The Financial Report - Volume 5, No. 11 • June 2016 (Global)

by DLA Piper


  • Discussion and Analysis 
  • News from the Americas 
  • US Securities and Exchange Commission Developments 
  • US Commodity Futures Trading Commission Developments 
  • US Banking Developments 
  • US Judicial Developments 
  • US Exchanges and Self-Regulatory Organizations 
  • News from Asia and the Pacific 
  • News from Europe 
  • Global Regulators 

Discussion and Analysis

A few years ago, David Blass, then Chief Counsel of the SEC’s Division of Trading and Markets, created a stir when he said in a speech that private fund advisers should be concerned about some activities that could require them to register as brokers. Apparently, Mr. Blass and, most likely, the SEC, were concerned that private equity fund advisers were receiving transaction-based compensation for activities relating to their funds’ portfolio companies. Such fees often are described as compensation for “investment banking” services including negotiating financing and corporate transactions, identifying and soliciting purchasers and/or sellers, and structuring transactions. Not surprisingly, Mr. Blass’s comments raised a significant amount of discussion at the time, as did a number of contemporaneous SEC examination findings which suggested that private equity fund advisers were receiving transaction-based compensation related to securities transactions for the portfolio companies of their managed funds.

The SEC remained relatively quiet on the issue until last week when it announced that a private equity fund advisory firm and its owner had agreed to pay more than $3.1 million to settle charges that included engaging in brokerage activities and charging fees without registering as a broker-dealer, as well as committing a number of violations of the Investment Advisers Act. The firm and its managing member allegedly performed in-house services related to the acquisition and disposition of portfolio companies for a pair of private equity funds that the firm advised, and disclosed to its funds and fund investors that it would provide brokerage services for a fee, without being registered as a broker-dealer.

It’s difficult to determine whether the facts of this particular case caused it to stand out and warrant special consideration, or whether it is a signal that the SEC is re-engaged on the issue of private equity advisers acting as broker-dealers without proper registration and will be looking to bring more of these types of actions. But 60 percent of the more than $3.1 million in disgorgement, prejudgment interest and civil money penalties that were paid represented the transaction-based fees received by the adviser. Moreover, the headline on the SEC’s press release is “Private Equity Fund Adviser Acted As Unregistered Broker,” which illustrates clearly the importance that the SEC was placing on the unregistered broker issue.

Whether this is the opening salvo of an SEC enforcement sweep related to these kinds of activities, or simply an outlier based on facts more egregious than is apparent from the SEC’s press release or the order issued in the case, one thing is sure — private equity advisers should be taking a good look at their activities and performing a fresh analysis of whether some of those activities require registration as a broker-dealer.

If you would like to learn more about this issue, please read our Client Alert relating to this matter.

News from the Americas

United States

Republicans to disclose plan to revamp major sections of Dodd-Frank. DealBook reported that Representative Jeb Hensarling, Republican of Texas and Chairman of the House Financial Services Committee, plans to outline a legislative proposal that intends to dismantle major sections of the Dodd-Frank financial regulatory overhaul. While the plan is said to have little chance of passing Congress this year, the proposal may influence the presidential debate and help form the Republican agenda in the next term. The plan would also repeal the Volcker Rule and prevent the FSOC from designating nonbanks as “systemically important.” (6/7/2016)


Joint Regulators Committee responds to OBSI independent evaluator’s report. The Joint Regulators Committee issued a statement in response to the release of the independent evaluator’s report of the recently published Ombudsman for Banking Services and Investments. (6/6/2016)

2016 CSA Investor Education Study finds that an increasing number of Canadians are reviewing risk tolerance. A CSA survey on investment knowledge, investor behavior and incidence of investment fraud among Canadians, the 2016 CSA Investor Education Study, found that changes in the economy (38%) and advice from a financial adviser (36%) are the top two reasons why investors who normally do not review their risk tolerance did so in the last year. Another 17% reviewed their risk tolerance because of a major life change. (6/2/2016) CSA press release.

Canadian Securities Regulators announce contractual agreement to renew CSA National Systems. The CSA announced that it has entered into an agreement with CGI Information Systems and Management Consultants Inc. to renew the CSA National Systems. As of June 1st, CGI assumed responsibility for preparing, configuring, testing, deploying, and then running and maintaining a new system to replace the CSA National Systems (e.g. SEDAR, SEDI, Cease-Trade Order Database, National Registration Database, National Registration Search and Disciplined List) with a single integrated solution. The new system is expected to be delivered in stages throughout 2018 and 2019. (6/1/2016) CSA press release.

US Securities and Exchange Commission Developments

Final Rules

SEC rule permitting broker-dealers to engage in retail forex transactions will expire. The Securities and Exchange Commission provided notice that, as of July 31, 2016, any broker or dealer, including a broker-dealer that is dually registered as a futures commission merchant, will be prohibited from offering or entering into retail forex transactions pursuant to Section 2(c)(2)(E) of the Commodity Exchange Act. (5/20/2016) SEC Release No. 34-77874.

