On October 12, the staff of the SEC’s Division of Investment Management (Staff) granted no-action relief from potential violations of the Investment Company Act of 1940 (1940 Act) in response to a request from the Independent Directors Council. Specifically, the Staff provided assurances that it would not recommend enforcement action for violations of Sections 10(f), 17(a) and/or 17(e) of the 1940 Act, if a fund’s board of directors receives, no less frequently than quarterly, a written representation from the fund’s chief compliance officer (CCO) that transactions effected in reliance on Rules 10f-3, 17a-7 and 17e-1 under the 1940 Act complied with the procedures adopted by the board pursuant to each rule. Prior to this no-action position, fund boards were required to determine no less frequently than quarterly that all transactions made pursuant to each applicable rule for the preceding quarter were effected in compliance with such procedures. In granting no-action relief, the Staff recognized that the number and scope of director responsibilities have grown significantly as a result of market, regulatory and technological developments, and that such relief would allow boards to avoid duplicating certain functions commonly performed by, or under the supervision of, CCOs.
On October 17, the FSOC announced that it unanimously approved the rescission of the designation of Prudential Financial, Inc. (Prudential) as a “systemically important financial institution” (SIFI) under the Dodd-Frank Act. Designation as a SIFI results from FSOC’s determination that an institution could pose a threat to the financial stability of the United States, and such a designation subjects nonbank designees to supervision by the Board of Governors of the Federal Reserve System (Federal Reserve) and to certain enhanced prudential regulations. Prudential had been the last remaining nonbank designated by FSOC as a SIFI. Other nonbanks (AIG, GE Capital, and MetLife) have previously shed their SIFI designations.
On October 3, the Federal Reserve released a request (Request) for comments regarding potential Federal Reserve actions to support faster payment services infrastructure for real-time interbank settlements made at any time on any day. Among other things, the Federal Reserve seeks comments on whether a real-time gross settlement (RTGS) service, as opposed to a deferred net settlement (DNS) service, is an appropriate foundation for future interbank settlement of faster payments, and, if so, whether and how the Reserve Banks should consider developing such a service and auxiliary services. According to the Request, the Federal Reserve currently believes that an RTGS service is preferable to a DNS service from a risk and efficiency perspective and that an RTGS service would provide the safest and most efficient foundation for interbank settlement for future payment services. The Request enumerates a variety of specific questions soliciting public comments, including whether any other approaches might help achieve the goals of ubiquitous, nationwide access to safe and efficient faster payments. Comments must be received by December 14, 2018.
On October 3, the Federal Reserve, the FDIC, the OCC, the National Credit Union Administration, and FinCEN issued a joint statement to address instances in which certain banks and credit unions may decide to enter into collaborative arrangements to share resources to manage their Bank Secrecy Act (BSA) and anti-money laundering obligations more efficiently and effectively. Collaborative arrangements as described in the statement generally are most suitable for financial institutions with a community focus, less complex operations, and lower-risk profiles for money laundering or terrorist financing. The statement posits that the cost of meeting BSA requirements and effectively managing the risk that illicit finance poses to the broader U.S. financial system may be reduced through sharing employees or other resources in a collaborative arrangement with one or more other banks. These arrangements may also provide access to specialized expertise that may otherwise be challenging to acquire without the collaboration.
On October 16, the Federal Reserve, the OCC and the FDIC (together, Agencies) issued a set of frequently asked questions (FAQs) in response to recent questions about the Agencies’ real estate appraisal regulations and guidelines. The FAQs are not intended to introduce new policy or guidance, but to assemble previously communicated policies and interpretations. The FAQs should be reviewed alongside applicable Agency regulations and guidance, including the Interagency Appraisal and Evaluation Guidelines and the Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions. These new FAQs incorporate portions of, and they supersede, the FAQs previously issued by the Agencies in 2005.
As described in our two earlier client alerts, SEC Adopts First Steps in Disclosure Simplification (September 12, 2018) and SEC Publishes Guidance on Form 10-Q and Disclosure Simplification (October 1, 2018), the SEC adopted final disclosure simplification amendments affecting numerous disclosure requirements and forms on August 17, 2018. The amendments have been published in the Federal Register and will become effective on Monday, November 5, 2018. For more information, read the client alert issued by Goodwin’s Public Companies practice.
On October 10, the Department of the Treasury exercised its authority under the recently passed Foreign Investment Risk Review Modernization Act (FIRRMA) to implement a pilot program that expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) and imposes mandatory filing requirements on certain transactions in the U.S. technology sector. The pilot program regulations are available here. For more information, read the client alert issued by Goodwin’s Global Trade practice.
Like last year, 2018 is shaping up to be a busy year for de novo bank charters, with signs suggesting that we will continue to see strong interest in bank formation. The FDIC has already approved seven applications for deposit insurance for de novo institutions through September, and it approved eight during 2017, which was the most since 2010. While many bank chartering proposals are likely to originate from groups proposing to conduct a traditional community banking business, the last few years have seen increasing interest among nonbank financial services providers, including technology-enabled firms engaged in payments, crypto currency and lending businesses, in exploring whether to operate through a depository institution charter. For more information, read the Fintech Flash issued by Goodwin’s Fintech practice.
