Financial Services Weekly News - May 2017

by Goodwin
Contact

Goodwin

Editor's Note
 

In This Issue. The Senate confirmed Jay Clayton as the new chairman of the U.S. Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC) released its final handbook for organizers of de novo banks, the IRS revoked previously issued private letter rulings granted to regulated investment companies, and regulators, including the SEC and the Consumer Financial Protection Bureau (CFPB), handed out a host of enforcement actions to lenders and debt collectors. These and other recent developments are covered below. 

Regulatory Developments

Senate Confirms New SEC Chairman

The U.S. Senate has confirmed Jay Clayton as chairman of the SEC in a 61-37 vote. He replaces Michael Piwowar, who was named acting chairman following the resignation of Mary Jo White in January. Mr. Clayton formerly was a partner at the law firm of Sullivan & Cromwell, LLC, where he advised clients on numerous mergers and initial public offerings.

SEC Staff Provides No-Action Relief for the Creation of ETF Shares for Close-Out Purposes

On April 26, the staff of the SEC’s Division of Trading and Markets issued a no-action letter to Latour Trading LLC, a registered broker-dealer that is a market maker in exchange-traded products (Applicant), relating to the creation of shares for exchange-traded funds (ETFs). Under Rule 204 of Regulation SHO under the Securities Exchange Act of 1934 (Rule 204), a participant (Participant) of a registered clearing agency must (1) deliver securities to a registered clearing agency for clearance and settlement by settlement date, or (2) close-out a “fail to deliver” position at a registered clearing agency in any equity security for a long or short sale transaction in that equity security by borrowing or purchasing securities of like kind and quality. A Participant must close-out a “fail to deliver” position by certain time periods required by Rule 204. In the no-action letter, the SEC staff provided assurances that it would not recommend enforcement action under Rule 204 if the Applicant, after being allocated a portion of a “fail to deliver” position in the securities of an ETF from a Participant, closes out the “fail to deliver” position by submitting irrevocable instructions to create shares in the ETF directly to an authorized participant of the ETF no later than the beginning of regular trading hours on the applicable close-out date, provided certain conditions set forth in the letter are satisfied. The Applicant represented that the proposed ETF share creation approach is consistent with the policy of enforcing the strict close-out requirements of Rule 204 as it requires the Applicant to take affirmative action and irrevocably commit itself to purchase the ETF shares within the timeframes set forth in Rule 204. 

FDIC Releases Final Handbook for Organizers of De Novo Banks

On May 1, the Federal Deposit Insurance Corporation (FDIC) released its final handbook for organizers of de novo banks. As discussed in the January 11 edition of the Roundup, the FDIC had previously proposed, and invited public comment on, the handbook, which is designed to assist de novo bank organizers applying for federal deposit insurance. The final version provides additional clarification sought by commenters. According to the FDIC, the handbook provides a plain language overview of the requirements and considerations significant to the application process, and provides organizers a clear and transparent explanation of the path to obtaining deposit insurance. The handbook offers guidance for navigating the three phases of establishing an insured institution: pre-filing activities, the application process, and pre-opening activities. It provides useful information for organizers of a new depository institution, and reflects comments from organizers and other interested parties during recent industry outreach events. It does not establish new policy or guidance, or modify existing policy or guidance.

Commodity-Linked Note Private Letter Rulings Revoked by the IRS

At least 31 IRS rulings previously granted to regulated investment companies (RICs) with respect to certain equity-linked notes referencing commodities have been revoked. This action by the IRS follows an informal “pause” in granting such rulings in July 2011, and formal announcement in September 2016 of the IRS’s no-rule policy with respect to “any issue relating to the treatment of a corporation as a regulated investment company under section 851 and related provisions that requires a determination whether a financial instrument or position is a security as defined in the Investment Company Act of 1940 (the 1940 Act),” as previously discussed in a client alert. The revoked IRS rulings appear to have relied, at least in part, on determinations by the IRS that the relevant derivatives were 1940 Act securities; the revocation letters state that such rulings are no longer “in accord with the views of the Service.” Discretionary retroactive relief was granted by the IRS, where requested by the relevant funds, limiting the effect of the revocations to new derivatives issued by relevant RICs after June 30, 2017.  Many of the IRS private letters at issue also contained rulings that subpart F income or PFIC inclusions were "qualifying income" for RICs; the subpart F/PFIC rulings would be separately revoked by regulations proposed by the IRS in September 2016, if finalized, as further discussed in our prior client alert. The remaining open question for RICs relying on the retroactive relief granted by the IRS will be in what circumstances their derivatives will be deemed exchanged or reissued under section 1001; “Regulations under section 1001 on the modification of nondebt financial instruments” is a project on the Treasury’s priority guidance plan list for 2016-2017 and could be raised by modifications to the terms of a derivative or changes to the derivative's reference assets.

