Weekly RoundUp February 10, 2022

SEC Proposes Changes to Private Fund Regulation

Editor's Note

In This Issue. The U.S. Securities and Exchange Commission (SEC) proposed changes to private fund regulation; the Office of the Comptroller of the Currency (OCC) succeeded in validating its “valid-when-made” rulemaking; the SEC also proposed new cybersecurity risk management rules for investment advisers and investment companies; the Financial Crimes Enforcement Network (FinCEN) closed the comment period for the notice of proposed rulemaking requiring the reporting of beneficial ownership information; and the Consumer Financial Protection Bureau’s (CFPB) Fair Lending Director, Patrice Alexander Ficklin, along with staff from other agencies, submitted a letter reaffirming the illegality of discrimination in home appraisals. These and other developments are discussed in more detail below.

Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

SEC Proposes Changes to Private Fund Regulation

On February 9, the SEC proposed a package of new rules and amendments that will significantly affect all private fund advisers, including those that are not registered with the SEC under the Investment Advisers Act of 1940 (Advisers Act). This package covers a range of issues including (i) new prohibitions on certain conflicted activities (including the charging of certain fees and expenses such as accelerated monitoring fees and the non-pro rata allocation of broken deal expenses), (ii) new prohibitions on preferential treatment relating to redemptions and fund and investment information and increased transparency on other types of preferential treatment, (iii) new quarterly statements to investors on performance, fees and expenses, and adviser and related person compensation, (iv) enhanced annual audit requirements, and (v) new requirements relating to adviser-led secondary transactions (including a requirement to obtain a fairness opinion). If adopted, this package would prohibit activities that had previously been addressed through disclosure, while significantly expanding the information being provided to both private fund investors as well as the SEC with respect to its examination and enforcement activities.

Read the client alert to learn more.

The OCC Prevails in a Challenge to its 2020 Valid-When-Made Rulemaking

On February 9, the OCC released a statement regarding the California District Court’s decision affirming the validity of the OCC’s rule codifying the “valid-when-made” doctrine in 2020. The doctrine provides that when a national bank or state or federal savings association sells, assigns, or otherwise transfers a loan, the interest permissible before the transfer continues to be permissible after the transfer. In its order on February 8, the U.S. District Court for the Northern District of California rejected a challenge to the OCC’s rulemaking brought by the States of California, Illinois and New York. The court included that “it was not unreasonable for the OCC to determine greater certainty regarding the transfer of intertest rates, and a larger market for transfers, would serve to promote the safety and soundness of the national banking system.”

“The OCC is committed to strong supervision that expands financial inclusion and ensures banks are not used as a vehicle for ‘rent-a-charter’ arrangements.” 
 Acting Comptroller of the Currency Michael J. Hsu

SEC Proposes New Cybersecurity Risk Management Rules for Investment Advisers and Investment Companies

On February 9, the SEC proposed a package of new rules and amendments to enhance cybersecurity preparedness and improve cyber resilience of investment advisers and investment companies against cybersecurity threats and attacks. The proposal includes a new rule 206(4)-9 under the Advisers Act and a new rule 38a-2 under the Investment Company Act of 1940 (Company Act). If adopted, these rules will incorporate SEC staff guidance with respect to cybersecurity policies and procedures while imposing new reporting requirements with respect to cybersecurity incidents, including (i) requiring advisers and funds to adopt and implement policies and procedures that are reasonably designed to address cybersecurity risks, (ii) requiring advisers to report significant cybersecurity incidents, (iii) requiring advisers and funds to disclose cybersecurity risks and incidents on Form ADV Part 2A and funds’ registration statements, and (iv) requiring investment advisers and investment companies to retain records related to these proposals. 