Interim Final Rules and Requests for Comment

SEC adopts FAST Act amendment to Form 10-K. The SEC adopted an interim final rule that implements a FAST Act amendment to Form 10-K, which allows issuers to include a summary of business and financial information in the annual report and requires each item in the summary to be hyperlinked to the related, more detailed disclosure in the Form 10-K. Comments on the interim rule are due within 30 days of publication in the Federal Register. (6/1/2016) SEC press release.


SEC provides guidance on JOBS Act amendments to Exchange Act registration thresholds. The SEC’s Division of Corporation Finance released a small entity compliance guide that provides an overview of recent JOBS Act and FAST Act amendments to registration thresholds and other requirements under Section 12(g) of the Securities Exchange Act. (5/24/2016) SEC Small Entity Compliance Guide.

Division of Investment Management publishes new Money Market Reform FAQs. The SEC’s Division of Investment Management revised its frequently asked questions on the 2014 Money Market Fund Reform to include new information on disclosure requirements for multi-fund advertisements, the floating NAV compliance date, and the definition of a government money market fund. (5/23/2016) Money Market Reform FAQs.

SEC updates guidance on non-GAAP financial measures. The Division of Corporation Finance revised its Compliance and Disclosure Interpretations on non-GAAP financial measures to provide new information regarding misleading non-GAAP measures and disclosures that would violate the prominence requirements for comparable GAAP measures. (5/17/2016) Non-GAAP financial measures C&DIs.

Selected Enforcement Actions

Broker-dealer charged with anti-money laundering compliance failures. The SEC announced charges against a broker-dealer for failing to comply with anti-money laundering obligations that required the firm to monitor customers’ trading for suspicious activity. The SEC alleged that the broker-dealer failed to file Suspicious Activity Reports with bank regulators even when customers’ trading activity raised red flags, including a case where a customer’s trading in a security exceeded 80 percent of the overall market volume on a given day. The charges against the broker-dealer mark the first case brought by the SEC against a firm for anti-money laundering lapses based solely on the failure to file SARs when warranted. Without admitting or denying the allegations, the broker-dealer settled the charges by consenting to the entry of cease-and-desist and censure orders and agreeing to pay a US$300,000 penalty. (6/1/2016) In the Matter of Albert Fried & Company, LLC, SEC Release No. 34-77971.

Investment adviser, principal failed to disclose fees to clients. The SEC filed a contested civil proceeding against an investment adviser and one of its principals for failing to disclose some of the fees charged to their advisory clients. The SEC alleged that the adviser and the principal moved some of their advisory clients’ assets into newly-created mutual funds, but failed to inform the clients that the move would increase the fees they would pay without changing their investment strategy or provide different or additional services. (5/31/2016) SEC v. Momentum Investment Partners LLC and Ronald J. Fernandes, SEC Lit. Release 23549.

Investment adviser failed to detect compliance risk in relationship with outside consultant. An investment adviser will pay US$1.5 million to settle charges that it failed to establish policies and procedures designed to prevent the misuse of material nonpublic information in connection with its use of outside consultants. The SEC alleged that investment adviser hired a third-party consultant to provide analysis and buy, sell and hold recommendations regarding pharmaceutical and biotechnology stocks. The consultant also served on the boards of four public companies and had access to nonpublic information about those companies as well as the holdings of funds advised by the investment adviser. The adviser’s compliance program failed to detect the risk of misusing material nonpublic information created by its relationship with the consultant. Without admitting or denying the allegations, the adviser settled the charges by consenting to the entry of cease-and-desist and censure orders. The firm will also pay a US$1.5 million civil penalty. (5/27/2016) In the Matter of Federated Global Investment Management Corp., SEC Release No. IA-4401.

Speeches and Statements

White underscores importance of SEC’s work on equity market structure. SEC Chair Mary Jo White emphasized the need for the SEC to keep pace with technological advances in equity market structure in an address to the SEC Historical Society. (6/2/2016) White remarks.

SEC is examining the operations of ETFs, says White. In her remarks to the Investment Company Institute’s general membership meeting, SEC Chair Mary Jo White indicated that the SEC is considering additional regulatory measures to address trading disruptions related to exchange-traded funds. (5/20/2016) White remarks.

SEC will monitor market developments under JOBS Act capital formation methods. In opening remarks at the SEC Advisory Committee on Small and Emerging Companies meeting, SEC Chair Mary Jo White said that the SEC will closely watch how markets develop under Regulation Crowdfunding and other new capital-raising methods created by the JOBS Act (5/18/2016) White remarks.

