Regulatory Developments
SEC Adopts Final Proxy Advisor Amendments and Supplemental IA Guidance
On July 22, the SEC finalized amendments to its proxy solicitation rules that will modify the practices of proxy advisory firms, providing them with greater transparency and accountability. The rule amendments, which were the subject of a vigorous comment process, were approved by a 3-1 vote. The effective date will be 60 days after publication in the Federal Register, but compliance with the amendments to Rule 14a-2(b)(9) will not be required until December 1, 2021. This means that compliance with the Rule 14a-2(b)(9) amendment will, for most calendar year-end companies, first apply to the 2022 proxy season. The SEC also supplemented its September 2019 guidance on the proxy voting responsibilities of investment advisers and fund managers who vote shares on behalf of their clients, especially when voting is based on recommendations of proxy advisory services. For additional information regarding the amendments and the guidance, please look for a forthcoming Goodwin client alert.
SBA Issues Procedural Notice on PPP Loan Forgiveness Applications
On July 23, the SBA issued a procedural notice providing instructions to PPP lenders for submitting PPP borrower loan forgiveness applications to the SBA, as well as information on requesting payment of the forgiveness amount determined by the lender, SBA loan forgiveness reviews and payment of the loan forgiveness amount determined by SBA. In the notice, the SBA indicated that it will begin accepting PPP forgiveness applications on August 10. All PPP lender authorizing officials currently registered in the E-Tran system will receive a welcome email from SBA with instructions on accessing the platform. Authorizing officials who do not receive a welcome email should contact SBA’s PPP lender hotline at 833-572-0502 for more information. The notice also indicated that the SBA will issue an interim final rule soon addressing the process for a borrower to appeal an SBA determination that the borrower is ineligible for a PPP loan, the PPP loan amount or the PPP loan forgiveness amount.
Federal Reserve Extends Emergency Lending Facilities Through December 31
On July 28, the Federal Reserve extended seven of its lending facilities created under Section 13(3) of the Federal Reserve Act through December 31, 2020. The extensions apply to the Primary Dealer Credit Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Securities Loan Facility, the Paycheck Protection Program Liquidity Facility, and the Main Street Lending Program, each of which was scheduled to expire on September 30. The Municipal Liquidity Facility is already set to expire on December 31 with the Commercial Paper Funding Facility set to expire on March 17, 2021. According to the Federal Reserve, the three-month extension will enable planning by potential facility participants and provide certainty that the facilities will continue to be available to help the economy recover from the COVID-19 pandemic.
Fed Announces Final Rule on Technical Updates to FOIA and CSI Rules
On July 24, the Federal Reserve announced finalization of a rule that implements technical and clarifying updates to its Freedom of Information Act (FOIA) procedures and changes to its rules regarding disclosure of confidential supervisory information (CSI). The changes, which include clarification of terms and definitional updates, are meant to bring the Federal Reserve’s FOIA regulation in line with the its current practices and to update the rules based on recent changes in law and guidance. In addition, revisions to the FOIA procedures are meant to better assist users in navigating the request process. In regards to CSI, the final rule updates outdated and inefficient restrictions governing the disclosure of CSI and makes clarifying revisions to definitions.
OCC Banks May Offer Crypto Asset Custody Services
In an interpretive letter issued on July 21, the OCC stated that national banks and federal thrifts may provide cryptocurrency custody services for their customers, confirming the affirmation that these services are considered by the OCC to be a modern form of traditional bank activities. Goodwin’s Digital Currency + Blockchain Perspectives blog dissects the letter further, explaining that banks may provide permissible banking services to any lawful business they choose as long as the banks appropriately manage risks and comply with law. Additionally, while this letter enables banks to provide cryptocurrency custody services to customers, it avoided taking a position on whether cryptocurrencies may qualify as “exchange” under 12 U.S.C. § 24 (Seventh), meaning that it remains an open question whether banks can own, buy or sell cryptocurrencies for their own accounts (as opposed to their customers’ accounts).
CFTC Approves Final Cross-Border Swaps Rule
On July 23, the CFTC adopted a final rule (Final Rule) under the Commodity Exchange Act (CEA) – CFTC Reg. § 23.23 – that (i) addresses the cross-border application of registration thresholds and certain “entity level” and “transaction level” requirements applicable to swap dealers (SDs) and major swap participants (MSPs), and (ii) establishes a formal process, including a standard of review, for conducting comparability determinations regarding a foreign jurisdiction’s regulation of swap entities. The Final Rule permits a non-U.S. swap entity, or a foreign branch of a U.S. swap entity, to comply with a foreign jurisdiction’s swap standards in lieu of the CFTC’s corresponding requirements in certain cases, provided that the CFTC determines that such foreign standards are comparable to the CFTC’s requirements.
