Financial Services Weekly News: Preparing for ‘Hard Brexit’

by Goodwin
Contact

Goodwin

Editor's Note
 

In This Issue. The U.S. Securities and Exchange Commission’s (SEC) Division of Investment Management staff announced plans to seek industry input on custodial practices relating to trading that is not processed or settled on a delivery versus payment basis, and investing in digital assets; five federal agencies adopted an interim final rule intended to assist financial firms with swap transactions in the event the U.K. exits the European Union without a withdrawal agreement; and the Second Circuit affirmed pre-discovery dismissal of a complaint filed under Section 36(b) of the Investment Company Act of 1940, in the first appellate decision regarding a complaint premised on a “subadvisory fee comparison” theory. These and other developments are discussed in more detail below.

Regulatory Developments

SEC Staff Engaging on Non-DVP Custodian Practices and Digital Assets

On March 12, the SEC’s Division of Investment Management staff issued a letter to the Investment Adviser Association announcing the staff’s plans to seek industry input on custodial practices relating to (i) trading that is not processed or settled on a delivery versus payment basis (non-DVP) and (ii) investing in digital assets. The staff received questions about non-DVP custodial practices following its February 2017 staff guidance regarding the custody rule under the Investment Advisers Act of 1940 (the Custody Rule). To help inform potential regulatory action, the staff is seeking input from industry participants on non-DVP practices and risks including, among other items: what instruments trade on a non-DVP basis, the risks of misappropriation associated with non-DVP trading, a custodian’s role in non-DVP trading, and how evolving technologies may affect client protection in non-DVP trading. 

The staff noted in the same letter its focus on characteristics of digital assets, such as the use of distributed ledger technology (DLT) like blockchain to record ownership, the anonymity of DLT transactions, and the challenge to auditors in examining digital assets and DLT. To this end, the staff is seeking input on topics such as: challenges digital assets present for advisers in regards to complying with the Custody Rule, the extent to which advisers are construing digital assets as “funds” or “securities” for purposes of the Custody Rule and including digital assets for purposes of regulatory assets under management for registration-triggering thresholds, and the extent to which DLT can be used more broadly to evidence security ownership. The staff stated in the letter that amendments to the Custody Rule are on the SEC’s long-term unified agenda and signaled that the staff’s considerations of the Custody Rule would be broad and not limited to just non-DVP and digital asset matters.

Agencies Adopt Interim Final Rule on Transfers of Legacy Swaps under ‘Hard Brexit

On March 15, five U.S. federal agencies — the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency (together, the Agencies) — adopted an interim final rule that is intended to assist financial firms in the United Kingdom in the event the U.K. exits the European Union without a withdrawal agreement. The interim final rule amends the Swap Margin Rule to clarify that financial firms in the U.K. may transfer existing “grandfathered” non-cleared swap portfolios (which were entered into before the relevant regulatory margin requirements took effect) to affiliates or other related entities located in the EU or the United States, without triggering application of the Swap Margin Rule. The interim rule went into effect immediately, but the Agencies will accept comments on the rule through April 18, 2019.

FDIC Formally Rescinds Duplicative Disclosure Requirement

On March 15, the FDIC issued a final rule rescinding Part 350 from the Code of Federal Regulations. As discussed in the October 31, 2018, edition of the Roundup, Part 350 required, among other things, FDIC-insured state nonmember banks and FDIC-insured state-licensed branches of foreign banks to make available annual disclosures including (i) financial data comparable to the Consolidated Reports of Conditions and Income filed for the previous two year-ends; (ii) FDIC required information such as disclosure of enforcement actions; and (iii) other information at the option of the bank. The Office of the Comptroller of the Currency and the Federal Reserve Board also require similar disclosures. The FDIC determined that such information is accessible to the public via the internet through the FDIC’s website and determined to rescind Part 350 to remove the disclosure requirements. The final rule takes effect on April 17, 2019.

Enforcement & Litigation

Goodwin Alert: Second Circuit Affirms Pre-Discovery Dismissal of Section 36(b) Subadvisory Fee Comparison Complaint

On March 18, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal prior to discovery of a complaint filed under Section 36(b) of the Investment Company Act of 1940. The Second Circuit’s decision is significant for a number of reasons. First, it is the first appellate decision regarding a complaint premised on a “subadvisory fee comparison” theory, which contends that an advisory fee is excessive if it is larger than the fee the adviser charges for providing subadvisory services. Second, it is one of only a few decisions in the last 10 years that affirms dismissal of a Section 36(b) complaint before discovery. Third, the Second Circuit held that in determining whether to dismiss a Section 36(b) complaint, the issue is not whether one or more of the so-called Gartenberg factors weigh in favor of the plaintiff, but rather whether all of the allegations and Gartenberg factors, considered collectively, plausibly suggest that an adviser has violated Section 36(b). For more information, read the client alert issued by Goodwin’s Financial Industry group.

