Weekly RoundUp September 29, 2022

Federal Reserve Seeks Feedback on Proposed Updates to FMUs Risk Management Requirements

Editor's Note

In This Issue. The Board of Governors of the Federal Reserve System (Federal Reserve) requested feedback on proposed updates to risk management requirements for certain systemically important financial market utilities (FMUs); the Consumer Financial Protection Bureau (CFPB) issued a Request for Information (RFI) on mortgage refinances and forbearances to promote competition and support household financial stability; the U.S. Securities and Exchange Commission (SEC) sanctioned a registered broker for failure to register as a municipal advisor and for inadequate procedures to determine whether it needed to register; and the SEC charged Cheetah Mobile execs with insider trading in light of heightened scrutiny of 10b5-1 plans. These and other developments are discussed in more detail below.

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

Regulatory Developments

Federal Reserve Seeks Feedback on Proposed Updates to FMUs Risk Management Requirements

On September 23, the Federal Reserve invited comment on proposed updates to operational risk management requirements for certain systemically important FMUs supervised by the Federal Reserve. There are eight FMUs designated as systemically important, and the Federal Reserve is the supervisory agency for two of them: The Clearing House Payments Company, L.L.C. and CLS Bank International.

The Federal Reserve noted that the broad operational risk, technology and regulatory landscape in which FMUs operate has “evolved significantly” since risk management requirements were last updated in 2014. The updates address four key areas: (1) review and testing, (2) incident management and notification, (3) business continuity management and planning, and (4) third-party risk management. The updates contain technical updates including adding definitions of “operational risk,” “critical operations,” and “critical services.”

“In light of the rapidly evolving risk landscape, the proposed changes will help ensure that key financial market utilities operate with a high level of resilience and remain a source of strength for the financial system.”
- Lael Brainard, Vice Chair of the Federal Reserve Board

CFPB Issues Request for Information on Mortgage Refinances and Forbearances to Promote Competition and Support Household Financial Stability

On September 22, the CFPB issued an RFI seeking public input on ways to spur new mortgage products that help to facilitate mortgage refinances and support automatic short-term and long-term loss mitigation assistance for consumers. The CFPB will use information obtained through the RFI as it considers steps to support household financial stability and address refinance market gaps, as well as to inform future policy initiatives, rulemaking, and other mortgage competition and innovation initiatives. Comments must be submitted by November 28.

Practical Guide to the Application of the Marketing Rule to Private Fund Placement Agents

Goodwin recently published an article that focuses on how the new Rule 206(4)-1 (the Marketing Rule) under the Investment Advisers Act of 1940 (the Advisers Act) affects the relationships between investment advisers registered with the SEC and placement agents for private funds, including the contractual agreements.

Read the article to learn more.

Litigation & Enforcement

SEC Sanctions Broker for Failure to Register as Municipal Advisor and for Inadequate Procedures to Determine Whether It Needed to Register; A Reminder for Brokers and Fund Managers

On September 14, the SEC announced a settled administrative order, also dated September 14 (Order), imposing penalties, including a $100,000 fine, on a registered broker (the Broker) for failing to (1) register as a municipal advisor, in violation of Section 15B(a)(1)(B) of the Securities Exchange Act of 1934 (Exchange Act), and (2) reasonably supervise its associated persons with respect to the laws and rules applicable to advising municipal entities, in violation of Rule G-27 of the Municipal Securities Rulemaking Board (MSRB), and consequently, Exchange Act Section 15B(c)(1). The Order is a reminder that persons that come into contact with municipal entities, including brokers and fund managers, should have written policies and procedures to ensure that they know what activities would cause them to be municipal advisors and whether they need to register or have an available exemption or exclusion.

Read the client alert for a summary of the SEC’s findings and considerations for advisors subject to the MSRB.

SEC Enforcement Against Cheetah Mobile Execs Reflects Heightened Scrutiny of 10B5-1 Plans

On September 21, the SEC charged the CEO, Sheng Fu, and former president, Ming Xu, of Chinese-based technology company Cheetah Mobile Inc. (Cheetah Mobile or the Company) with insider trading for selling Cheetah Mobile American Depository Shares while in possession of material nonpublic information. Notably, the trades at issue — sales totaling 96,000 shares to avoid losses of approximately $203,290 and $100,127, respectively, in advance of a negative disclosure — were made pursuant to a Rule 10b5-1 plan that the two executives had jointly established. However, the SEC determined that their plan did not shield them from liability because they entered into the plan only after becoming aware of material non-public information — a significant drop-off in advertising revenues from the Company’s largest advertising partner.

Read the client alert for a summary of the SEC’s findings and what this means in relation to 10b5-1 plans.

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Nicole Griffin
Samantha M. Kirby
William McCurdy

Josh Burlingham
Jiabao (Eva) Xu