For more information, please visit the event website.

Higher Education Symposium – April 13

Goodwin is pleased to present this event created specifically to address issues faced by trustees, officers and in-house counsel at colleges, universities and research institutions. We are delighted to present David Greene, President of Colby College, as our keynote speaker. David is a highly respected leader in education and business and will provide an inspiring perspective on his experience with public/private partnerships focused on revitalizing cities and neighborhoods where schools are located. The symposium will also feature a panel discussion with in-house counsel at higher education institutions concerning the relationships between schools and their students, as well as interactive sessions led by industry experts and thought leaders on privacy and cybersecurity and recent developments in 403(b) plan excessive fee litigation. For more information, please visit the event website.

This week’s Roundup contributors: Alyssa Sussman