In This Issue. The Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) issued a risk alert announcing that it was conducting a series of examination initiatives focused on mutual funds and exchange-traded funds (ETFs) to assess industry practices and regulatory compliance in areas that may impact retail investors; the Office of the Comptroller of the Currency (OCC) updated its Policies and Procedures Manual for enforcement actions against institution-affiliated parties; and the federal banking agencies issued a proposal to reduce call report burdens on small institutions, in keeping with Section 205 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. These and other recent developments are covered below.
Please note: The Roundup will be on hiatus next week due to the Thanksgiving holiday. We will resume publication on November 28.
OCIE Focuses Risk-Based Examinations on Registered Investment Companies
On November 8, the SEC’s OCIE issued a risk alert announcing that it was conducting a series of examination initiatives focused on mutual funds and ETFs to assess industry practices and regulatory compliance in areas that may impact retail investors. Specifically, with respect to mutual funds and investment advisers, OCIE identified the following categories of matters on which it will focus its examination initiatives:
Index funds that track customized indexes and involve complex investment strategies;
Small ETFs and infrequently traded ETFs which have the risk of being delisted from an exchange and forced to liquidate;
Mutual funds with significant allocations in securitized assets (and whether there is adequate disclosure);
Funds with poor performance relative to their peers;
Funds managed by advisers with less experience advising mutual funds; and
Side-by-side management of mutual funds and private funds, which can create conflicts of interest in brokerage, best execution, trade allocation, and fee allocation practices.
For each category, the OCIE Staff will evaluate funds’ policies to address risk and conflicts and ensure effective board oversight of compliance programs, funds’ disclosure to investors and disclosure by advisers to fund boards regarding risks and conflicts, and funds’ processes to control risks and conflicts, including disclosures, portfolio management compliance and fund governance.
OCC Updates Policies and Procedures Manual for Enforcement Actions Against Institution-Affiliated Parties
On November 13, the OCC updated its Policies and Procedures Manual (PPM) for enforcement actions against institution-affiliated parties (IAP) of national banks, federal savings associations, and federal branches and agencies of foreign banks (collectively, banks). The PPM generally sets forth the OCC’s existing policies and procedures for taking enforcement actions against current or former IAP in response to violations of laws, regulations, final agency orders, conditions imposed in writing, or written agreements; unsafe or unsound practices; or breaches of fiduciary duty. The OCC also updated its policies and procedures regarding bank enforcement actions and related matters and civil money penalties, primarily to ensure consistency with its policies and procedures for enforcement actions against an institution-affiliated party. The PPMs are effective upon issuance. In connection with updating the PPM, the OCC rescinded OCC Bulletin 2016-5, “Civil Money Penalties,” issued February 26, 2016, and OCC Bulletin 2017-48, “Bank Enforcement Actions and Related Matters,” issued October 31, 2017.
Federal Banking Agencies Propose to Reduce Call Report Burdens on Small Institutions
On November 7, in order to implement Section 205 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the Board of Governors of the Federal Reserve System, the OCC, and the Federal Deposit Insurance Corporation (Agencies) invited public comment on a proposal to reduce regulatory reporting burden on small institutions by expanding the number of regulated institutions eligible for streamlined reporting. The proposal would permit insured depository institutions with total assets of less than $5 billion that do not engage in certain complex or international activities to file the most streamlined version of the Call Report, the FFIEC 051 Call Report. The Agencies also are proposing to reduce by approximately 37% the number of existing data items reportable in the FFIEC 051 Call Reports for the first and third calendar quarters. Comments will be accepted for 60 days after the proposal’s publication in the Federal Register.
Client Alert: The March Toward Full Legalization Continues: Marijuana Election Results in the 2018 Midterms
During last week’s midterm elections, binding marijuana-related referenda appeared on the ballot in four states. Three of the referenda passed, and one was defeated. Specifically, the midterm election added Michigan to the list of nine states (Washington, Colorado, Alaska, Oregon, California, Massachusetts, Nevada, Maine, and Vermont) and the District of Columbia that permit the sale of marijuana for recreational use (to adults age 21 and over). In addition, the election added Utah and Missouri to the group of 31 states and the District of Columbia that have legalized the medical use of marijuana. A referendum in North Dakota that would have expanded the state-authorized use of marijuana in that state from medical to recreational was defeated. These results mark the first time a midwestern state (Michigan) has legalized adult recreational use of marijuana. And the passage of the referendum legalizing the medical use of marijuana in Utah, a state steeped in religion and conservatism, is notable as a potential harbinger of legalization in many other states. For more information, read the client alert issued by Goodwin’s Cannabis practice.
Enforcement & Litigation
FTC and New York AG Sue Operators of Debt Collection Scheme
On November 1, the Federal Trade Commission (FTC) and the New York Attorney General’s Office announced their FTC lawsuit against a New York-based debt collection operation, which alleges that the debt collection entities tricked people into agreeing to pay more money than what they allegedly owed in violation of Section 13(b) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 53(b), Section 814 of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692l, and New York state law. View the Enforcement Watch blog post.