Regulatory Developments
House Votes to Repeal CFPB Indirect Auto Lending Guidance On May 8, by a 234-175 largely party line vote, the U.S. House of Representatives passed a resolution of disapproval (S.J. Res. 57) under the CRA relating to “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” issued by the CFPB. As reported in the April 25 edition of the Roundup, the Senate recently passed an identical resolution of disapproval. Once signed by President Trump, the resolution of disapproval will invalidate the CFPB’s 2013 guidance on indirect auto lending, which imposed limits on how and what indirect lenders pay car dealers who provide financing and how much discretion dealers have to set loan terms and rates.
On May 3, the Financial Industry Regulatory Authority (FINRA) filed for immediate effectiveness amendments to Rule 3310. Rule 3310, FINRA’s Anti-Money Laundering (AML) Compliance Program rule, is amended to reflect the Treasury Department’s Financial Crimes Enforcement Network’s final rule on Customer Due Diligence Requirements for Financial Institutions (CDD Rule). These amendments follow FINRA’s Regulatory Notice 17-40 which provided guidance to member firms regarding their obligations under FINRA Rule 3310 in light of the CDD Rule. The amendments merely codify existing expectations and do not add new requirements. In codifying these expectations, FINRA incorporated into Rule 3310 the ongoing customer due diligence requirement established by the CDD Rule and specifically required FINRA member firms to establish AML programs that, at a minimum, include appropriate risk-based procedures for conducting ongoing customer due diligence. FINRA indicates in its Regulatory Notice 18-19 that these AML programs should include procedures that allow the member firms to (1) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (2) conduct ongoing monitoring to identify and report suspicious transactions. Member firms should ensure that AML programs are updated to comply with the CDD Rule by May 11, 2018.
SEC Proposes Amendments to Auditor Independence Rules With Respect to Debtor-Creditor Relationships
On May 2, the Securities and Exchange Commission (SEC) issued a proposal to amend its auditor independence rules in a manner that would refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period. The proposed amendments:
- focus the analysis solely on beneficial ownership, rather than on both record and beneficial ownership, to more effectively identify shareholders with “a special and influential role with the issuer”;
- replace the existing 10 percent bright-line shareholder ownership test with a “significant influence” test, which involves a more qualitative analysis of whether a lender has the ability to “exert significant influence” over an auditor’s policies;
- add a “known through reasonable inquiry” standard with respect to identifying beneficial owners of the audit client’s equity securities, given the difficulty of accessing beneficial-ownership records; and
- amend the definition of “audit client” for a fund under audit to exclude funds that otherwise would be considered affiliates of the audit client.
Comments are due by July 9, 2018.
On April 18, the SEC voted to propose a package of rulemakings and interpretations designed, in the words of the accompanying press release, “to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products.” The proposals consist of:
- A new Regulation Best Interest (Regulation BI), requiring a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer (Release No. 34-83062);
- Interpretive guidance reaffirming and, in some cases, clarifying the SEC’s views of the fiduciary duty that investment advisers owe to their clients (Release No. IA-4889); and
- A requirement to provide a new short-form relationship summary called Form CRS (for client or customer relationship summary) (Release Nos. 34-83063 and IA-4888).
The SEC invites comment on the proposals. The public comment period will remain open until August 7, 2018. For more information, read the client alert issued by Goodwin’s Financial Industry practice.
Federal Banking Regulators to Host Teleconference on CECL Methodology
The Federal Deposit Insurance Corporation, the OCC, and the Federal Reserve will host an interagency conference call on May 15, 2018, from 1:00 pm to 2:00 pm Eastern Time to address certain proposed changes to their capital rules, including: (1) the definition of a new term, Allowance for Credit Losses; (2) revised definition of carry value for available-for-sale debt securities and purchased credit deteriorated assets; (3) mechanics of the proposed CECL transition provision; and (4) new disclosure and regulatory reporting requirements. A question-and-answer session will follow the presentation. For information on how to participate in the teleconference, please see the Financial Institutions Letter (FIL-23-2018).
