Regulatory Developments
MSRB Publishes Compliance Advisory for Brokers, Dealers and Municipal Securities Dealers
The MSRB recently published its first Compliance Advisory for Brokers, Dealers and Municipal Securities Dealers (the Advisory), which identifies some of the key compliance risks for dealers that, if not properly addressed, could adversely affect public confidence in the municipal securities market. The Advisory outlines the core components of established MSRB fair practice regulations designed to protect investors and ensure fairness and ethical conduct in each transaction.
FINRA Proposes Enhanced Price Disclosure to Retail Investors in Fixed-Income Securities
On Feb. 26, FINRA’s Board of Governors approved a proposal, subject to the approval of the Securities and Exchange Commission, that would require member firms to disclose on retail customer confirmations the "mark-up" or "mark-down" for most transactions in corporate and agency debt securities. The proposal would require that, if a firm sells or buys a corporate or agency fixed-income security from a retail customer and on the same day buys or sells the same security as principal from another party, the firm would be required to disclose on the customer confirmation the firm's mark-up or mark-down from the prevailing market price for the security.
OCC Publishes Revised Civil Money Penalty Policy
On Feb. 26, the OCC published its revised Policies and Procedures Manual (PPM) for assessing civil money penalties (CMPs). The revised PPM replaces the PPM of the same title issued in June 1993 and sets forth the OCC’s policies and procedures for the assessment of CMPs against institution-affiliated parties (IAPs), national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers. The guidance and procedures included in the revised PPM apply to all national banks, federal savings associations, and federal branches and agencies as well as their IAPs. The guidance also applies to bank service companies and service providers. The revised PPM includes new CMP matrices for assessing CMPs against national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers, on the one hand, and IAPs on the other hand.
Client Alert: European Commission Releases Details of EU-U.S. Privacy Shield
The European Commission released its long-awaited draft adequacy decision for the EU-U.S. Privacy Shield, a major step towards the formal approval of the program that is to replace the invalidated Safe Harbors program. The release follows commitments by U.S. authorities to monitor and enforce the principles of the Privacy Shield. Adoption of a final decision could happen as early as Summer 2016. Once formally adopted, the program is likely to serve as an important data transfer mechanism option for the more than 4,000 U.S. companies that had been Safe Harbors participants, as well as for other American companies looking for a mechanism that will allow them to receive transfers of data from Europe. Please see the client alert prepared by Goodwin’s Privacy & Cybersecurity practice for more information.
Enforcement & Litigation
CFPB Orders Citibank to Provide Relief to Consumers for Illegal Debt Sales and Collection Practices
On Feb. 23, the CFPB announced that it had taken two separate actions against Citibank for illegal debt sales and debt collection practices. In the first action, the CFPB ordered Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with “inflated” interest rates and for failing to forward consumer payments promptly to debt buyers, which constituted unfair, deceptive, or abusive acts or practices in violation of the Dodd-Frank Act. In the second action, which alleged that Citibank, two of its affiliates and two debt collection law firms used by Citibank falsified court documents filed in debt collection cases in New Jersey state courts, the CFPB ordered Citibank and the two law firms to comply with a court order that Citibank refund $11 million to consumers and forgo collecting about $34 million from nearly 7,000 consumers.
Gibraltar Private Bank and Trust Company Penalized for BSA/AML Violations
On Feb. 25, the OCC and the FinCEN announced civil money penalties against Gibraltar Private Bank and Trust (Gibraltar) for willful anti-money laundering (AML) violations. Gibraltar was first warned of compliance deficiencies in 2010, which continued until the OCC placed Gibraltar under a consent order in 2014. Gibraltar will pay the OCC $2.5 million and the Department of the Treasury $1.5 million. The FinCEN announcement noted “substantial AML program deficiencies” caused Gibraltar to fail to timely file 120 suspicious activity reports (SAR) involving $558 million between 2009 and 2013. Gibraltar also unreasonably delayed SAR reporting related to accounts involved in a $1.2 billion Ponzi scheme. The announcement also cited deficiencies in Gibraltar’s transaction monitoring system, failure to properly train staff, and failure to develop and implement an adequate customer identification program.
Federal Court Dismisses Remaining Northstar Claims
On Feb. 23, a federal district court in California dismissed the remaining claims of Northstar Financial Advisors against a Schwab mutual fund, the fund board, and fund's investment adviser. The case was on remand to the district court after the U.S. Court of Appeals for the Ninth Circuit ruled last year that Northstar (1) could bring state law claims for breach of fiduciary duty against the board directly, rather than derivatively, (2) could sue the fund itself for breach of an implied contract formed by the prospectus and proxy statements, and (3) could sue the adviser as a third-party beneficiary of the investment advisory agreement. On remand, the district court has now dismissed all Northstar's claims as barred by the Securities Litigation Uniform Standards Act of 1998, which generally bars class actions brought under state law that allege misrepresentations or omissions in connection with the purchase or sale of "covered securities" (which includes mutual fund shares). That dismissal by the district court does not affect the precedential value, however, of the Ninth Circuit's Northstar decision (see Apr. 29 Roundup). Meanwhile, Northstar intends to appeal the district court's dismissal of its claims.