Other Developments

Staff announcements. The SEC announced that Stephen L. Cohen, Associate Director of the SEC’s Enforcement Division, will leave the SEC later this month. (6/3/2016) The SEC also announced that Christopher R. Hetner will advise SEC Chair Mary Jo White on all cybersecurity policy matters in his new role as the Senior Advisor to the Chair for Cybersecurity Policy. (6/2/2016)

Privacy Act restrictions would hamstring SEC’s enforcement abilities, says Investor Advocate. In a letter to ranking members of the Senate Judiciary Committee, SEC Investor Advocate Rick A. Fleming argued that the Electronic Communications Privacy Act Amendments Act of 2015, by requiring enforcement agencies to seek criminal warrants to obtain electronic communications from internet service providers, would weaken the SEC’s investigative abilities and undermine investor confidence. (5/25/2016) SEC Investor Advocate letter.

OIG will audit SEC’s coordination of enforcement investigations. In its Semiannual Report to Congress, the SEC’s Office of Inspector General indicated that it will audit, among other things, the SEC’s process for coordinating enforcement investigations internally, the SEC’s review of rule change proposals submitted by self-regulatory organizations, and the SEC’s compliance with guidance from other government agencies in its information security programs. (5/24/2016) OIG Semiannual Report.

Investor Advocate objects to House legislation that would exempt small companies from auditor attestation requirements. SEC Investor Advocate Rick A. Fleming, in a letter to US House of Representatives leadership, argued that a proposal to exempt smaller companies from complying with the Sarbanes-Oxley Act’s auditor attestation requirements for up to ten years following an initial public offering would weaken investor protections and further complicate reporting requirements. (5/23/2016) SEC Investor Advocate letter.

Two whistleblowers will split US$450,000 award. The SEC announced that it has awarded US$450,000 to two whistleblowers for providing a tip that initiated an SEC corporate accounting investigation and assisting the SEC throughout its investigation. (5/20/2016) SEC press release.

SEC issues technical corrections to business conduct rules for security-based swap dealers. The SEC revised its final rules on business conduct standards for security-based swaps dealers and major security swap participants to make technical corrections to a burden estimate for Paperwork Reduction Act purposes and a corresponding estimate in its economic analysis. (5/19/2016) SEC Release No. 34-77617a.

SEC will adjust dollar threshold amounts for performance-based advisory fees to qualified clients. The SEC announced that it will adjust the assets-under-management test and net worth test in the definition of “qualified client” under Investment Advisers Act rules by maintaining the dollar amount of the assets-under-management test at US$1,000,000, and increasing the dollar amount of the net worth test from US$2,000,000 to US$2,100,000. Requests for hearings are due to the Commission by 5:30 p.m. on June 13, 2016. (5/18/2016) SEC Release No. IA-4388.

Company insider receives whistleblower award of over US$5 million for detailed tip. The SEC announced that it will award a company insider between US$5 million and US$6 million, its third highest whistleblower award, for providing information about securities violations that would have been nearly impossible for the SEC to detect on its own. (5/17/2016) SEC press release.

US Commodity Futures Trading Commission Developments

CFTC signs MOU with ESMA on recognized central counterparties. The CFTC announced that Chair Timothy Massad signed an MOU with the European Securities and Markets Authority as to cooperation with respect to derivative clearing organizations (DCOs) established in the US that have applied or that may apply to ESMA for recognition as central counterparties. (6/6/2016)

CFTC proposes to exempt some Federal Reserve banks from CEA Sections 4d and 22. The CFTC has proposed to exempt Federal Reserve Banks that provide customer accounts and other services to systemically important DCOs from Sections 4d and 22 of the CEA. Comments must be received by July 5, 2016. (6/2/2016)

DCR issues no-action letter for Shanghai Clearing House. The CFTC’s Division of Clearing and Risk issued a time-limited no-action letter stating that it will not recommend that the CFTC take enforcement action against Shanghai Clearing House (SHCH) for failing to register as a DCO pursuant to the CEA. The no-action relief applies to swaps accepted for clearing by SHCH and subject by the People’s Bank of China to mandatory clearing in the People’s Republic of China, including certain interest rate swaps denominated in renminbi. (5/31/2016) CFTC press release.

DMO is holding a public roundtable on Regulation AT. The Division of Market Oversight announced that it will be holding a public roundtable meeting on Friday, June 10th, at 9:00 a.m. at the CFTC headquarters to discuss certain elements of the CFTC’s notice of proposed rulemaking regarding Regulation Automated Trading, which was published in the Federal Register on December 17, 2015. On June 2nd, the CFTC announced that it will reopen the comment period for Regulation AT as of June 10, 2016, and will close the comment period on June 24, 2016, to accept comments on items in the agenda and that arise during the roundtable. (5/27/2016)

CFTC approves supplement to position limits proposal allowing exchanges to recognize non-enumerated bona fide hedges. The CFTC unanimously voted to issue for public comment a supplement to its December 2013 position limits proposal that will modify procedures proposed for those persons seeking exemptions from speculative position limits for non-enumerated bona fide hedging. (5/26/2016) CFTC press release.