Enforcement & Litigation

Registered Investment Adviser Settles Charges Resulting from Erroneous Payments

On May 1, William Blair & Company, L.L.C. (the Adviser) settled charges that it negligently used mutual fund assets to pay for (1) distribution and marketing of fund shares outside of a written, board-approved Rule 12b-1 plan and (2) sub-transfer agent (sub-TA) services in excess of board-approved limits, totaling approximately $1.25 million. The SEC alleged that the conduct rendered certain of the William Blair Funds’ (Funds) disclosures concerning payments for distribution and sub-TA services inaccurate. The SEC also alleged that the Adviser failed to fully disclose to the Funds’ Board of Trustees (Board) that the Adviser (and not a third-party service provider) would retain a fee for providing shareholder administration services to the Funds under a shareholder administration services agreement between certain of the Funds and the Adviser. As a result of this conduct, the SEC asserted that the Adviser violated Section 206(2) of the Advisers Act of 1940 and Section 34(b) of the 1940 Act, and caused the Funds to violate Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. Without admitting or denying the SEC’s findings, the Adviser consented to a cease and desist order and a penalty for $4.5 million. The SEC took into consideration the Adviser’s remedial actions after identifying the payment errors, including notifying the Board, reimbursing the Funds with interest and supplementing its practices of providing oversight of payments to financial intermediaries.

CFPB Lawsuit Targets High-Interest Online Lenders

On April 27, the CFPB announced the filing of a suit against four online lenders alleging that the lenders illegally collected debts on invalid loans. The complaint alleged violations of the Consumer Financial Protection Act (CFPA), 12 U.S.C. §§ 5531(a), 5536(a), and 5564(a), and the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., for engaging in unfair, deceptive, or abusive acts and for improper disclosures. View the Enforcement Watch blog post.

CFPB Fines Auto Lender $1.25 Million for Violations of Consent Order

On April 26, the CFPB announced that it reached a consent order with an Ohio-based auto lender that allegedly violated a prior CFPB consent order by failing to properly return $1 million in refunds and credits to its customers. According to the CFPB, the auto lender specializes in auto loans to service members. Under the new order, the auto lender must pay approximately $1.1 million in credits to customers and an additional civil penalty of $1.25 million. View the Enforcement Watch blog post.

President of Debt Collector Ordered to Pay $2 Million for FDCPA Violation

On April 24, Federal Trade Commission (FTC) announced that a federal court ordered the president of a debt collection company to pay $2 million in civil penalties under the Federal Trade Commission Act (FTC Act) and the Fair Debt Collection Practices Act (FDCPA). A judge in the U.S. District Court for the Eastern District of Texas found that the company and the president participated in deceptive acts and practices in violation of the FTC Act, 15 U.S.C. § 45(a), and multiple provisions of the FDCPA, 15 U.S.C. §§ 1692-1692l, by falsely representing themselves as attorneys and improperly threatening debtors with legal actions, such as lawsuits, garnishments, bank levies, and seizures. The action was brought as part of the FTC’s Operation Collection Protection. View the Enforcement Watch blog post.

D.C. Circuit Affirms Denial of the CFPB’s Investigation of a College Accrediting Organization

On April 21, the United States Court of Appeals for the District of Columbia Circuit affirmed the lower court’s decision denying the CFPB’s petition to investigate a college accreditation organization. The Court limited its holding to the particular Civil Investigative Demand (CID), finding that the Notification of Purpose within the CID did not adequately describe the unlawful acts and practices the CFPB intended to investigate. By affirming on the narrow issue, the Court avoided deciding whether the CFPB has authority to investigate the accreditation process. View the Enforcement Watch blog post.

Operation Collection Protection Secures $2 Million Civil Penalty Against President of Debt Collection Company

On April 12, the FTC announced that it had secured a $2 million civil penalty against the president of a debt collection company for violating the Fair Debt Collection Practices Act (FDCPA) in United States v. Commercial Recovery Systems, Inc. — one of over a hundred cases brought in connection with the coordinated effort by the FTC and other enforcement agencies to crack down on abusive debt collectors known as “Operation Collection Protection.” View the LenderLaw Watch 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

"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):
hide

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.

Security

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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.