Weekly RoundUp August 04, 2022

The Federal Deposit Insurance Corporation (FDIC) Issued Guidance Regarding FDIC Insurance and Crypto Assets

Editor's Note

In This Issue. The Federal Deposit Insurance Corporation (FDIC) issued guidance regarding FDIC insurance and crypto assets; the Commodity Futures Trading Commission (CFTC) issued a notice of proposed rulemaking to amend Regulation 39.24; the Office of the Comptroller of the Currency (OCC) announced a policy statement (the Statement) revising a previous 2013 policy statement regarding minority depository institutions (MDIs); the U.S. Securities and Exchange Commission (SEC) re-proposed rule amendments that would narrow the current exemption from Section 15(b)(8) of the Securities Exchange Act; and the U.S. Department of Labor issued a proposal to amend prohibited transaction class exemption 84-14 (the QPAM Exemption) under ERISA. These and other developments are discussed in more detail below.

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

Regulatory Developments

FDIC Deposit Insurance Coverage and Crypto

On July 29, the FDIC issued a Fact Sheet and Advisory (collectively, the Published Documents) regarding FDIC deposit insurance and crypto assets. The Published Documents emphasize that FDIC deposit insurance does not apply crypto assets, nor does it apply to more traditional financial products such as stocks, bonds or mutual funds. The Advisory warns that crypto companies representing that crypto products are eligible for FDIC deposit insurance coverage could confuse non-bank customers regarding the scope of FDIC deposit insurance protection generally. Further, the Advisory sets forth various risk management considerations for insured banks to be aware of when dealing with crypto companies.

"Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank’s customers and cause those customers to mistakenly believe they are protected against any type of loss."
- The FDIC

CFTC Issues Notice of Proposed Rulemaking and Notice of Proposed Order and Request for Comment

On July 29, the CFTC issued a notice of proposed rulemaking to amend Regulation 39.24 to enhance CFTC derivatives clearing organization (DCO) governance standards, require a DCO to establish one or more risk management committees (RMCs) and one or more risk advisory working groups (RWGs), and prescribe standards related to the composition, activities, and policies and procedures of RMCs and RWGs. In addition, the CFTC issued a notice of proposed order and request for comment on a comparability determination that would permit substituted compliance of Japan’s capital and financial reporting requirements for non-bank swap dealers as compared to the capital and financial reporting requirements adopted by the CFTC under Dodd-Frank. Comments on both proposals can be submitted via the CFTC Comments Portal for 60 days post publishing in the Federal Register.

OCC Updates Policy Statement on Minority Depository Institutions

On July 27, the OCC announced a policy statement (the Statement) revising a previous 2013 policy statement regarding MDIs. The Statement updates and streamlines the descriptions of its policies, procedures, and programs, and describes the range of programs the OCC currently has in place to preserve and support MDIs. The OCC was prompted to review its initial 2013 policy after witnessing the increased interest from banks and other stakeholders in working with MDIs and the MDI designation process.

The 2020 formation of Project REACh (Roundtable for Economic Access and Change) and the establishment the Emergency Capital Investment Program by Congress for COVID-19 relief also contributed the OCC’s decision to review and update programs as related to MDIs. Project REACh gathers leaders from banking, business, technology, and national civil rights organizations to reduce specific barriers that prevent full, equal, and fair participation in the nation’s economy. The OCC created Project REACh in order to strengthen MDIs for larger banks that commit to strengthening MDIs through investment, technical assistance, business opportunities, executive training, and other resources. Signatory banks have committed to approximately $500 million in investments to MDIs.

SEC Re-Proposes Amendments to Exemption From National Securities Association Membership

On July 29, the SEC re-proposed rule amendments that would narrow the current exemption from Section 15(b)(8) of the Securities Exchange Act. Section 15(b)(8) requires any broker or dealer registered with the Commission to become a member of a national securities association unless the broker or dealer effects transactions in securities solely on an exchange of which it is a member.

Rule 15b9-1 currently provides an exemption to Section 15(b)(8) for those dealers engaging in propriety trading of securities. The proposed amendments would replace this proprietary trading exemption with a narrow exemption. Under the proposed amendment, a broker-dealer that carries no customer accounts and effects securities transactions other than on a national securities exchange where it is a member would be exempt from Section 15(b)(8) only if those transactions result from routing for order protection proposes by a national securities exchange where the broker is a member or constitute the execution of the stock leg of a stock-option order. This proposed amendment would serve to enhance FINRA oversight of firms that trade securities proprietarily across markets.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website.

U.S. Department of Labor Issues Proposed Amendment to QPAM Exemption

On July 26, the U.S. Department of Labor issued a proposal to amend prohibited transaction class exemption 84-14 (the QPAM Exemption) under ERISA. The QPAM Exemption currently allows a plan’s investment fund to engage in transactions with “parties in interest” to the plan if, among other conditions, the assets are managed by a “qualified professional asset manager,” or “QPAM,” that is independent of the parties in interest and that meets certain other requirements.

Read our client alert to learn more about the proposed rule.

Are the SEC and FINRA Moving to the Metaverse?

Are the SEC and the Financial Industry Regulatory Authority (FINRA) setting up shop in the metaverse? Not quite yet, but we stress yet! Like private sector businesses, U.S. financial services regulators are increasingly exploring what the metaverse, augmented reality (AR), and virtual reality (VR) mean for their registrants’ businesses and also for the means and methods of regulating them.

Read our client alert for Goodwin’s take on the future of regulatory guidance, rules and expectations as financial industry firms increase their metapresence.

Delaware Adopts Control Share Acquisition Statute for Registered Closed-End Funds and Business Development Companies Organized in Delaware

The state of Delaware recently amended the Delaware Statutory Trust Act to adopt a control share acquisition statute as an anti-takeover defense.

Read our client alert to learn more about this statute and its implications.

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Editors
Nicole Griffin
Samantha M. Kirby
William McCurdy

Contributors
Josh Burlingham
Nico Ramos
Rose Phipps
Tatum Sornborger