CFTC adopts cross-border margin rule. The CFTC adopted a rule implementing a cross-border approach to its margin requirements for uncleared swaps. The CFTC’s margin rule, which was published in January 2016, applies to CFTC-registered swap dealers and major swap participants for which there is no Prudential Regulator (covered swap entities or CSEs). The final rule, in general, requires CSEs to comply with the CFTC’s margin requirements for all uncleared swaps in cross-border transactions, with a limited exclusion for certain non-US CSEs. The exclusion is not available to non-US CSEs that are consolidated with a US parent. (5/24/2016) CFTC press release. Fact sheet. Chairman Massad statement. Commissioner Bowen concurring statement. Commissioner Giancarlo statement of dissent.

US Banking Developments


CRA evaluations for 21 national banks and federal savings associations are released. The OCC has released a list of Community Reinvestment Act performance evaluations that became public during the period of May 1, 2016 through May 31, 2016. Out of the 21 evaluations that were made public this month, five were rated outstanding, 15 were rated satisfactory and one was rated needs to improve. (6/2/2016)

OCC will be hosting compliance and operational risk workshops in South Dakota. The OCC announced that it will host two workshops (Compliance Risk and Operational Risk) in Sioux Falls at the Sheraton Sioux Falls & Convention Center, July 19-20, for directors of national community banks and federal savings associations supervised by the OCC. (6/1/2016)

Third quarter 2016 CRA evaluation schedule is issued. The OCC released its schedule of CRA evaluations to be conducted in the third quarter of 2016. (6/1/2016)

OCC will be hosting a workshop in California for bank directors. The OCC announced that it will be hosting a “Building Blocks for Directors” workshop in Santa Ana at the DoubleTree Santa Ana-Orange County Airport Hotel, July 11-13, for directors of national community banks and federal savings associations supervised by the OCC. The workshop will include lectures, discussion, and exercises to offer practical information on the roles and responsibilities of board participation for new and experienced directors. (5/25/2016)

OCC will host Risk Governance and Credit workshops in Milwaukee. The OCC announced that it will host two workshops in Milwaukee at the Crowne Plaza Milwaukee Airport, June 28-29, for directors of national community banks and federal savings associations supervised by the OCC. The Risk Governance workshop on June 28th will combine lectures, discussion, and exercises to provide practical information for directors to effectively measure and manage risks; the Credit Risk workshop on June 29th will focus on credit risk within the loan portfolio, such as identifying trends and recognizing problems. (5/19/2016)

Bulletin addresses compliance with SEC MMF rules. The OCC issued a bulletin to highlight actions that national banks and federal savings associations need to take and factors that banks need to consider based on the SEC’s revised money market fund rules in effect now and going into effect. (5/19/2016)

Agencies issue Interagency Guidance Regarding Deposit Reconciliation. The OCC, along with the Board of Governors of the Federal Reserve System, the CFPB, the FDIC, and the NCUA, announced that they have issued the “Interagency Guidance Regarding Deposit Reconciliation Practices” to ensure that financial institutions are aware of the supervisory expectations regarding deposit reconciliation practices for customer accounts. (5/18/2016)

New Deputy Comptroller for Public Affairs is named. The OCC announced its selection of Bryan Hubbard as Deputy Comptroller for Public Affairs. Mr. Hubbard succeeds Robert M. Garsson, who retired on May 31st. (5/16/2016)


FDIC report finds that mobile banking can help underserved consumers. An FDIC report, Opportunities for Mobile Financial Services to Engage Underserved Customers, found that mobile banking can help underserved consumers obtain more control over their finances and increase access to mainstream banking. (5/25/2016) FDIC press release.

Comment period on deposit account recordkeeping proposal is extended. The FDIC announced that it is extending the comment period for proposed recordkeeping requirements for FDIC-insured institutions with a large number of deposit accounts. The proposed recordkeeping requirements, which are intended to facilitate rapid payment of insured deposits to customers if large institutions were to fail, were published in the Federal Register on February 26th with a 90-day comment period. All comments must now be received on or before June 25th. The 30-day extension will allow interested parties more time to consider the proposal in addition to the issues and questions posed for comment, mainly those related to the estimated cost of compliance. To help commenters, the FDIC has published a report prepared for the agency on the estimated cost of compliance. (5/20/2016)

Federal agencies request comment on proposed rule to prohibit incentive-based compensation. Six federal agencies (the FDIC, the Federal Housing Finance Agency, the Federal Reserve Board of Governors, the National Credit Union Administration, the OCC, and the SEC) announced that they are inviting public comment on a proposed rule to prohibit incentive-based compensation arrangements that encourage inappropriate risks at covered financial institutions. The deadline for comments on the proposed rule, which was submitted for publication in the Federal Register, is July 22, 2016. (5/16/2016)

Federal Reserve

Federal Reserve approves advance notice of proposed rulemaking and approves proposed rule related to insurance companies. The Federal Reserve approved an advance notice of proposed rulemaking inviting comment on conceptual frameworks for capital standards that could apply to systemically important insurance companies as well as to insurance companies that own a bank or thrift. The standards would vary for each group. The Federal Reserve further approved a proposed rule to apply enhanced prudential standards to systemically important insurance companies designated by the FSOC. Comments on both the ANPR and proposed rule are due by August 2nd. (6/3/2016) Federal Reserve Board press release. Janet Yellen statement. Governor Daniel K. Tarullo statement.