Enforcement & Litigation
DOL Announces Temporary Enforcement Policy for Fiduciary Rule
On May 7, the U.S. Department of Labor (DOL) issued a bulletin announcing a temporary enforcement policy related to the DOL’s “Fiduciary Rule” and related exemptions (Rule). To consider possible amendments to the Rule, the DOL had previously delayed the applicability of the best interest contract exemption, principal transaction exemption, and certain prohibited transaction exemption amendments for an extended transition period through July 1, 2019, during which the DOL would not pursue claims against fiduciaries who were working in good faith to comply with the Rule. Expecting a decision from the U.S. Court of Appeals for the Fifth Circuit vacating the Rule and related exemptions in their entirety, the DOL is now permitting institutions to continue to rely on its prior temporary enforcement policy. For the period from June 9, 2017, until after the DOL issues further guidance, the DOL “will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted…or treat such fiduciaries as violating the applicable prohibited transaction rules.” Investment advice fiduciaries may also rely on other applicable exemptions. The DOL is considering the need for other temporary or permanent relief and will consider applications for additional relief.
Goodwin News
At Consensus, CoinDesk’s 4th annual blockchain technology summit, professionals from leading industry startups, investment firms, financial services giants, global brands, academic institutions and policy groups will return to New York to discuss the evolving real-world applications of blockchain technology. The 2018 summit will feature three days of demos, networking and expert discussions regarding the most important commercial developments, technical innovations, and public policy issues; 250+ speakers; and 4,000+ attendees who are building the foundations of the blockchain and digital currency ecosystem. Goodwin is a Block Sponsor of the event. For more information, please visit the event website.
Coin Center Annual Dinner 2018 – May 14
A night of dinner and entertainment held alongside Consensus 2018 in support of Coin Center’s policy advocacy mission. Every year, the Coin Center Annual Dinner is an opportunity for the cryptocurrency community to come together and celebrate how far the industry has come. Goodwin is a silver sponsor of the dinner. For more information, please visit the event website.
COMPLY 2018: The RegTech and Compliance Conference – May 16-17
COMPLY is the world’s largest RegTech and Compliance event — bringing together the most comprehensive gathering of innovators, investors, legal and compliance professionals and regulators from across the globe. Anthony Alexis, head of Goodwin’s Consumer Financial Services Enforcement practice and former Assistant Director and Head of the Office of Enforcement at the CFPB, will be a speaker on the panel, “Hear from the Regulators: U.S. and International.” For more information, please visit the event website.
Pennsylvania Bankers Association Annual Convention – May 16-19
Goodwin will serve as a sponsor at the 2018 Pennsylvania Bankers Association Annual Convention. Samantha Kirby and Matthew Dyckman will speak on the “Mission Critical: The Importance of Board Composition & Succession to the Future of the Enterprise” session. For more information, please visit the event website.
BBA Privacy & Cybersecurity Conference – May 21
The Boston Bar Association’s Privacy & Cybersecurity conference will provide comprehensive, cutting-edge educational sessions presented by leading industry speakers and high level networking throughout the day. Gain insights and strategies to guide your clients through the challenging legal and regulatory privacy and cybersecurity landscape. Panelists will cover a variety of pressing issues across eight curated sessions including law enforcement and regulatory trends, GDPR guidance from chief privacy officers, strategies for creating an effective incident response plan, and more. Goodwin’s Bill Stern will lead a panel on Financial Services and Cryptocurrency. For more information, please visit the event website.
Legal Quick Hit: CFPB Today – Trends and Enforcement – May 23
The Association of Corporate Counsel (ACC) is hosting a teleconference on CFPB’s supervision and enforcement priorities under the Trump administration and its current Acting Director, Mick Mulvaney. The panel discussion includes Anthony Alexis, head of Goodwin’s Consumer Financial Services Enforcement practice and former Assistant Director and Head of the Office of Enforcement at the CFPB. Mr. Alexis and his fellow panelist will share their insights about the inner workings of the CFPB and discuss new developments at the CFPB and their implications for 2018. This teleconference is free and exclusive to ACC members. For more information, please visit the event website.
This week’s Roundup contributor: Alex Callen.