In addition, the CFTC adopted several tailored exceptions from, and a substituted compliance process for, certain “entity level” and “transaction level” requirements applicable to registered SDs and MSPs with respect to certain foreign-based swaps. The adopting release notes that “swap entities that avail themselves of these exceptions for their foreign-based swaps would be required to comply with the applicable laws of the foreign jurisdiction(s) to which they are subject, rather than the relevant [CFTC] requirements, for such swaps; however, notwithstanding these exceptions, swap entities would remain subject to the CEA and [CFTC] regulations not covered by the exceptions, including the prohibition on the employment, or attempted employment, of manipulative and deceptive devices….” The CFTC further noted that it expects swap entities to address any significant risk that may arise as a result of the utilization of one or more of the exceptions in their risk management programs.
The compliance date for the Final Rule is one year after publication in the Federal Register.
SEC Staff Issues Statement Addressing Form CRS Disclosures
On July 29, the SEC staff issued a statement addressing the disclosures certain broker-dealers and investment advisers must include in the relationship summaries they provide to retail investors. In particular, the Staff Standards of Conduct Implementation Committee noted that it “is reviewing relationship summaries from a cross-section of firms to assess compliance with the content and format requirements of Form CRS.” This is the first we have heard from this cross-divisional group of SEC staff, which the agency organized in conjunction with its adoption of Regulation Best Interest, Form CRS and the SEC Interpretation on the Standard of Conduct for Investment Advisers. The SEC approved and adopted Form CRS on June 5, 2019, but compliance was not required until last month on June 30, 2020.
Our previous Client Alert highlighted what firms could expect from SEC exam staff, based on a related staff Risk Alert. But this recent staff statement is the first public feedback based on the staff’s actual review of firms’ relationship summaries. The feedback is a bit of a mixed bag. On the one hand, at least preliminarily, the staff indicates that the relationship summaries they have reviewed thus far “generally reflect effort by firms to meet the content and format requirements of Form CRS” and that “initial reviews have identified good examples of simple, clear disclosures.” However, the staff goes on to note that “initial reviews have identified examples that may lack certain disclosures or could be clearer or otherwise improved.” The staff also notes that some firms “may need to consider ways to improve their relationship summaries and determine whether any specific amendments, or broader change in their overall approach, would be appropriate.”
The staff plans on hosting a Form CRS roundtable in the fall (date TBD) to share best practices and provide the industry with additional thoughts.
On July 24, the FDIC and SEC adopted a final rule required by the Dodd-Frank Act clarifying and implementing provisions relating to the orderly liquidation of certain brokers or dealers (covered broker-dealers) in the event the FDIC is appointed receiver under Title II of the Dodd-Frank Act. The FDIC and SEC developed the final rule in consultation with the Securities Investor Protection Corporation (SIPC). The final rule is substantively identical to the proposed rule published in 2016. Among other things, the final rule clarifies how the relevant provisions of the Securities Investor Protection Act of 1970 (SIPA) would be incorporated into a Title II proceeding. Upon the appointment of the FDIC as receiver, the FDIC would appoint SIPC to act as trustee for the broker-dealer. SIPC, as trustee, would determine and satisfy customer claims in the same manner as it would in a proceeding under SIPA. The treatment of the covered broker-dealer’s qualified financial contracts would be governed in accordance with Title II. In addition, the final rule describes the claims process applicable to customers and other creditors of a covered broker-dealer and clarifies the FDIC’s powers as receiver with respect to the transfer of assets of a covered broker-dealer to a bridge broker-dealer. The final rule will be effective 60 days after publication in the Federal Register.
On July 24, the FDIC approved a final rule to revise and codify its current Statement of Policy on Section 19 of the Federal Deposit Insurance Act in a manner that will narrow the circumstances under which the FDIC’s written consent is required for a financial institution to hire individuals with minor criminal offenses. The final rule will be effective 30 days after publication in the Federal Register.
CFPB to Issue ANPR on Consumer-Authorized Access to Financial Data
On July 24, the Consumer Financial Protection Bureau (CFPB) announced plans to issue an advance notice of proposed rulemaking (ANPR) later this year to help the CFPB understand and address competing perspectives on consumer-authorized third-party access to financial records. The ANPR may draw significant interests from banks and fintech firms alike and will focus, in part, on whether some emerging market practices among Fintechs and data aggregators “may not reflect the access rights” described in the Dodd-Frank Act, the CFPB said. Specifically, the CFPB will seek input on:
- how it can effectively and efficiently implement Section 1033 of the Dodd-Frank Act’s financial access rights;
- the scope of data that should be subject to protected access;
- information that might bear on other terms of access (e.g., information relating to security, privacy, effective consumer control over access and accessed data, accountability for data errors and unauthorized access); and
- how to resolve any regulatory uncertainty with respect to Section 1033 and its interaction with other statutes within the CFPB’s jurisdiction (e.g., the Fair Credit Reporting Act) that may be impacting the market to the detriment of consumers.