Federal Reserve announces schedule for Dodd-Frank Act stress test and CCAR results. The Federal Reserve announced that results from the most recent supervisory stress tests conducted as part of the Dodd-Frank Act will be released on June 23rd, and the related results from the Comprehensive Capital Analysis and Review will be released on June 29th. (6/2/2016)


Rule proposed to end payday debt traps. The CFPB has proposed a rule that is aimed at ending payday debt traps by requiring lenders to take steps to make sure consumers have the ability to repay their loans. The proposed rule would also cut off repeated debit attempts that rack up fees. These proposed protections would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans. The CFPB is also launching an inquiry into other products and practices that may harm consumers facing cash shortfalls. Comments on the proposal are due on September 14, 2016. (6/2/2016)

US Judicial Developments

SEC can seek an injunction from alleged Ponzi scheme defendants, but is time-barred from seeking declaratory relief or disgorgement. In 2013, the SEC brought an action against five individuals, alleging that between 2004 and 2008 they had violated federal securities law by selling condominiums that were, in reality, functioning as unregistered securities. They allegedly raised over US$300 million from around 1,400 investors but failed to pay out the returns that they had guaranteed. The Eleventh Circuit agreed with the district court that the SEC was time-barred from proceeding with its claims for declaratory relief, which is a penalty, and disgorgement, which is a forfeiture. The panel, however, remanded for further proceedings on the injunction remedy since it is not considered a penalty. (5/26/2016). SEC.

Mere offer to buy steak dinner for insider information source is enough to satisfy Newman. A criminal defense attorney was accused of offering to buy a golf buddy an expensive steak dinner in exchange for insider information that the buddy received from a corporate insider. He contended that he did not end up actually buying the dinner, so his buddy could not have received the benefit. The First Circuit affirmed his conviction, holding that while the Second Circuit’s United States v. Newman decision requires tippers to actually receive personal benefits, the allegation that appellant offered to buy his source an expensive steak dinner was enough for the charges to be upheld. (5/26/2016) Parigian.

Panel agrees with CFTC that independent commodity trading advisor had actual and apparent authority to conduct trades on investor’s behalf. The CFTC found that an independent commodity trading advisor “had actual and apparent authority” to conduct particular trades of commodities futures on behalf of an investor. The Ninth Circuit denied the investor’s petition for review of the order, determining that the independent commodity trading advisor made no material misrepresentation or omission, that there was no unauthorized trading, and that the record did not support a finding of fraud. The panel further noted that the investor was obviously aware of the ongoing trading, having objected to one trade where a risk manager had placed a stop. (5/25/2016) CFTC.

US Exchanges and Self-Regulatory Organizations

FINRA issues Regulatory Notice on new registration requirements for associated persons involved in algorithmic trading strategies. The Financial Industry Regulatory Authority offered guidance on recently approved amendments to its rules, which will become effective on January 30, 2017, that will require each associated person who is responsible for the design, development or significant modification of algorithmic trading strategies, or who is responsible for the supervision or direction of such activities, to register as a Securities Trader and pass the Series 57 exam. (6/6/2016) FINRA Regulatory Notice 16-21.

NFA notifies swap dealers of required margin questionnaire. The National Futures Association announced that swap dealers must complete and submit a short questionnaire related to its margin requirements for uncleared swaps through the NFA’s EasyFile Registration Documentation Submission System by June 15, 2016. (6/1/2016) NFA Notice I-16-15.

NYSE Information Memo on floor conduct policies. The New York Stock Exchange LLC published an updated Information Memo that advises members of the policies governing conduct on NYSE premises, including the trading floor. (6/1/2016) NYSE Information Memo 16-08.

FINRA publishes regulatory notice on new OATS requirements to identify non-FINRA member broker-dealers. FINRA offered guidance to firms regarding recent amendments to the Order Audit Trail System, effective August 1, 2016, that will require reporting firms to include either the Central Registration Depository number or the SRO-assigned identifier of US-registered broker-dealers that are not FINRA members and broker-dealers that are not registered in the US. (5/27/2016) FINRA Regulatory Notice 16-20.

FINRA issues regulatory notice on the use of stop orders during market volatility. FINRA published guidance for firms on the use of stop orders during volatile market conditions that encouraged firms to review their practices regarding stop orders, to train their representatives regarding the risks associated with stop orders, and to provide comprehensive disclosures to customers that enter stop orders directly online. (5/26/2016) FINRA Regulatory Notice 16-19.