SEC Settles with 79 Self-Reporting Investment Advisers Over Share Class Selection Conflicts and Disclosures

On March 11, the SEC announced settlements with 79 self-reporting investment advisers in connection with the SEC’s Share Class Disclosure Initiative (Initiative), which was created in February 2018 to address concerns that investment advisers were not adequately disclosing, or acting consistently with disclosures regarding, conflicts of interest related to their mutual fund share class selection practices. According to the SEC, such practices deprive investors, especially retail investors, of the ability to make informed investment decisions about appropriate share classes when purchasing mutual funds. The Initiative enabled investment advisers to avoid financial penalties if they timely self-reported violations of the Advisers Act resulting from undisclosed conflicts of interest, agreed to review and correct all relevant disclosure documents concerning mutual fund share class selection and 12b-1 fees, and evaluate whether existing clients should be moved to an available lower-cost share class and move clients, as necessary. Without admitting or denying the SEC’s findings, the settling investment advisers consented to cease-and-desist orders, to censure, and to disgorgement of fees with prejudgment interest to affected clients. As a result of the Initiative, more than $125 million will be returned to advisory clients.

Foreign Trading Platform and Its CEO to Pay $990,000 for Illegal Bitcoin-Related Transactions with U.S. Customers

The U.S. Commodity Futures Trading Commission (CFTC) announced that a federal court entered a consent order with 1pool Ltd. The consent order resolves a previous CFTC action against the Marshall Islands-based 1pool Ltd., and its CEO and owner, Patrick Brunner. The CFTC’s action alleged that, between 2016 and 2018, 1pool Ltd. illegally offered retail commodity transactions margined in bitcoin, failed to register as a futures commission merchant, and failed to implement sufficient anti-money laundering procedures. According to the Director of Enforcement for the CFTC: “This action shows the CFTC’s commitment to ensuring that intermediaries offering transactions within our jurisdiction register with the CFTC and implement policies and procedures necessary to prevent money laundering and other illicit transactions. These requirements serve to preserve market integrity and protect customers. This action also reflects the CFTC’s commitment to coordinate closely with our fellow regulators to ensure that we uncover and prosecute the entire scope of any misconduct.” The defendants paid a total of $990,000 to resolve the CFTC action. This amount includes a civil monetary penalty of $175,000 and $246,000 in disgorgement. 1pool Ltd. was also required to return customers’ bitcoin in its possession. 1pool Ltd. has returned 93 bitcoins, valued at $570,000.

Repeated Pleading Defects Lead to TCPA Class Action Dismissal

On March 12, the Southern District of Florida dismissed a putative Telephone Consumer Protection Act (TCPA) case for a second time because of repeated pleading defects. In Settle v. State Farm Fire and Casualty Co., Judge Ursula Ungaro granted State Farm’s dismissal request because the plaintiff’s efforts to fix defects in her original complaint were inadequate. Although Judge Ungaro’s order totals only two pages, it has much to teach TCPA defendants who often face generic and unclear complaints. Read the LenderLaw blog post.

Supreme Court to Hear Appeal on FDCPA Statute of Limitations

On February 25, the U.S. Supreme Court accepted appeal from the Third Circuit’s decision in Rotkiske v. Klemm et al.No. 16-1668 (3d Cir. May 15, 2018). The court is now primed to answer whether the Fair Debt Collection Practices Act (FDCPA) encompasses the “discovery rule” — which tolls the statute of limitations until a plaintiff discovers he or she has been harmed — even though the relevant portion of the FDCPA, 15 U.S.C. § 1692k(d), limits a cause of action thereunder to “one year from the date on which the violation occurs.” In Rotkiske v. Klemm, No. 18-328, the Supreme Court will have the opportunity to resolve a circuit split between the Third Circuit and the Fourth and Ninth Circuits concerning whether the discovery rule applies to the FDCPA. Read the LenderLaw blog post.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Goodwin | Attorney Advertising

Written by:

Goodwin
Contact
more
less

Goodwin on:

Readers' Choice 2017
Reporters on Deadline

Related Case Law

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.