On July 28, the CFPB issued a request for information (RFI) seeking public input on how best to create a regulatory environment that expands access to credit and ensures that all consumers and communities are protected from discrimination in all aspects of a credit transaction. Specifically, the CFPB requested commenters to respond to a series of questions on topics including disparate impact; assisting borrowers with limited English proficiency; special purpose credit programs; advertising to disadvantaged groups; meeting the credit needs of small business, particularly minority and women-owned firms; the CFPB’s interpretation of the Equal Credit Opportunity Act’s (ECOA) prohibition of discrimination on the basis of sex; federal preemption of state law regarding ECOA and Regulation B; situations in which creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions; credit underwriting when decisions are based in part on models using artificial intelligence or machine learning; and adverse action notices. The RFI is in lieu of a symposium the CFPB had planned to host on the ECOA this fall. Comments must be received within 60 days of the publication of the RFI in the Federal Register.
On July 23, the New York Senate and Assembly passed S5470, which will become law pending Governor Cuomo’s signature. The bill adds a new Article (Article 8) to the New York Financial Services Law. Article 8 does not require factors, merchant cash advance providers, or financial technology companies (Fintechs) to obtain lender licenses, but it does require them to deliver comprehensive consumer credit-like disclosures to commercial financing recipients regarding the amount, pricing, and other transaction terms. The bill also authorizes the Superintendent of the New York Department of Financial Services to issue regulations governing such disclosures. For additional information, please read Goodwin’s Fintech Flash on the topic.
New York Department of Financial Services Announces New Virtual Currency Initiatives
The New York Department of Financial Services (DFS) announced a series of steps it is taking to promote development and opportunities in the virtual currency space. These actions would build upon New York’s “BitLicense,” a virtual currency licensing regime implemented in 2015 that establishes minimum standards for all financial intermediaries that conduct virtual currency activities in New York. First, DFS announced a proposed framework to allow applicants such as a startups, growth-stage companies and established New York companies that have yet to endeavor into the virtual currency marketplace to obtain a conditional BitLicense or limited purpose trust charter to engage in virtual currency business activity in New York. Second, DFS and the State University of New York (“SUNY”) signed a Memorandum of Understanding stating their intent to launch “SUNY BLOCK,” a virtual currency program focused on spurring innovation and fostering accessibility to the virtual currency marketplace. And third, DFS publicized final guidance regarding the adoption and listing of virtual currencies. For additional information, read Goodwin’s Digital Currency + Blockchain Perspectives blog post.
ARRC Issues Syndicated Loan Conventions for SOFR in Arrears
On July 22, the Alternative Reference Rates Committee (ARRC), a group of private-market participants convened by the Federal Reserve and the New York Fed to help ensure a successful transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR), released conventions related to using SOFR in arrears, both daily simple SOFR and daily SOFR compounded in arrears, in syndicated loans.
Enforcement & Litigation
SEC Commissioner Peirce Not Skating Around Her Views on Telegram Settlement
SEC Commissioner Hester Peirce recently explained her views on the SEC’s settlement with Telegram and the agency’s approach to regulating the crypto and blockchain ecosphere generally. In response to the June 26 Telegram settlement, which resolved the SEC’s charges that Telegram’s unregistered offering of digital “Grams” violated U.S. federal securities laws, Peirce stated, “I do not support the message that distributing tokens inherently involves a securities transaction.” However, she reiterated her concern that the agency is stifling innovation in the blockchain and crypto space. Read Goodwin’s Digital Currency + Blockchain Perspectives blog for the firm’s analysis of where the SEC stands regarding crypto and how Peirce enforces that narrative.
Goodwin News
What’s Next? A Path Forward in Uncertain Times
In light of the recent global pandemic, Goodwin’s interdisciplinary team of lawyers presents various types of financings and investment structures applicable in current market conditions in a new webinar series, “What’s Next? A Path Forward in Uncertain Times.” This multi-part series explores the financing transactions and topics that are most relevant for companies and investors at a time where valuations are uncertain and companies across industries need capital. Visit the website to learn more, register for upcoming webinars and access previous events.
Growing TCPA Litigation Trends in the Cannabis Industry
August 6th 2:00 pm – 3:00 pm EST
The cannabis industry is growing rapidly and with that, so too is the threat of litigation. Specifically, fast-emerging litigation threats are class actions and other lawsuits against cannabis companies alleging that outbound calls and text messages to clients and potential clients violate the Telephone Consumer Protection Act (TCPA), a federal law that imposes restrictions on certain outbound calls and texts to consumers. These emerging lawsuits pose a significant threat because companies have few defenses and the penalties for violations of the TCPA are significant — ranging from $500 to $1500 per violative call or text message.
Join Jennifer Briggs Fisher, a partner in Goodwin’s Cannabis practice, as she leads a conversation with Goodwin partners Brooks Brown and Kyle Tayman, leaders of the firm’s TCPA defense practice. They will discuss the growing TCPA litigation trends in the cannabis industry and use their extensive TCPA litigation experience to provide practical tips to help your company comply with the TCPA. Register for the webinar here.
This week’s Roundup contributors: Josh Burlingham, Alex Callen, Jessica Craig and Mac Laban.