NYSE offers guidance to DMMs on correct coding of delayed openings and trading halts. NYSE reminded Designated Market Makers and DMM units that they may be subject to disciplinary action if they fail to enter the correct reason code into the Display Book when publishing either an opening price indication or halting a stock. (5/24/2016) NYSE Information Memo 16-07.

Firm culture will remain a priority for FINRA, says Ketchum. In remarks at the 2016 FINRA Annual Conference, FINRA CEO Richard Ketchum indicated that FINRA will continue to focus on firm culture as it conducts examinations and considers enforcement actions against firms. (5/23/2016) Ketchum remarks.

FINRA publishes Cybersecurity Checklist for small firms. FINRA published a Cybersecurity Checklist that offers guidance to small firms in establishing cybersecurity programs. (5/23/2016) FINRA press release.

NYSE reminds members of obligations regarding disruptive trading activity. NYSE published an Information Memo on disruptive trading activity that identifies the factors that NYSE will consider when determining whether or not trading constitutes disruptive activity and discusses situations that can constitute disruptive activity. (5/19/2016) NYSE Information Memo 16-06.

FINRA charges financial firm and officers with misconduct in fraudulent municipal bond sales. FINRA filed a disciplinary complaint against a financial firm and its CEO, charging them with securities fraud in connection with the sale of municipal revenue bonds to customers. FINRA alleged that the firm and its CEO conducted bond offerings and secondary market bond sales related to an Arizona charter school and two assisted living facilities in Alabama, but failed to disclose to investors that the school and assisted living facilities were under financial stress. Instead, the firm and the CEO transferred millions of dollars from a deceased customer’s charitable trust account to disguise the school’s and facilities’ financial difficulties. FINRA also charged the CEO and the firm’s Chief Operating Officer with self-dealing for abusing their positions as co-trustees of the charitable trust. (5/19/2016) FINRA press release.

News from Asia and the Pacific


FSA establishes a Payments Council on Financial Innovation. The FSA has established a “Payments Council on Financial Innovation,” which aims to deliver payment system reform and payment service innovation. (6/6/2016)

FSA publishes overview of major banks’ financial results. The Financial Services Agency has published its overview of major banks’ financial results and overview of regional banks’ financial results as of March 31st. (6/3/2016)

Hong Kong

SFC signs MoU with FINRA to enhance supervision and oversight of cross-border regulated entities. The SFC entered into an MoU with FINRA to improve the supervision and oversight of regulated entities that operate on a cross-border basis in Hong Kong and in the US. (5/20/2016)


MAS proposes a regulatory sandbox for FinTech experiments. The MAS announced its release of a consultation paper on proposed guidelines for a “regulatory sandbox” that will enable financial institutions and non-financial players to experiment with FinTech solutions. All comments on the proposed guidelines should be submitted to MAS by July 8th. (6/6/2016)

MAS announces re-appointments to its board of directors. The MAS announced the re-appointment of four members of its board, which took effect on June 1st. (5/30/2016)

MAS makes it easier for retail investors to purchase corporate bonds. The Monetary Authority of Singapore introduced two new regulations to facilitate corporate bond offerings to retail investors: the Bond Seasoning Framework, under which wholesale bonds issued by issuers that meet eligibility criteria stipulated by the SGX can be offered to retail investors after the bonds have been listed on SGX for six months, and the Exempt Bond Issuer Framework, under which issuers that satisfy specified thresholds that are higher than the eligibility criteria under the Bond Seasoning Framework can offer bonds directly to retail investors at the start of an offer without a prospectus. (5/19/2016)


Accountants must hold a limited AFS license or be an authorized representative of a license-holder or licensee. ASIC warned that, beginning on July 1st, accountants must hold a limited Australian financial services license or be an authorized representative of a license-holder or licensee in order to provide financial product advice on self-managed superannuation funds. This follows the three-year transition period that started on July 1, 2013. (6/7/2016)

ASIC eases transition for responsible entities to implement new tax system for managed investment trusts. ASIC granted relief to assist responsible entities of registered schemes by allowing them to make changes to their constitutions without automatically holding a members’ meeting. The relief will help responsible entities smoothly implement the new tax system for managed investment trusts if they choose to do so. ASIC is drafting an instrument to give effect to this relief and intends to release it on or before June 22nd. (6/2/2016) ASIC press release.

ASIC requests that directors apply realism and clarity to financial reports. ASIC announced that it expects companies to adopt realistic valuations for asset values, appropriate accounting policies and better communication of that information in the lead-up to the end of financial year reporting season. Announcing its focus areas for June 30th financial reports of listed entities and other entities of public interest with many stakeholders, ASIC highlighted key problem areas to address. (6/2/2016) ASIC press release.

News from Europe

ESMA updates Q&A on EMIR. The European Securities and Markets Authority updated its questions and answers on the European Markets Infrastructure Regulation to include new information on the clearing obligation and clarifications on how counterparties should address situations where some of their counterparties fail to identify their categorization. (6/6/2016) ESMA press release.

