On December 18, the FDIC, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission (collectively, the Agencies) issued a notice of proposed rulemaking and requesting comment on a proposal to amend regulations implementing Section 13 of the Bank Holding Company Act (the Volcker Rule) in a manner consistent with the statutory amendments made pursuant to Sections 203 and 204 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). These statutory amendments modified the Volcker Rule to exclude certain community banks from the Volcker Rule and to permit banking entities subject to the Volcker Rule to share a name with a hedge fund or private equity fund that it organizes and offers under certain circumstances.
On December 18, the FDIC issued a notice of proposed rulemaking (NPR) that would revise the FDIC's requirements for stress testing by FDIC-supervised institutions, consistent with changes made by Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The proposed rule would amend the FDIC's existing stress testing regulations to change the minimum threshold for applicability from $10 billion to $250 billion, revise the frequency of required stress tests by FDIC-supervised institutions from annual to periodic, and reduce the number of required stress testing scenarios from three to two. The NPR also proposes to make certain conforming and technical changes, including changes that were previously proposed in an April 2018 notice of proposed rulemaking that was superseded, in part, by the enactment of EGRRCPA. Comments will be accepted until February 19, 2019.
On December 13, the CFPB proposed a two-part policy that would revise its existing No Action Letter Policy and create a new Product Sandbox. Part I would substantially revise the CFPB’s existing No-Action Letter policy by eliminating several elements it believes to be redundant or unduly burdensome, such as data sharing requirements, and would provide for streamlined review of applications submitted to the program. The proposed policy would further specify that if an application is granted, the CFPB would provide the recipient with a no-action letter signed by the Assistant Director of the Office of Innovation or another duly authorized official, and that such letters would remain effective until “revoked.” The existing No-Action Letter Policy was finalized in February 2016. Since then, the CFPB has issued only one such letter. The proposed policy revisions make it more likely that the CFPB will more regularly issue no-action letters to applicants.
Part II would establish a Product Sandbox, that would grant individual applicants a temporary 2-year exemption from certain regulatory requirements. Product Sandbox would grant no-action relief that is substantially similar to Part I. Product Sandbox would also provide access to individualized safe harbors and exemptions from certain statutory and regulatory requirements. Applicants to Product Sandbox would have to commit to sharing data with the CFPB concerning the products or services offered while relying on the no action relief. Comments on the proposed policy are due by February 11, 2019.
On December 14, the OCIE published its observations following a limited-scope examination of registered investment advisers’ use of electronic messaging. The purpose of the examination was to understand the various forms of electronic messaging used by advisers, the risks of such use, and the challenges in complying with certain provisions of the Investment Advisers Act of 1940 (Advisers Act) in connection with such use. The key takeaway from the alert is that OCIE encourages advisers to review their risks, practices, policies and procedures regarding electronic messaging and consider any improvements to their compliance programs that would help ensure compliance with applicable regulatory requirements. OCIE staff identified certain areas that advisers could focus on so that they may comply with record retention obligations under the books and records and compliance rules under the Advisers Act. Some examples include, adopting policies and procedures that limit forms of electronic communication for business purposes that the adviser determines can be used in compliance with the books and records rule, providing employee training on the adviser’s policies and procedures regarding prohibitions and limitations placed on the use of electronic messaging and consequences of violating the policies and procedures, obtaining attestations from employees, establishing appropriate supervisory review of employees’ use of social media and ensuring proper company control over employees’ mobile devices if used in advisory activities, including loading security apps or other software on mobile devices.
Enforcement & Litigation
The Southern District of New York is deciding whether a putative class action can proceed beyond the motion to dismiss phase in a lawsuit that may implicate how banks define crypto currency purchases, and how those purchases fit into regulatory frameworks. The case is Brady Tucker, et al. v. Chase Bank USA, N.A., No. 1:18-cv-03155, 2018 WL 1773534 (S.D.N.Y.). Plaintiff Brady Tucker claims that Chase assesses customers “surprise” fees by treating the purchases of crypto currencies as cash advances, instead of goods purchased, without prior notice. He brought his claim under the Truth in Lending Act (TILA). View the LenderLaw Watch blog post.