On March 20, the SEC issued final rules (Amendments) simplifying and modernizing a broad range of SEC rules, sections of Regulation S-K, SEC forms, and other SEC disclosure requirements. According to the SEC, the Amendments will reduce the costs and burdens on registrants while continuing to provide material information to investors, while also improving the readability and navigability of disclosure documents and discouraging repetition and disclosure of immaterial information. The Amendments were originally proposed in 2017 and followed mandates under the 2015 Fixing America’s Surface Transportation Act. Highlights include:
- Allowing registrants to omit confidential information from most exhibits without filing a confidential treatment request;
- Allowing flexibility in discussing historical periods in Management’s Discussion and Analysis;
- Streamlining rules and forms related to the SEC’s disclosure framework by eliminating the risk factor examples listed in the disclosure requirement and revising the description of property requirement to emphasize the materiality threshold;
- Modernizing rules by eliminating certain requirements for undertakings in registration statements; and
- Improving technology access by requiring, subject to a phase-in, data tagging and hyperlinks for certain kinds of information.
The Amendments will be effective 30 days after their publication in the Federal Register, with the exception of the Amendments relating to the redaction of confidential information in certain exhibits, which will become effective upon such publication. For more detailed information, please look for an alert from Goodwin’s Public Companies practice in the coming days.
On March 20, the SEC proposed rule amendments to implement certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act. The proposed amendments are designed to improve access to capital and facilitate investor communications by business development companies (BDCs) and registered closed-end funds by modifying the registration, communications, and offering processes available to BDCs and registered closed-end funds. Specifically, the proposed amendments would allow business development companies and registered closed-end funds to use the registration, offering, and communications reforms the SEC adopted for operating companies in 2005. The proposal also includes other amendments designed to help implement the congressionally mandated amendments by further harmonizing the disclosure and regulatory framework for these funds with that of operating companies and by providing tools to help investors assess these funds and their offerings. The amendments would allow BDCs and registered closed-end investments to, among other things:
- Use the shelf offering process and new short-form registration statement;
- Qualify for Well-Known Seasoned Issuer (WKSI) status;
- Take advantage of communications and prospectus delivery reforms; and
- Expand their use of incorporation by reference.
The comment period for the proposal will be open for 60 days following publication in the Federal Register.
On March 26, the CFTC provided relief to community and regional banks in the form of its Final Rule Regarding the De Minimis Exception to the Swap Dealer Definition (Final Rule). The Final Rule exempts many swaps entered into by insured depository institutions (IDIs) in connection with loans to customers from being counted toward the bank’s swap dealer de minimis threshold. Pursuant to an amendment adopted by the CFTC in November 2018, the swap dealer de minimis exception states that an entity shall not be required to register as a swap dealer unless its swaps connected with swap dealing activities exceed an aggregate gross notional amount threshold of $8 billion (measured over the prior 12-month period). Certain swaps entered into by IDIs are not counted toward the $8 billion threshold so long as such swaps are made in connection with a loan to a customer. However, banks were uncertain how to apply the restrictions requiring a swap to be made “in connection with a loan,” as well as which types of swaps could be exempted. The Final Rule enables IDIs to exclude a swap if it was entered into no earlier than 90 days before execution of the applicable loan agreement, or no earlier than 90 days before transfer of principal to the customer by the IDI pursuant to the loan. Previously, swaps entered into more than 180 days after execution of the loan agreement (or transfer of principal) had to be counted toward the de minimis threshold. Additionally, the Final Rule permits IDIs to exclude “currency swaps” entered into with customers in connection with a loan. Prior to the Final Rule, regional banks counted cross-currency swaps toward the swap dealer de minimis threshold. Non-deliverable forwards (NDFs) still must be counted toward the threshold. Despite the lack of relief for NDFs, the Final Rule is important for many IDIs to continue to provide their customers with hedging and risk management services in connection with loans. According to CFTC Chairman Christopher Giancarlo, “This final rule will increase efficiencies and reduce the burdens for banks, particularly small and regional banks, to enter into swaps with their end-user loan customers without the added burden of unnecessary regulation and associated compliance costs.”
On March 20, the CFPB released its annual report to Congress on the administration of the Fair Debt Collection Practices Act (FDCPA). The report highlights the continued efforts by the CFPB and the Federal Trade Commission to stop unlawful debt collection practices, including vigorous law enforcement, education and public outreach, and policy initiatives. In the report, the CFPB states its intent to issue a notice of proposed rulemaking on debt collection that will address issues ranging from communication practices to consumer disclosures; highlights that it handled approximately 81,500 debt collection complaints related to first-party (creditors collecting on their own debts) and third-party collections in 2018; and summarizes the FDCPA enforcement actions that it took in 2018.
The Federal Financial Institutions Examination Council’s 2019 Guide to HMDA Reporting is now available for download. The 2019 edition focuses on Home Mortgage Disclosure Act (HMDA) data submissions due March 1, 2020, and reflects amendments made to HMDA by the Economic Growth, Regulatory Relief, and Consumer Protection Act and the 2018 HMDA interpretive and procedural rule issued by the CFPB.
The SEC has approved amendments to two New York Stock Exchange rules that provide exceptions to requirements that a listed company obtain shareholder approval before the company issues common stock or securities convertible into or exercisable for common stock (“company securities”) (1) greater than 1% in number or voting power to certain related parties or (2) greater than 20% in number or voting power. Both of these exemptions were conditioned in part on the company securities being issued for a price equal or greater than both the book value and the market value of the company’s common stock when the company entered into the relevant agreement. The amendments remove the book value price test and replace the prior definition of “market value” with a new defined term, “minimum price.” The amendments define “minimum price” as a price that is at least as great as the lower of the closing price immediately before the signing of a binding agreement to issue the company securities or the average closing price for the five trading days immediately before the signing of the binding agreement. Together, these amendments should significantly reduce instances in which companies are unexpectedly required to obtain shareholder approval before issuing shares of common stock or securities convertible into or exercisable for common stock, in financing or M&A transactions. For more information, read the client alert issued by Goodwin’s Public Companies practice.
Enforcement & Litigation
On March 12, the issue of whether the CFPB’s leadership structure violates Article II and the separation of powers established by the United States Constitution was argued before the U.S. Court of Appeals for the Fifth Circuit in CFPB v. All American Check Cashing, Inc., et al., No. 18-60302. Read the LenderLaw blog post.
CBA LIVE is the must-attend event for the retail banking industry. More than 1,500 senior bankers and industry leaders gather from across the country to experience this premier event. CBA LIVE offers top-notch programming tailored toward professionals motivated to learn new trends and share ideas with the most influential decision makers in the business. Goodwin Financial Industry partner Anthony Alexis will be a speaker at the opening session of the CFPB forum. Mr. Alexis’ session will focus on what’s to come from the CFPB in our current climate and under its new leadership. For more information, please visit the event website.
LendIt Fintech USA is the world’s leading event in financial services innovation, including fintech, digital banking, blockchain, and lending. Goodwin is a sponsor and nominee in the “Top Law Firm” category at this year’s award event. For more information, please visit the event website.