ESMA report examines order duplication and liquidity in the EU equity markets. ESMA released an economic report on order duplication and liquidity measurement in the European Union equity markets. The report found that overall multi-venue trading has increased liquidity in the EU equity markets but 20 percent of orders across European venues are duplicated and nearly a quarter of duplicated trades are immediately cancelled if unmatched, resulting in an overestimation of available liquidity in fragmented markets. (6/6/2016) ESMA press release.

FCA responds to preliminary recommendations from CMA’s retail banking market investigation. The UK Financial Conduct Authority responded to the Competition and Markets Authority’s provisional decision of remedies related to its retail banking market investigation, which proposes several reforms to protect overdraft users and foster competition in personal current accounts and in banking services for small and medium-sized enterprises. The FCA confirmed initial support for the recommendations and announced plans to publish a response with details about the work it will undertake to address the CMA’s concerns after the CMA finalizes its investigation. (6/3/2016) FCA press release.

ESMA updates Q&A guidance on AIFMD. ESMA updated its questions and answers on the application of the Alternative Investment Fund Managers Directive to include new information regarding the domicile of EU Alternative Investment Funds marketed in the AIF Manager’s home Member state, the marketing of EU feeder AIFs, and the influence of committed capital on the calculation of the total value of assets under management and additional own funds. (6/3/2016) ESMA press release.

ECB announces final details of CSPP. The European Central Bank announced the final details of the corporate sector purchase program, which is set to begin on June 8, 2016. The ECB clarified the remaining details on issuer eligibility, explained how public undertakings that meet the eligibility criteria of both the CSPP and the public sector purchase program will be categorized, and indicated that a list of the bonds purchased will be published weekly for the purpose of securities lending. (6/2/2016) ECB press release.

ESMA statement on firm responsibilities when selling bail-in securities. ESMA issued a statement that reminds banking and investment firms of their responsibilities under Banking Recovery and Resolution Directive rules to act in their clients’ best interests when selling bail-in securities by providing investors with complete information regarding risks, managing conflicts of interest, and ensuring products are suitable and appropriate for investors. (6/2/2016) ESMA press release.

ESMA consults on use of distributed ledger technologies in the securities markets. ESMA published a Discussion Paper that seeks public input regarding the potential risks and benefits of the broader use of distributed ledger technology in the securities markets. Comments are due by September 2, 2016. (6/2/2016) ESMA press release.

EBA makes final decision on data for supervisory benchmarking. The European Banking Authority issued its Decision on data for supervisory benchmarking. The Decision requires Competent Authorities to submit institutions’ data for the 2016 benchmarking exercise. Institutions must provide data to authorities by June 30, 2016. (6/2/2016) EBA press release.

ESMA offers additional Q&As on CFDs and other speculative products. ESMA updated its question and answers document on the application of the Markets in Financial Instruments Directive to the marketing and sale of financial contracts for difference and other speculative products. The updated guidance offers new information regarding the conflicts of interest that national competent authorities should consider when firms that offer speculative products to retail investors use other parties to perform activities on their behalf. (6/1/2016) ESMA press release.

EBA and EIB examine opportunities and challenges of synthetic securitization in the banking sector. The EBA and the European Investment Banking Group hosted a seminar focused on the opportunities and challenges presented by the use of credit guarantees and synthetic securitization in the banking sector. Participants discussed the development of a transparent prudential and predictable operational framework for these instruments to address existing shortages in credit supply. (5/31/2016) EBA press release.

ESMA proposes guidelines for participant default rules and procedures under the CSDR. ESMA requested comments on proposed guidelines on participant default rules and procedures under the Central Securities Depository Regulation. The proposed guidelines establish the steps that a CSD should set out in its rules and follow in the event one or more of its participants become subject to insolvency proceedings. Comments are due on or before June 30, 2016. (5/31/2016) ESMA press release.

ESMA updates Q&A on EuSEF and EuVECA. ESMA published an updated version of its questions and answers regarding the application of the European Social Entrepreneurship Funds and the European Venture Capital Funds Regulations. The revised guidance offers new information regarding the use of the designations of EuSEF and EuVECA funds when marketed only in their home Member State. (5/31/2016) ESMA press release.

ESMA offers guidance on implementation of MAR. ESMA published a new question and answer document on the implementation of the Market Abuse Regulation. The MAR Q&A addresses practical issues regarding the implementation of MAR and clarifies the scope of firms that are required to detect and report suspicious orders and transactions. (5/30/2016) ESMA press release.

ESMA publishes consultation paper on proposed implementing measures for Benchmarks Regulation. ESMA requested comments on a draft Technical Advice that proposes the regulatory framework for benchmarks under the Benchmarks Regulation. Comments are due on or before June 30, 2016. (5/27/2016) ESMA press release.

ESMA issues draft RTS on indirect clearing under MiFIR and EMIR. ESMA published two draft regulatory technical standards on indirect clearing under the Markets in Financial Instruments Regulation and the European Market Infrastructure Regulation. The draft RTS clarify provisions of indirect clearing arrangements for over-the-counter and exchange-traded derivatives relating to default management, choice of account structures, and long chains. (5/26/2016) ESMA press release.

