On July 9, the Federal Reserve, OCC and FDIC announced that they adopted a final ruleintended to simplify and clarify a number of the more complex aspects of the agencies’ existing regulatory capital rules. Specifically, the final rule simplifies the regulatory capital treatment for mortgage servicing assets, certain deferred tax assets, and investments in the capital instruments of unconsolidated financial institutions by effectively raising the deduction threshold for each to 25%. The final rule also simplifies the calculation for capital issued by a consolidated subsidiary of a banking organization and held by third parties, or minority interest, which may be included in regulatory capital. In addition, the final rule would allow bank holding companies and savings and loan holding companies to redeem common stock without prior approval unless otherwise required. The simplifications in the final rule only apply to banking organizations that do not use the “advanced approaches” capital framework, which are generally firms with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. The final rule will be effective on April 1, 2020 for the amendments to simplify capital rules, and on October 1, 2019 for revisions to the pre-approval requirements for the redemption of common stock and other technical amendments.
On July 9, the Federal Reserve, OCC, FDIC, SEC and CFTC announced that they adopted a final rule to exclude community banks from the Volcker Rule, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act. To qualify for the exemption, community banks and their controlling entities must have $10 billion or less in total consolidated assets and total trading assets and liabilities equal to 5% or less of total consolidated assets, according to its most recent Call Report. Securities appropriately classified as available-for-sale and excluded from trading assets on the Call Report will not count toward an institution’s trading assets and liabilities threshold. The final rule also permits a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment adviser as long as the adviser is not an insured depository institution, a company that controls an insured depository institution, or a bank holding company. The final rule will become effective immediately upon publication in the Federal Register.
On May 29, the SEC issued a manager-of-managers order to Carillon Series Trust (Carillon Order) that permits the funds’ primary adviser, subject to fund board approval and without shareholder approval, to enter into or to amend subadvisory agreements with subadvisers that are unaffiliated with, wholly-owned by, or partially-owned by the funds’ primary adviser. In the past, the SEC had only granted exemptive orders with respect to subadvisers that were unaffiliated with, or that were wholly-owned by, the funds’ primary adviser (Prior Multi-Manager Orders). Likely in anticipation of the wave of applications for similar manager-of-managers orders, on July 9, the SEC staff issued a no-action letter to the BNY Mellon Family of Funds that provided the staff’s assurance that it would not recommend enforcement action if a registered fund relies on its Prior Multi-Manager Order with respect to any subadviser, including affiliated subadvisers that are not wholly-owned by the primary adviser, provided that the fund complies with the conditions in the Carillon Order in their entirety. The conditions in the Carillon Order are similar to the conditions typically found in the Prior Multi-Manager Orders, with a few notable differences, including: (1) because the Carillon Order extends to any subadviser, shareholder approval for a subadviser change with respect to a partially-owned subadviser is not required; (2) the primary adviser is no longer required to provide quarterly profitability information of the primary adviser on a per subadvised fund basis; (3) trustee and officer ownership of an interest in a subadviser is no longer prohibited; and (4) the findings that must be made by the fund’s board are expanded to require that the board evaluate potential material conflicts of interest when a subadviser change is proposed for a subadvised fund or when the board considers an existing subadvisory agreement as part of its annual review process. Similarly situated funds seeking to rely on the no-action letter should review these differences and consider, among other things, their ability to satisfy the conditions in the Carillon Order.
On June 28, the Consumer Financial Protection Bureau (CFPB) updated the small entity compliance guide summarizing payment-related requirements of the rule governing Payday, Vehicle Title and Certain High-Cost Installment Loans (Payday Rule). The update reflects the June 6 amendments to the Payday Rule delaying the compliance date for the rule from August 19, 2019 to November 19, 2020 (Delay Final Rule). More information on the Payday Rule and the Delay Final Rule can be found here.
On June 27, the CFPB announced that it extended the comment period on its Advance Notice of Proposed Rulemaking relating to its October 2015 final rule (2015 Rule) implementing the Home Mortgage Disclosure Act. The 2015 Rule added new, or revised existing, data points for collection under Regulation C, including the requirement that institutions report certain business or commercial purpose transactions. The CFPB noted that the extension allows commenters to examine the CFPB’s annual review of residential mortgage lending based on the data collected in 2018. The comment period has been extended from July 8, 2019 to October 15, 2019.
As previously reported in the Roundup, on May 24, the OCC issued a final rule to allow a federal savings association with total consolidated assets of $20 billion or less, as reported on its call report as of December 31, 2017, to elect to operate as a covered savings association and engage in national bank powers. The final rule became effective on July 1, 2019. On this date, the OCC issued a bulletin describing the process for federal savings associations to make an election to operate as covered savings associations and released a set of FAQs about the final rule.
As previously reported in the Roundup, on June 6, the Federal Communications Commission (FCC) issued a declaratory ruling providing voice service providers with the authority to automatically enroll consumers for call blocking programs that identify and block unwanted telephone calls. This ruling is effective immediately. For a more in-depth look at the FCC’s requirements, read the LenderLaw Watch blog post.
Enforcement & Litigation
In a newly unsealed decision, the federal district court in Manhattan granted summary judgment in favor of a mutual fund’s investment adviser in a lawsuit filed pursuant to Section 36(b) of the Investment Company Act of 1940. The complaint was premised on a “subadvisory fee comparison theory,” in which a plaintiff compares the fee an adviser charges a proprietary mutual fund to the fee charged for allegedly similar services when the adviser acts as a subadviser to an otherwise unaffiliated fund. In its ruling, the court addressed board process, fee comparisons, fund performance, and profitability. The decision is the second time a district court has granted summary judgment to an investment adviser in a Section 36(b) lawsuit premised on a subadvisory fee comparison. For more information, read the client alert issued by Goodwin’s Investment Management practice.
On June 21, the Federal Trade Commission (FTC) announced that it had filed a lawsuit against affiliated companies offering services to repair consumers’ damaged credit. The FTC’s complaint, filed in the U.S. District Court for the District of Connecticut, alleged that the companies used deceptive marketing campaigns that promised to eliminate derogatory credit from consumers’ credit reports and raise consumers’ credit scores, yet the companies failed to deliver those results. Read the Enforcement Watch blog post.