The Financial Report - Volume 3, No. 16 • August 21, 2014 (Global)

by DLA Piper


  • News from the Americas
  • News from Asia and the Pacific
  • News from Europe
  • Global Regulators
  • US Securities and Exchange Commission Developments
  • US Commodity Futures Trading Commission Developments
  • US Banking Agency and Treasury Department Developments
  • US Judicial Developments

Discussion and Analysis

Recently, we’ve been thinking a lot about crowds. Most sources define the term “crowds” as a large group of people gathered closely together or with something in common. The Merriam-Webster online dictionary defines the term “crowdfunding” as the practice of soliciting financial contributions from a large number of people especially from the online community. That source indicates that the first known use of the term was in 2006.

But, who are the “crowds” in “crowdfunding”? What “online community” will become the “crowd” in crowdfunding?

Over the last two weeks or so, the “ALS ice-bucket challenge” has gone viral. This, of course, has been a great boon to a very worthwhile charity devoted to researching a possible cure for a terrible, often fatal, disease. Even something as simple and benign as the ice-bucket challenge has become misconstrued, however. It had been intended that people would “challenge” others to make a $100 donation to ALS or, if they refuse, to have buckets of ice dumped on them. Of course, in the era of “selfies,” few are able to pass up an opportunity for self-exploitation. Consequently, social media sources are being inundated with video clips of people dumping buckets of ice on themselves. Fortunately, it seems that many of them also are making a contribution to ALS. Is this the same “crowd” that will embrace “crowdfunding”?

Earlier this week various media sources ran articles summarizing the findings of a recent survey sponsored by, a publisher of personal finance content. The survey, conducted on behalf of by Princeton Survey Research Associates International, found that 36 percent of Americans surveyed have no retirement savings. Ironically, millennials (most likely the largest group of people dumping ice buckets on their heads and posting selfie videos of that stunt) feel more financially secure than any other age groups, despite being the least likely to have saved any cash for their retirement. Is it any surprise at all that the same people who misconstrued the ice bucket challenge to fulfill their own narcissistic agendas also have deluded themselves regarding their financial security even while they have no actual savings? Is this the “crowd” that will make “crowdfunding” the success that many predict?

The SEC still has not finalized the rules which would enable “true” crowdfunding (except for accredited investors). The conundrum persists as to whether the government has a moral obligation to protect citizens from making bad financial decisions. Based upon the survey published by, however, this would appear to be of little concern to a large segment of the “crowd.” Naively, perhaps, they seemingly are optimistic and content despite the prospects of having limited resources in their golden years. After all, they can entertain themselves simply by taking videos of themselves drenched in ice water.

News from the Americas

New York Fed study questions new money market rules. Liberty Street Economics, a blog of the Federal Reserve Bank of New York, summarized a recent New York Fed staff report which studied the effect of redemption gates. The study concludes that a financial intermediary’s ability to suspend redemptions may cause “preemptive runs.” (8/18/2014) Preemptive runs.

US accounting overseer reports on the audits of broker-dealers. The US Public Company Accounting Oversight Board issued its third annual report concerning the audits of brokers and dealers. The report notes that there continues to be a high number of independence findings and audit deficiencies. Audit deficiencies were found in portions of 70 of the 90 audits. Independence findings were found in 21 of the 90 audits, where firms helped with the bookkeeping or preparation of the financial statements they audited contrary to SEC rules. (8/18/2014) PCAOB press release.

Early termination of derivative contracts. Thomas Hoenig, Vice Chair of the FDIC was interviewed by Reuters concerning bank “living wills.” Hoenig said that banks need to amend the early termination provisions of their derivatives contracts so that the contracts may be stayed in the event of a bank’s failure. (8/14/2014) Amended wills.

New RMBS structure proposed. The Federal Housing Finance Agency proposed a new mortgage backed security, the “Single Security,” that would be issued and guaranteed by Fannie Mae or Freddie Mac. Comments should be submitted on or before October 13, 2014. (8/12/2014) FHFA press release.

News from Asia and the Pacific

Singapore updates audit committee guidebook. The Monetary Authority of Singapore, the Accounting and Corporate Regulatory Authority and the Singapore Exchange issued a revised Guidebook for Audit Committees in Singapore. (8/29/2014) MAS press release.

MAS consults on amendments to restrictions on deposit-taking. The Monetary Authority of Singapore published a consultation paper on proposed amendments to the exemptions from restrictions on deposit-taking and solicitations. Comments should be submitted by September 12, 2014. (8/12/2014)

ASIC statement on superannuation funds. The Australian Securities & Investments Commission clarified how it will apply the wholesale investor test to self-managed superannuation funds. (8/8/2014) ASIC press release.

ASIC Statement of Intent. The Australian Securities & Investments Commission published its Statement of Intent, which responds to the Government’s Statement of Expectations about ASIC’s role, responsibilities and relationship with government, issues of transparency and accountability and operational matters. (8/8/2014)

ASIC relief concerning auditor registration. The Australian Securities & Investments Commission announced relief to address a potential technical defect in the registration of some auditors since December 2005. The relief enables, to the maximum extent possible, affected auditors and their clients to conduct their affairs despite the potential defect. The relief is immediately effective. (8/7/2014) ASIC press release.

