NMLS Seeks Comments on Proposed Revisions to Company and Individual Disclosure Questions

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A&B Abstract:

The Nationwide Multistate Licensing System & Registry (NMLS) Policy Committee is inviting comments on the NMLS Disclosure Questions Proposal. The comment period is now open and runs until August 22. Among other revisions, the proposal details suggested revisions to the disclosure questions on the Company (MU1) and Individual (MU2) forms.

Proposed Revisions to NMLS Disclosure Questions

In key part, the proposed revisions include:

Company Disclosure Questions:

  • Adding a new question to incorporate a requirement of the Money Transmission Modernization Act, g., companies disclosing “material litigation” (which would be a newly defined term) in the past 10 years;
  • Expanding the civil judicial disclosures to include whether companies have been found in the past 10 years: (1) to have made a false statement or omission or been dishonest, unfair, or unethical, or (2) to have been a cause of another financial services business having its license or authorization denied, suspended, revoked, or restricted;
  • Amending the civil judicial disclosure question to include whether there are any pending financial services civil actions alleging that a company has made a false statement or omission, or had been dishonest, unfair, or unethical;
  • Requiring the criminal disclosure of any pending felony charges against companies, instead of any past felony charges;
  • Broadening the bankruptcy disclosure to include whether a company or control affiliate filed a bankruptcy petition in the past 10 years (in addition to being the subject of a bankruptcy petition) and clarifying that disclosure of either voluntary or involuntary petitions is required;
  • Adding a question whether companies have ever been denied issuance of a bond;
  • Introducing a new question asking whether a third-party service provider has notified a company of its intent to modify or cancel an arrangement that would materially alter the company’s ability to conduct business activities, and relatedly, defining “third-party service provider” to include lines of credit, whether warehouse or operation, technology solutions, etc.; and
  • Separating out into two sections under the existing regulatory action disclosures for: (1) companies that hold or have ever held an authorization to act as a contractor for a federal, state, or local government entity, (2) companies who have “key individuals” (which would be a newly defined term) or control individuals who are or have been licensed as attorneys or accountants or who hold or have been licensed as financial services professionals, and (3) added that dismissal of an action pursuant to a settlement agreement requires disclosure.
    • Regarding the last point in (3), this proposed revision is added in Question 14.e. which, according to the NMLS Policy Committee, is intended to broaden the question to account for how regulatory actions may be brought, including dismissal of an action pursuant to a settlement agreement. However, by including the term “settlement agreement”, which is not separately defined in the NMLS Policy Guidebook, Question 14.e. may potentially require the disclosure of nonpublic settlement agreements, which would be a significant change and perhaps an unintended result. The original questions are limited by the terms “found” (in Question 14.a-c.) and “order” (in Question 14.e.), both of which are defined terms indicating that only public settlement agreements and orders are required to be disclosed. Thus, we recommend that industry members consider whether to submit comments on this question to seek clarification.

Individual Disclosure Questions:

  • Making conforming proposed revisions relating to civil judicial and financial disclosures as described above in the Company Disclosure Questions;
  • Limiting the time period for the disclosure of misdemeanors to the past 10 years;
  • Making clarifications to require disclosure of judicial and non-judicial foreclosures on either commercial or residential property;
  • Adding new questions relating to pending regulatory actions against a holder of a financial services license or other professional license that could result in the restriction, revocation, debarment, or suspension of the license; and
  • Adding new questions regarding any pending financial services civil actions alleging a violation of a financial services statute or regulation for a company over which an individual exercised control, or a prior finding of the same.

Additional Proposed Revisions

In addition to proposed revisions to Company (MU1) and Individual (MU2) disclosure questions, the proposed revisions include amendments to the NMLS Policy Guidebook Glossary Terms.  Significantly, definitions for nine new terms are proposed: (1) Consumer Protection; (2) Court; (3) Efforts to Foreclose; (4) Governmental Entity; (5) Key Individual; (6) Lien; (7) Material Litigation; (8) Third Party Service Provider; and (9) Unsatisfied.  Amendments to existing terms include revising “financial services” to include consumer protection laws or regulations that pertain to enumerated financial services items, and clarifying the term “found” to cover agreements or settlements that are a matter of public record including those in which the findings are neither admitted or denied. The existing term “order” would be amended to add language to cover orders agreed to by the parties such as consent orders and stipulated orders, and to clarify that agreements relating to payments, limitations on activity, or other restrictions are excluded from the definition unless they are in a written directive that otherwise qualifies as an order.

Takeaway

We recommend that industry members, both licensees and applicants on NMLS, review the proposed revisions to the disclosure questions and consider whether to submit comments.  In particular, and as highlighted above, the proposed changes to Question 14.e. would appear to potentially require the disclosure of nonpublic settlement agreements, which would be a significant change from Question 14.e as currently worded.  If so, this may require companies to update their responses to the disclosure questions and submit additional information to NMLS regarding nonpublic settlement agreements.  Comments may be submitted via e-mail to comments@csbs.org by August 22.

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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.

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