Regulatory Developments
FinCEN Finalizes Rule Implementing Beneficial Ownership Reporting Requirements Under the Corporate Transparency Act
On September 29, FinCEN issued a final rule under the CTA requiring each “reporting company” (which includes both domestic and foreign entities that are formed or registered to do business with a secretary of state or similar office of a U.S. state or tribe) to file reports with FinCEN that identify (1) each “beneficial owner” and (2) each “company applicant” who directly files the document to form or register the entity to do business or who is primarily responsible for directing or controlling such filing.
The final rule exempts public companies, large operating companies, and certain types of regulated entities whose ownership and control are generally known to governmental authorities from the definition of “reporting company.”
Read the client alert for more information about this rule.
“This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”
- Acting FinCEN Director Himamauli Das
FFIEC Releases 2022 Cybersecurity Resource Guide for Financial Institutions
On October 3, the FFIEC issued an update to the FFIEC Cybersecurity Resource Guide for Financial Institutions (the Guide). The purpose of the Guide is to help financial institutions meet their security control objectives and prepare to respond to cyber incidents. The 2022 FFIEC Cybersecurity Resource Guide for Financial Institutions rescinds and replaces the similarly named 2018 guide. The revisions include updated resource links for the Assessment, Exercise, Information Sharing, and Response and Reporting categories and new ransomware specific resources.
Treasury’s Federal Insurance Office Releases Annual Report on the Insurance Industry and Request for Information on Potential Federal Insurance Response to Catastrophic Cyber Incidents
The U.S. Department of the Treasury’s FIO released its Annual Report on the insurance industry, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Annual Report discusses the U.S. insurance industry’s financial performance and its financial condition for the last year and provided a domestic outlook for the insurance industry for the first half of 2022. Full year 2022 insurance industry results will be reviewed by FIO in next year’s Annual Report on the Insurance Industry.
Also on September 29, FIO issued a request for information to solicit public comments on cyber insurance, catastrophic cyber incidents and a potential federal insurance response to catastrophic cyber incidents. The comments will inform FIO’s work to conduct a joint assessment to determine “the extent to which risks to critical infrastructure from catastrophic cyber incidents and potential financial exposures warrant a federal insurance response” with the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency, as a result of the Government Accountability Office’s recommendation earlier this year.
SEC Reopens Comment Periods for Several Rulemaking Releases Due to Technological Error in Receiving Certain Comments
On October 7, the SEC announced that it reopened the comment periods for several rulemaking releases due to a technical error. The SEC explained in its press release that due to a technological error that is known to have occurred as early as June 2021, a number of comments were submitted but never received by the SEC. The SEC advised all commenters who submitted a public comment between June 2021 and August 2022 to make sure their comment was submitted and posted. Several of the impacted rulemaking releases affect mutual funds and investment advisers. The list of the affected rulemaking releases is available to view.
To ensure that interested persons, including any affected commenters, have the opportunity to comment on the affected releases or to resubmit comments, the SEC is reopening the comment periods for the affected releases until 14 days following publication of the reopening release in the Federal Register.
Federal Reserve Board Plans to Replace Bank Application Filing System
On October 6, the Federal Reserve announced that it would replace its current bank application filing system with a new and upgraded system later this month. The cloud-based system, known as FedEZFile, will provide real-time status tracking, two-way messaging and digitally signed documents for applications. The substantive requirements of applications will remain the same.
The Federal Reserve will release FedEZFile and FedEZFile Fluent (the companion learning resource to FedEZFile) on October 17, 2022. FedEZFile Fluent will be accessible through the FRB's website.
Users will be able to register for FedEZFile and access FedEZFile Fluent starting on October 17, 2022, and will no longer be able to access E-Apps, the Federal Reserve’s current electronic application filing interface, after FedEZFile goes live. All pending applications filed prior to October 17, 2022, will be transferred to FedEZFile for continued processing.
SEC’s Division of Trading and Markets Issues FAQ Relating to Investment Adviser Consideration of DEI Factors
On October 13, the staff of the SEC’s Division of Trading and Markets published an FAQ relating to investment adviser consideration of DEI factors. According to the staff, an adviser that recommends other investment advisers to or selects other advisers for their clients may consider a variety of factors in making a recommendation or selection, including, but not limited to, factors relating to DEI, provided that the use of such factors is consistent with a client’s objectives, the scope of the relationship, and the adviser’s disclosures. The staff reminds advisers in the FAQ that an adviser is required to have a reasonable belief that the advice it provides is in the best interest of the client based on the client’s objectives.
SEC Adopts Rule Amendments to Modernize How Broker-Dealers Preserve Electronic Records and Enhance the Electronic Recordkeeping Requirements for Security-Based Swap Entities
On October 12, the SEC adopted amendments to the electronic recordkeeping, prompt production of records, and third-party recordkeeping service requirements applicable to broker-dealers, SBSDs and major security-based swap participants MSBSPs. The amendments are designed (1) to modernize recordkeeping requirements given technological changes over the last two decades, (2) to make the rule adaptable to new technologies in electronic recordkeeping and (3) facilitate examinations of broker-dealers, SBSDs, and MSBSPs.
The SEC’s broker-dealer electronic recordkeeping rule currently requires firms to preserve electronic records exclusively in a non-rewriteable, non-erasable format, known as the “write once, read many” format. The amendments add an audit-trail alternative under which electronic records can be preserved in a manner that permits the recreation of an original record if it is altered, over-written, or erased. The audit-trail alternative is designed to provide broker-dealers with greater flexibility in configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices while also protecting the authenticity and reliability of original records. Under the amendments, a third party may provide an alternative undertaking in lieu of the traditional undertaking that is tailored to how certain recordkeeping services, including cloud service providers, hold electronic records for broker-dealers and SBSDs. The amendments apply the same requirements to nonbank SBSDs and MSBSPs. The amendments require broker-dealers and all types of SBSDs and MSBSPs to produce electronic records to securities regulators in a reasonably usable electronic format, which will help facilitate the SEC’s examinations.
The amendment will become effective 60 days after publication in the Federal Register. Broker-dealers will be required to comply with the new requirements six months after publication and SBSDs and MSBSPs will be required to comply with the new requirements 12 months after publication.
FINRA on Reg. BI Compliance: There is No “One-Size-Fits-All” Approach
FINRA recently hosted a conference call with its smaller members covering Regulation Best Interest and Form CRS compliance. FINRA’s resounding message was that there is “no one-size-fits all” approach to Reg. BI compliance.
Read the client alert for key takeaways.
Litigation & Enforcement
SEC and CFTC Send Powerful Message with $2 Billion in Fines Related to Social Media and Text Recordkeeping Lapses
The SEC and CFTC recently charged 11 large financial institutions and their affiliates for failing to collect, monitor, and preserve communications over WhatsApp and other messaging services. These settlements follow a late-2021 SEC settlement with another large firm based on similar issues in which that firm was fined $125 million.
Read the client alert to learn more.
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