FinCEN Proposes New Rule Requiring Anti-Money Laundering Programs for Registered Investment Advisers

On August 25, 2015, the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) that would define investment advisers registered (or required to be registered) with the Securities and Exchange Act (Registered Investment Advisers), including those that manage private funds commonly known as "hedge funds," "venture capital funds" and "private equity funds," as "financial institutions" under the Bank Secrecy Act (BSA).  In the NPRM, FinCEN states that "investment advisers have an important role to play in safeguarding the financial system against fraud, money laundering, terrorist financing, and other financial crime."^[1]  The NPRM proposes requiring investment advisers to establish anti-money laundering programs and abide by most of the BSA's recordkeeping and reporting requirements, including the requirements to file Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARS).  In the NPRM, FinCEN has delegated first-line authority to examine for compliance to the Securities and Exchange Commission (SEC) as it has with registered broker-dealers.^[2]

The NPRM solicits responses to more than 30 specific questions spanning multiple topics and is open for comment for 60 days.  The NPRM proposes requiring Registered Investment Adviser compliance with any final rule within 6 months of its effective date.^[3]

While many investment advisers have already voluntarily implemented an anti-money laundering (AML) program on their own initiative, to satisfy the requirements of counterparties, or to allow broker-dealers to rely upon them for part of the broker-dealer's AML program (subject to compliance with the requirements of a SEC No-Action Letter), this NPRM is significant for several reasons, including:  (1) the long pending uncertainties and inconsistencies in the application of the BSA's AML program requirements to investment advisers; (2) the proposed scope of the affirmative obligations imposed; and (3) the number of significant issues left unresolved.  Read More.

New Guidance for Financial Institution Directors and Officers In Cybersecurity Preparedness

Earlier this summer, the Federal Financial Institutions Examination Council (FFIEC) released its highly anticipated Cybersecurity Assessment Tool (Assessment), which is designed to assist financial institutions in identifying and assessing risks and weaknesses in, and the overall maturity of, their cybersecurity preparedness programs.  Financial Institutions' management, directors, in-house counsel, and regulatory/compliance personnel need to be aware of this development.  Now there is increased guidance on the type of cybersecurity systems and procedures that need to be implemented to satisfy post-hoc regulatory or judicial scrutiny.  This guidance may also impact how regulators, or in the event of a problem, courts hearing civil lawsuits, assess both the institution's level of preparedness and how the company's directors and officers discharged their responsibilities in creating and maintaining cybersecurity measures. 

To view the full article, please click here.

On August 26, DBRS issued Methodology – Rating Companies in the Communications Industry.  Methodology.

On August 26, DBRS issued Methodology – Rating Companies in the Consumer Products Industry.  Methodology.

On August 26, DBRS issued Methodology – Rating Companies in the Merchandising Industry.  Methodology.

FHFA's $32 Billion RMBS Claims Are Not Time-Barred

On August 21, 2015, Judge Alvin Thompson of the United States District Court for the District of Connecticut denied Royal Bank of Scotland Group PLC's ("RBS") motion for summary judgment as to claims brought by the Federal Housing Finance Agency ("FHFA") alleging that RBS made misleading statements in connection with $32.1 billion in RMBS that it had sold between 2005 and 2008.  The court concluded that FHFA's claims against RBS are not time-barred because the extender statute in the Housing and Economic Recovery Act of 2008 preempts statutes of repose as well as statutes of limitations, pointing to the statutory language, congressional intent, and recent precedent in support of its holding.  Order.

Seventh Circuit Reverses Summary Judgment Ruling in RMBS Case

On August 21, 2015, a three-judge panel of the United States Court of Appeals for the Seventh Circuit reversed a Wisconsin federal judge's ruling granting summary judgment to RBS Securities Inc. ("RBS")  dismissing all but one of CUNA Mutual Group's ("CUNA") claims alleging that RBS had made material misrepresentations regarding RMBS it had sold.  The Seventh Circuit held that because CUNA's claims against RBS sound in fraud rather than contract they are not time-barred under Wisconsin law.  The court also held that a reasonable juror could find that CUNA had relied on representations in the offering documents notwithstanding that CUNA's trader could not recall whether he had actually read the specific representations or deal documents at issue in the case.  Order.

ESMA Update on Waivers From MiFID Pre-Trade Transparency Requirements: August 2015

On August 26, 2015, the European Securities and Markets Authority (ESMA) published an updated version (dated August 21, 2015) of the waiver document (ESMA/2011/241g) that sets out its assessment of applications for waivers from pre-trade transparency requirements under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).

The waiver document is aimed at competent authorities under MiFID to ensure that, in their supervisory activities, their actions converge with the opinions provided by ESMA. The examples are also intended to provide clarity on the MiFID requirements for pre-trade transparency.

In the updated waiver document there is one new ESMA opinion that relates to the submission of large-in-scale orders with two different price limits. The new opinion is written in red.

ESCB Reports on the Access of CCPs to Central Bank Liquidity Facilities under EMIR

On August 25, 2015, the European Central Bank (ECB) published a report by the European System of Central Banks (ESCB) on the need for any measure to facilitate the access of central counterparties (CCPs) to central bank liquidity facilities under EMIR (the Regulation on over the counter derivative transactions, CCPs and trade repositories) (Regulation 648/2012).

The ESCB considers that the current legal framework that allocates competence to define the conditions for access to central bank facilities to the ESCB under EU law is adequate for ensuring effective CCP access to central bank facilities where the affected central banks deem this appropriate in accordance with their mandates.

European Commission adopts Delegated Regulation on RTS on Risk Concentration and Intra-Group Transactions Under FICOD

On August 21, 2015, the European Commission published the text of the Delegated Regulation it has adopted on regulatory technical standards (RTS) on risk concentration and intra-group transactions under Article 21a(1a) of the Financial Conglomerates Directive (2002/87/EC) (FICOD).

The draft RTS aim clarify which risk concentration and intra-group transactions at the level of the financial conglomerate should be considered "significant" under Articles 7(2) and 8(2) of FICOD.

The next step will be for the Council of the EU and the European Parliament to consider the Delegated Regulation.

Securitization Spotlight Session – Marketplace Lending

Join us on September 10, for SIFMA's next Spotlight Session to take a deeper dive into this lending practice and the nascent securitization market that is helping to fund it. This complimentary webinar will feature a panel of experts who will provide an overview on how marketplace lending platforms originate loans, how they fund these loans, market dynamics, how securitization plays a role and what are the prospects for the future.

Confirmed speakers include:

• Howard S. Altarescu, Partner, Co-head of Global Finance Business Unit, Orrick, Herrington & Sutcliffe
• Stuart M. Litwin, Partner, Co-head of Structured Finance & Capital Markets, Mayer Brown
• Henry G. Morriello, Partner, Chair of Finance Department & Head of Structured Finance Group, Kaye Scholer
• John K. Van De Weert, Partner, Sidley Austin

Please click here to register.