On April 5, the FDIC issued a final rule making technical amendments to its rules governing deposit insurance assessments. The technical amendments clarify that small bank assessment credits will be applied for assessment periods in which the reserve ratio of the Deposit Insurance Fund (DIF) is at least 1.38 percent instead of, as currently provided, when the ratio exceeds 1.38 percent; remove a data item from the assessment regulations that most small banks can no longer report in their call reports; and re-incorporate, for assessment purposes, the capital definitions and ratio thresholds used for prompt corrective action that were inadvertently removed in a 2016 rulemaking. The FDIC believes that the amendments will have little or no effect on the deposit insurance assessments for insured depository institutions, and any potential effect would result in lower assessments.
On April 5, the FHFA issued a notice of a regulatory review to be conducted in accordance with its Review Plan, which provides that the FHFA will review its regulations at least every five years, and requested public comments on how its regulations could be made more effective and less burdensome. Suggested factors for commenters to discuss include: legal or regulatory developments that make a regulation inefficient, obsolete, contrary to controlling legal precedent, or unduly burdensome; marketplace or technology developments that make a regulation inefficient, outmoded, or outdated; the extent to which regulations are written in plain language or need clarification; compelling evidence that consolidation, elimination, or revision of regulations would facilitate compliance or improve FHFA supervision; and demonstration, with supporting evidence, of a better alternative method to effect a regulatory purpose or requirement. Comments are due by June 4, 2018.
On April 4, the Consumer Financial Protection Bureau (CFPB) issued a request for information (RFI) seeking comments and information regarding its programs providing consumer financial education. The CFPB is currently reviewing the overall effectiveness of its consumer financial education programs and is particularly interested in feedback on its focus on various consumer financial topics, delivery channels and its use of technology. The CFPB will accept comments after the RFI’s anticipated April 9 printing date.
As noted in the April 4 edition of the Roundup, the Board of Governors of the Federal Reserve System, the FDIC, and the Office of the Comptroller of the Currency (the Agencies) finalized additional technical revisions to streamline the call report, which will take effect as of the June 30, 2018, report date. The Agencies subsequently released a 45-page slide deck from an April 5, 2018, webinar regarding these call report revisions and other reporting changes. The deck includes slides addressing (1) call report changes for investments in equity securities and other equity investments, (2) the regulatory capital transition rule, (3) call report burden-reduction initiatives and resulting call report revisions, and (4) reporting implications of the new federal tax laws.
Enforcement & Litigation
On April 6, the SEC settled charges with three investment advisers for breach of their fiduciary duties and improper fees generated by their breaches. Through the Share Class Selection Disclosure Initiative (discussed in a previous Roundup), Geneos Wealth Management, Inc. (Geneos), PNC Investments LLC (PNCI), and Securities America Advisors Inc. (SAA) (collectively, the Advisers) self-reported their misconduct and undisclosed conflicts of interest. The Advisers failed to:
- disclose the conflict of interest caused by the additional compensation received for placing clients in a 12b-1 fee paying share class when a less expensive share class was available for the same fund,
- seek best execution when investing advisory clients in share classes that charged 12b-1 fees instead of less expensive share classes of the same funds that were available without 12b-1 fees, and
- adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its mutual fund share class selection practices.
The SEC’s orders also found that PNCI and Geneos failed to disclose the conflict of interest associated with compensation they received from third parties for investing clients in particular mutual funds, and that PNCI improperly charged advisory fees to client accounts for periods when there was no assigned investment advisory representative. Without admitting or denying the findings, the advisers each consented to a cease-and-desist order and a censure. Together the Advisers were ordered to disgorge slightly more than $13 million and were fined approximately $2 million, which, considering the Division of Enforcement’s previous warning that it expects to recommend stronger sanctions in any future actions against investment advisers that have engaged in similar misconduct but fail to take advantage of the Share Class Selection Disclosure Initiative, could have been a larger penalty.
On March 28, the FDIC announced settlements with a bank and an affiliated lender (Defendants) relating to allegations of deceptive lending practices. According to the FDIC, the Defendants provided, as “debt-settlement products,” loans to borrowers who were heavily indebted, which loans had settlement fees of up to 25% of the principal amount outstanding. The FDIC alleged that the Defendants committed unfair and deceptive practices by failing to provide borrowers with the essential terms of the loans they were signing up for, failing to inform borrowers they would have to negotiate their debt themselves, and misrepresenting the speed of the settlement and the benefit to the borrowers’ credit scores. View the Enforcement Watch blog post.
On March 28, the Department of Justice (DOJ) announced it had filed a lawsuit in the Central District of California against an auto lender for allegedly repossessing the vehicles of members of the armed forces protected by the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. § 3952. According to the complaint, which is based on a grievance filed with the DOJ by a servicemember, the lender repossessed the servicemember’s vehicle the day she began active military service. View the Enforcement Watch blog post.
Directors, C-Suites, and General Counsel are increasingly focusing on compliance – a critical aspect to every business operation. Mistakes can seriously heighten corporate and personal liability. Not only do the DOJ and SEC have an impact on compliance, but state and local regulators – particularly in New York – are also intensely overseeing compliance initiatives and ethics of financial services institutions and other industries. Goodwin partner Richard Strassberg joins Alexander Vasilescu, New York Head of Litigation at the United States Securities and Exchange Commission, and Yan Cao, Principal at Cornerstone Research, as the panel for this program. Goodwin is also pleased to announce that partner James Gatta, who recently rejoined the firm following his tenure as Chief of the Criminal Division of the U.S. Attorney’s Office for the Eastern Division of New York, will also join the panel discussion. The panel will provide an overview of key federal and state regulatory and compliance issues in financial services and other industries. For more information, please visit the event website.
Join NRS at its Spring 2018 Conference – Compliance Agility: Risk, Resources & Technology, where industry experts will address how investment adviser and broker-dealer firms can successfully navigate the disruptive currents of regulatory change and adapt agile procedures to compliance programs.
Hosted by the American Bar Association, this special program is dedicated to an in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like bitcoin, and blockchain technology. Grant Fondo, partner and chair of Goodwin’s Digital Currency & Blockchain Technology practice, will be a featured speaker.
Consero’s 2018 Financial Services & Insurance Litigation Forum will address current and looming legal and business challenges faced by today’s chief litigation officers, providing a one-of-a-kind opportunity to share best practices and strategies that will help lead their departments and companies in the right direction. Goodwin is a sponsor. For more information, please visit the event website.
MBA’s Legal Issues and Regulatory Compliance Conference gathers industry leaders to consider best practices, organizational changes needed to assimilate to final rules and knowledge to educate staff. Goodwin is a sponsor.