Is this the beginning of the end for the substantial compliance freedoms enjoyed by factors and merchant cash advance providers? A new California law, SB 1235, foists consumer cost of credit-like disclosures onto a largely unregulated sector of the financial industry. In this Fintech Flash, we’ll tell you everything you need to know about it.
Enforcement & Litigation
On October 3, Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York issued a decision that largely denied an investment adviser’s motion for summary judgment in an action filed against Calamos Advisers, LLC under Section 36(b) of the Investment Company Act of 1940. Like Section 36(b) complaints filed against other advisers, the Calamos complaint was premised on allegations that the adviser provided substantially similar advisory services for a lower fee as subadviser to unaffiliated funds. Like other district court decisions, the Calamos decision is not binding precedent on any other court. For more information, read the client alert issued by Goodwin’s Investment Management practice.
On September 26, a federal judge in Massachusetts agreed with the Commodity Futures Trading Commission’s (CFTC) view that virtual currencies are commodities under the Commodity Exchange Act (CEA) and subject to federal regulation. See CFTC v. My Big Coin Pay, Inc., No. CV 18-10077-RWZ, 2018 WL 4621727 (D. Mass. Sept. 26, 2018). This decision will allow the CFTC to continue policing not only futures contracts and swaps involving virtual currencies, but also fraud or manipulation of virtual currencies traded in interstate commerce. View the Digital Currency & Blockchain Perspectives blog post.
On September 20, the Ninth Circuit issued an opinion finding that the Telephone Consumer Protection Act’s (TCPA’s) “automatic telephone dialing system” (ATDS) definition is vague and ambiguous, and interpreting the statutory definition anew. More specifically, in Marks v. Crunch San Diego, LLC, the court interpreted the TCPA’s ATDS definition broadly to include equipment that dials telephone numbers from a list regardless of whether those numbers were randomly or sequentially generated. View the LenderLaw Watch blog post.
On September 13, the Consumer Financial Protection Bureau (CFPB) announced that it filed a complaint against a lender, its president, and related entities (“Defendants”) for allegedly making small-dollar loans in exchange for borrowers’ monthly pension payments, which the CFPB alleges is a violation of the Consumer Financial Protection Act, 12 U.S.C. § 5536(a)(1)(B). The complaint alleges the Defendants misrepresented that the pension-advance products they offered were not loans and misrepresented that the products were not subject to interest rates. View the Enforcement Watch blog post.
The Money 20/20 Conference, one of the largest global events focused on payments and financial services innovation, attracts more than 1,500 CEOs from over 4,500 companies and 85 countries. Goodwin is a sponsor. For more information, please visit the event website.
New York City is the place where trends, leaders and history are made, so it’s only fitting that the Big Apple will be the backdrop for this year’s American Bankers Association Annual Convention. Join us as we capture the energy of the city that never sleeps to take on tomorrow’s top issues facing the industry, connect to peers and business pioneers, and take home bright ideas and big dreams for your bank. Samantha Kirby and Matt Dyckman of Goodwin’s Financial Industry, Banking and Consumer Financial Services practices will speak on the “Changing Views of Board of Directors and Governance” panel on Tuesday, October 23. Goodwin is a sponsor of the convention. For more information, please visit the event website.
Over the past several years, distributed ledger technology also known as blockchain – has become a significant presence in the financial industry due to its potential to mitigate a number of issues such as reducing operational costs and shortening settlement time. This webinar will provide a primer on the basics of blockchain technology and its potential applications to the banking industry, and review the current challenges to its wider adoption. With billions of dollars being invested in blockchain initiatives, this topic should be top of mind for all in the financial services industry. Grant Fondo and Mitzi Chang will be presenters for the program on October 23, 2018. For more information, please visit the event website.
Both emerging technology and legacy electronic payment systems are subject to the overlapping requirements of both the NACHA Operating Rules & Guidelines and the Electronic Fund Transfer Act. In this webinar, Margaret Crockett, counsel in Goodwin’s Financial Industry, Banking and Consumer Financial Services practices, and Kim Holzel, associate in Goodwin’s Financial Industry, Consumer Financial Services and Fintech practices, will provide an overview of the players and mechanics of the ACH and applicable rules and laws. They will examine best practices for compliance with these rules and discuss how they apply to emerging technologies.
NYBA’s Financial Services Forum is the hallmark event for NYBA members, offering first-rate banker education in a world-class setting. The forum promises important industry updates and outlooks, a focused workshop for directors and trustees, targeted breakfast workshops, and valuable networking opportunities. The 2018 Financial Services Forum will be no different. The beautiful Ritz-Carlton in Key Biscayne, Miami will be the setting for one of the nation’s most vibrant banking communities, including bank CEO’s, directors, trustees and senior officers from financial institutions across New York State and beyond, as well as many industry service providers, for need-to-know information, education and networking. Goodwin is a sponsor of this event. Partner William Stern will be speaking on the “S.2155: Regulatory Changes and Strategic Considerations for New York Banks” panel on Tuesday, October 30. For more information, please visit the event website.
Lynne Barr, of counsel in Goodwin’s Financial Industry, Banking and Consumer Financial Services & Fintech practices, will speak on a webinar presented by Western Bankers Association covering Regulatory Developments in Financial Payments on October 30.