FinCEN Update on Beneficial Ownership Information Reporting Proposed Rule

On February 8, FinCEN reported that the comment period for the notice of proposed rulemaking requiring the reporting of beneficial ownership information has closed. The proposed rule would require entities formed in the U.S. to submit beneficial ownership information to FinCEN. Specifically, the rule would require applicants to submit name, birthdate, address and unique identifying number from an acceptable identification document (and the image of the document) in a relatively prompt time period. The proposed rule is in response to the Corporate Transparency Act (CTA), which is a government commitment aiming to fight corruption and promote transparency. FinCEN received over 230 comments during the comment period. The proposed rule is the first in a series of CTA focused rules, with the next proposed rules focusing on beneficial ownership information access and disclosure requirements.

CFPB Reaffirms Illegality of Discrimination in Home Appraisals

On February 4, Fair Lending Director of the CFPB Patrice Alexander Ficklin, joined by senior staff from the U.S. Department of Housing and Urban Development, the Board of Governors of the Federal Reserve System (Federal Reserve), U.S. Department of Justice, OCC, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration and Federal Housing Finance Agency (FHFA), submitted to The Appraisal Foundation (TAF), a private non-governmental organization that sets professional standards for appraisers, a letter emphasizing that federal law forbids racial, religious and other discrimination in home appraisals.

Director Ficklin underscored this action in a post on the CFPB’s blog, calling out TAF for failing to include clear warnings about the requirements of federal law in the standards it sets, and in the training it provides for appraisers. Highlighting discriminatory statements recently identified by the FHFA in some home appraisals, as well as appraisal disparities for communities and borrowers of color identified in studies by both Freddie Mac and Fannie Mae, Director Ficklin indicated that the CFPB is prepared to use all of its tools, in collaboration with its inter-agency partners, to address the risk of bias and discrimination in home appraisals to a fair and competitive market.

Reopening of Comment Period for Pay Versus Performance

On January 27, the SEC announced it is reopening the comment period for proposed rules to implement Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Section 953(a) of the Dodd-Frank Act was enacted in 2010 and the proposed rules were published in 2015. Since the proposed rules were published, executive compensation practices related to company performance have continued to develop and evolve, to the point that the SEC believes interested persons should be given a further opportunity to analyze and comment upon the proposed rules. The proposed rules would amend current executive compensation disclosure rules to require a description of how executive compensation actually paid by a registrant relates to the financial performance of the registrant. Comments for the proposed rule should be received on or before March 4, 2022.

OCC to Host Virtual Innovation Office Hours

On February 8, the OCC’s Office of Innovation announced that it will host virtual office hours on March 16 and 17. Interested parties will be able to schedule meetings with office staff to discuss financial technology, new products or services, partnering with a bank or fintech company, or other related matters. To schedule a meeting, interested parties must request an appointment by February 18 and should include a description of the topic that they wish to discuss. Additional office hours will be held later in the year.

Federal Bank Regulatory Agencies to Host 2022 National Interagency Community Reinvestment Conference

On February 4, the Federal Reserve, FDIC and OCC announced that they, in coordination with the Federal Reserve Banks of Chicago and San Francisco, will host the 2022 National Interagency Community Reinvestment Conference on March 15-17, 2022. This year’s program is called, “Reimagine, Reinvest, Rebuild” and will also provide guidance on best practices regarding CRA examinations, compliance, emerging ideas and navigating the difficulties regarding community development.

Registration and full agenda can be found on the conference website.

Check Out Goodwin’s Latest Industry Insights

FinReg + Policy Watch Blog
Stay on top of developments affecting the financial services community.

LenderLaw Watch Blog
Stay on top of news and legal issues in the consumer finance industry.

Consumer Finance Enforcement Watch Blog
Stay on top of enforcement actions, trends and issues.

Digital Currency + Blockchain Perspectives Blog
Stay on top of digital currency industry news, regulatory developments and issues.

Nicole Griffin
Samantha M. Kirby
William McCurdy

Josh Burlingham
Eugene Frenkel
Daniel Ji
Brennan Meier
Serene Qandil
Nico Ramos