Financial Services Weekly News - March 2016 #5

by Goodwin

Regulatory Developments

SEC Issues FAST Act IM Guidance

The SEC published an IM Guidance Update highlighting two exemptions from registration under the Investment Advisers Act of 1940 (the Advisers Act) that apply to advisers to Small Business Investment Companies (SBICs) after the enactment of the Fixing America’s Surface Transportation Act (FAST Act): 

  1. “Venture capital funds adviser exemption:” the definition of “venture capital funds” now includes SBICs, allowing an adviser who only has clients that are venture capital funds (as defined in Rule 203(l)-1) and/or SBICs to rely on this exemption.
  2. “Private fund adviser exemption:” Advisers Act Section 203(m) now excludes SBIC assets from counting toward the $150 million threshold, allowing an adviser that has assets under management in the U.S. of less than $150 million attributable to its non-SBIC fund clients to rely on the private fund adviser exemption regardless of the amount of assets under management in the U.S. that is attributable to any SBIC client.

An adviser to SBICs may now choose to rely on either of these exemptions or continue to rely on the “SBIC adviser exemption” (Advisers Act Section 203(b)(7)). However, unlike an adviser relying on the SBIC exemption, an adviser relying on either of the two new exemptions must file as an exempt reporting adviser (ERA) and submit its initial Form ADV within 60 days of relying on these exemptions. In addition, registered advisers that advise SBICs may now be eligible to withdraw their registration and start reporting as an ERA. An adviser switching from being registered to being an ERA must file a Form ADV-W partial withdrawal prior to submitting its first report as an ERA.

FINRA’s 2016 Regulatory and Examination Priorities Letter – Parts 2 and 3

On March 21 and 28, FINRA released its second and third podcasts in a three-part series about FINRA’s 2016 Regulatory and Examination Priorities Letter. The examination priorities letter was discussed in the January 13, 2016, edition of the Roundup.

CFPB Issues QM Guidance for Lenders Operating in Rural and Underserved Areas

On March 22, the Consumer Financial Protection Bureau (CFPB) issued a new interim final rule to implement the Helping Expand Lending Practices in Rural Communities (HELP) Act. The effect of the new rule is to expand the number of small, rural mortgage lenders who can take advantage of special provisions in Regulation Z that permit small creditors to originate balloon-payment qualified mortgages and exempts such creditors from the escrow account requirement for higher-priced mortgages. Under the old rule, in order to qualify for these provisions, a small creditor had to operate predominantly in rural or underserved areas. The CFPB had previously interpreted “operate predominantly” as requiring that a small creditor originate over half of its covered mortgages on properties located in rural or underserved areas. Now, under the new rule, a small creditor is eligible for these provisions if it originates at least one covered mortgage loan on a property located in a rural or underserved area in the prior calendar year. The new interim final rule is effective March 31.

Federal Banking Agencies Specify Eligibility for 18-Month Exam Cycle

On March 24, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), and the Federal Deposit Insurance Corporation (FDIC) published an interagency interim final rule amending the regulations governing eligibility for the 18-month on-site examination cycle, pursuant to the FAST Act. As covered in the February 24 and January 27 editions of the Roundup, the agencies had previously approved a joint interim final rule that expanded the number of small banks and savings associations eligible for an 18-month examination cycle rather than a 12-month cycle. The latest interim final rule specifies eligibility for the 18-month exam cycle to institutions: (1) with less than $1 billion in total assets; (2) that are well capitalized; (3) with a CAMELS composite rating of 1 or 2, including a management rating of 1 or 2; (4) are not subject to a formal enforcement proceeding or order from a federal banking regulatory agency; and (5) have not undergone a change of control in the preceding 12-month period. The agencies retain the authority to maintain the current 12-month on-site examination schedule for an institution, or adopt a more frequent schedule than every 18 months, if the agency determines it would be necessary or appropriate.