FCA consults on cap on early exit charges for pension contracts. The FCA published a consultation paper that proposes the level of the cap on early exit charges in certain pension contracts. The FCA has proposed to limit exit charges for contract-based personal pensions, including workplace personal pensions, at one percent of the value of a member’s pension. Comments are due on or before August 18, 2016. (5/26/2016) FCA press release.

FCA publishes final rules implementing CMA recommendations on high-cost short-term credit. The FCA published a policy statement that responds to the feedback it received to its consultation on proposed new rules and guidance prompted by the CMA’s investigation into payday lending. The policy statement also sets out the final rules for price comparison websites that compare high-cost short-term credit products, which will become effective on December 1, 2016. (5/26/2016) FCA press release.

PRA consults on monitoring model drift and standard formula SCR reporting under Solvency II. The Prudential Regulation Authority requested comments on a consultation paper that proposes the PRA’s approach to monitoring model drift and establishes the PRA’s expectations for firms with an approved internal model to privately report their standard formula Solvency Capital Requirement information on an annual basis. Comments are due on or before August 17, 2016. (5/25/2016) PRA press release.

FCA publishes Primary Market Bulletin 15. The FCA has published Primary Market Bulletin No. 15, a short special edition that focuses mainly on how issuers are expected to file PDMR notifications, as well as notifications for delayed disclosure of inside information, with the FCA under the EU Market Abuse Regulation, which comes into effect on July 3rd. (5/25/2016)

FCA warns that people over 55 years old face a heightened risk of fraud. In a bid to help combat widespread investment fraud, the FCA published a study urging retirees to take necessary precautions before making investments. The study reveals that the current low interest rate environment is one of the key reasons that those over 55 are considering investing in a wider range of unfamiliar types of investment products. (5/25/2016) FCA press release.

Global Regulators

IOSCO statement on non-GAAP financial measures. The International Organization of Securities Commissions released a statement on the use of non-GAAP financial measures by issuers. In the statement, IOSCO identified 12 elements that compose a frame of reference for the disclosure of non-GAAP financial measures and can assist issuers in reducing the potential for misleading disclosures. (6/7/2016) IOSCO press release.

FSB offers guidance on resolution planning for systemically important insurers. The Financial Stability Board published new guidance on developing effective resolution strategies and plans for systemically important insurers. (6/6/2016) FSB press release.

ISDA and IIFM publish new standards for Islamic forward foreign exchange products. The International Swaps and Derivatives Association and the International Islamic Financial Market published the ISDA/IIFM Islamic Foreign Exchange Forward standards, which can be used in Islamic hedging transactions to help minimize the exposure of Islamic financial institutions to foreign exchange volatility. (6/6/2016) ISDA press release.

ISDA releases quarterly review of US swaps trading activity. ISDA published its SwapsInfo Quarterly Review for the first quarter of 2016, which analyzes interest rate derivatives and credit default swap index trading activity in the US. (6/1/2016) ISDA SwapsInfo Quarterly Review.

ISDA OTC Derivatives Compliance Calendar. ISDA updated its OTC Derivatives Compliance Calendar. (6/1/2016)

Basel Committee issues statement on capital arbitrage transactions. The Basel Committee on Banking Supervision published a statement in which it discouraged banks from engaging in transactions that are designed to offset regulatory adjustments. (6/1/2016) BIS press release.

IOSCO and IFRS Foundation announce cooperation plan for the development and implementation of IFRS Standards. IOSCO and the International Financial Reporting Standards Foundation published a Statement of Protocols that establishes a cooperation program to facilitate the development and consistent application of IFRS Standards. (6/1/2016) IOSCO press release.

IOSCO conducts survey on audit committee oversight of auditors. IOSCO published a report that summarizes the results of its survey regarding the existing legal and regulatory requirements related to audit committee oversight of auditors. (5/31/2016) IOSCO press release.

ISDA white paper on CCP resolution. ISDA and The Clearing House published a white paper that identifies the main issues for consideration by regulators when developing a comprehensive resolution framework for systemically important central counterparties. (5/24/2016) ISDA press release.

BIS’s Foreign Exchange Working Group releases first phase of a global code of conduct for currency markets. The Bank for International Settlement’s Foreign Exchange Working Group published the first phase of the Global Code of Conduct for the Foreign Exchange Market and associated principles, which establish guidelines and standards of behavior for market participants to promote transparency and integrity in the wholesale foreign exchange market. (5/26/2016) BIS press release.

FSB publishes results of its peer review on the implementation of its shadow banking policy framework. The FSB released the findings of its thematic peer review on the implementation of its policy framework for shadow banking entities. The review found that implementation of the FSB’s policy framework is still in an early stage and recommended several measures for jurisdictions to take to fully implement the policy. (5/25/2016) FSB press release.


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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