FinCEN Issues Prepaid Card FAQs

As referenced in last week’s Roundup, several agencies, including the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), published a guidance clarifying the applicability of the Customer Identification Program (CIP) rule to prepaid cards issued by banks. This week FinCEN issued additional guidance on the regulatory expectations for nonbank sellers of prepaid cards. The guidance addresses frequently asked questions (FAQs) related to non-bank prepaid card offerings. The FAQs are meant to be read in addition to, and supplement, the FAQs entitled “Final Rule – Definitions and Other Regulations Relating to Prepaid Access,” which FinCEN issued on November 2, 2011. Some of the FAQs discuss de minimis cash refund requirements under state law, the use of quick response codes and other technology in connection with Prepaid Access, and the term “defined merchant” within the context of closed loop prepaid access.

FinCEN Issues Final Rule Imposing a Prohibition on the Opening or Maintaining of Correspondent Accounts for, or on Behalf of, FBME Bank Ltd.

On March 25, FinCEN issued a final rule imposing a prohibition on U.S. financial institutions from opening or maintaining a correspondent account for, or on behalf of, FBME Bank Ltd. (FBME) under the fifth special measure of Section 311 of the USA PATRIOT Act. The final rule replaces the rule published on July 29, 2015, which had been enjoined from taking effect and subsequently reopened for comment. According to FinCEN, the imposition of a prohibition under the fifth special measure “will guard against the international money laundering and terrorist financing risks that FBME poses to the U.S. financial system.” The final rule will take effect 120 days from the date of publication in the Federal Register.

Basel Proposes Changes to Risk Weights for Largest Banks

The Basel Committee on Banking Supervision released a proposed framework that would limit some of the flexibility that the largest banks have in calculating risk weights for certain kinds of assets. The framework, when finalized by the Basel Committee and formally implemented in the United States, would apply only to banks using advanced approaches under Basel III. It is intended to “simplify the capital framework” and address “excessive variability” in risk-weighted assets across banks. Comments on the proposed rules are due on June 24.

FDIC Announces Community Banking Conference on "Strategies for Long-Term Success"

On March 22, the FDIC announced that, as part of its Community Banking Initiative, it will bring together community bankers, regulators, researchers, and others for a conference on community banking on April 6 in Arlington, Virginia. The conference will “explore strategies for long-term success in the community banking sector.”

Enforcement & Litigation

Judge Removes MetLife's SIFI Tag

On March 30, a federal district court in Washington, DC rescinded the FSOC’s determination that MetLife Inc. is a systemically important financial institution (SIFI). The FSOC had previously determined that MetLife’s potential failure would pose a threat to U.S. financial stability and designated MetLife as a SIFI, which subjected the insurer to consolidated supervision by the Federal Reserve and enhanced prudential standards. Because the judge issued her order under seal, details of the court’s order were not immediately available. The judge indicated that a public version of the opinion, with possible redactions, would be released in the future after the parties to the litigation had time to argue whether portions of the ruling should remain confidential. MetLife had contended that the FSOC made an arbitrary and capricious decision that failed to assess MetLife’s vulnerability to financial distress and failed to consider the economic effects of subjecting the insurer to stricter regulation.

Texas Court Rules that Oil and Gas Projects Are Securities and Not Joint Ventures

On March 21, in Securities and Exchange Commission v. Arcturus Corporation et al, a Texas federal judge ruled in favor of the U.S. Securities and Exchange Commission (SEC) on securities fraud claims against brokers who sold $22 million in "partnerships" in oil and gas drilling projects, agreeing with the SEC that the projects were unregistered investment vehicles and not joint ventures. The defendants had asserted that the projects were joint ventures funded by “partners” rather than investors. But the SEC claimed, and the judge agreed, that the projects were actually securities because the investors were brought in via cold calls, had no power over the projects, weren't versed in the oil and gas business, and were completely dependent on the defendants to manage the projects.


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 on:

Readers' Choice 2017
Reporters on Deadline

"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:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. 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. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the 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 shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this 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 the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.