MAS consults on leverage ratio disclosure. The Monetary Authority of Singapore published a consultation paper on proposed amendments to Parts II, IV, XI and XII of MAS Notice 637 on Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore. The amendments would implement the leverage ratio disclosure requirements for Singapore-incorporated banks that are consistent with the requirements issued by the Basel Committee on Banking Supervision. Comments should be submitted by September 5, 2014. (8/6/2014)

News from Europe

Clearing obligation comments. The European Securities and Markets Authority published the responses it has received to its consultation on clearing obligations. (8/29/2014)

EBA publishes new XBRL taxonomy. The European Banking Authority published a new XBRL taxonomy to be used by competent authorities for remittance of data under the EBA Implementing Technical Standards (ITS) on supervisory reporting. The new taxonomy will begin December 31, 2014, and will be used for the first reports on asset encumbrance and funding plans. The new taxonomy presents the data items, business concepts, relations, visualizations and validation rules described by the EBA Data Point Model, which are contained in the ITS on supervisory reporting and in the EBA Guidelines on definitions and templates on funding plans. (8/18/2014) EBA press release.

UK firms shop accountants. Reuters summarized the findings of a PricewaterhouseCoopers review of “tendering activities” of UK firms. The UK, and more recently the EU, has adopted new rules requiring auditor rotation, leading to an increase in the number of UK firms seeking bids from possible accounting firms. (8/18/2014) Tendering surge.

US FDIC prepares EU counterparts. Bloomberg recounted a recent seminar that the US Federal Deposit Insurance Corporation held for EU regulators on how to quickly and quietly close a failing bank. (8/17/2014) Training program.

ISDA briefing note. A briefing note was issued by the International Swaps and Derivatives Association concerning the implementation of the EU’s Bank Recovery and Resolution Directive. (8/13/2014) ISDA briefing note.

Transposition of Solvency II. The UK Prudential Regulation Authority issued a consultation paper proposing changes to the PRA’s rules to implement the Solvency II Directive and containing draft supervisory statements which set out the PRA’s expectations of firms and what firms may expect of the PRA. The consultation paper, the third on the transposition of Solvency II, consults on rules to transpose the amendments to the Directive introduced by the Omnibus II Directive and on the implementation of areas deferred from the previous two consultation papers issued by the Financial Services Authority. Comments should be submitted by November 7, 2014. (8/11/2014) PRA press release.

ECB publishes stress test manual. The European Central Bank published a manual detailing how it will incorporate findings from its asset quality review into stress test projections. The manual also describes the stress test quality assurance process. The final results from the comprehensive assessment will be published in the second half of October 2014. (8/8/2014) ECB press release.

UK FCA publishes changes to its Knowledge Base. The UK Financial Conduct Authority published Primary Market Bulletin Issue No. 8, which summarizes the feedback it received and the actions it is taking in response to Primary Market Bulletin No.6, on a new listing principle and a technical amendment related to reverse takeovers; and Primary Market Bulletin No.7, which proposed guidance to amend the Knowledge Base concerning the prospectus disclosure requirements for retail investors in non-equity securities, the FCA’s powers in relation to sponsors, and the application of a sponsor’s obligation to deal with the FCA in an open and co-operative manner. (8/6/2014) FCA press release.

UK FCA consults on use of social media. The UK Financial Conduct Authority published proposed guidance on its approach to the supervision of financial promotions on social media. Comments should be submitted by November 6, 2014. (8/6/2014) FCA press release.

UK FCA consults on independent governance committees. The UK Financial Conduct Authority published a proposed rule that would require providers of workplace personal pension schemes to establish and maintain independent governance committees. Comments should be submitted by October 10, 2014. (8/6/2014) FCA press release.

Global Regulators

Lease accounting. The International Accounting Standards Board project update on lease accounting was summarized by (8/14/2014) Lease accounting.

IOSCO repository on central clearing requirements. The International Organization of Securities Commissions has made publicly available its information repository on various jurisdictions’ central clearing requirements for OTC derivatives. (8/5/2014) IOSCO press release.

US Securities and Exchange Commission Developments

Proposed Rule

Principal trades with advisory clients. The SEC seeks comment on the proposed extension, to December 31, 2016, of Investment Advisers Act Rule 206(3)-3T, which creates an alternative means for investment advisers who are also registered broker-dealers to meet the requirements of Section 206(3) of the Investment Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients. Comments should be submitted by September 17, 2014. (8/12/2014) SEC Release No. IA-3893.

Selected Enforcement Actions

Civil and criminal insider trading charges filed against former bank exec. The SEC charged a former bank executive in Massachusetts and his friend with insider trading in advance of the bank’s acquisition of another financial institution. The SEC alleges that Patrick O’Neill, then a senior vice president at Eastern Bank, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company. O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities. O’Neill and Bray each were subpoenaed to testify in the SEC’s investigation but asserted their Fifth Amendment privileges against self-incrimination. Related criminal charges have also been filed. (8/19/2014) SEC press release.

Kansas settles municipal bond disclosure matter. The SEC instituted settled administrative proceedings against the state of Kansas for failing to disclose in municipal securities offering documents that the state’s pension system was significantly underfunded, and that the unfunded pension liability created a repayment risk for investors in those bonds. Without admitting or denying the allegations, the state consented to the entry of a cease-and-desist order. Kansas has since adopted new policies and procedures to help ensure that appropriate disclosures about pension liabilities are being made in its offering documents. Kansas designated responsible parties in state agencies critical to the disclosure process, mandated closer communication and cooperation among those agencies, established a disclosure committee, and now requires annual training of key personnel. (8/11/2014) SEC press release.

Net capital violations alleged against brokerage firm; principal charged with obstruction. The SEC instituted contested administrative proceedings against Charles “Chuck” Moore and his brokerage firm, Crucible Capital Group, for attempting to disguise the firm’s extensive and repeated net capital insufficiencies by improperly off-loading its liabilities onto the books of an affiliated firm and improperly treating non-marketable stock as an allowable asset. (8/8/2014) SEC press release.

Other Developments

Municipal advisor exam initiative. The SEC announced that the Office of Compliance Inspections and Examinations is launching an examination initiative directed at newly regulated municipal advisors. Over the next two years, OCIE plans to examine a significant percentage of these advisors using an approach that focuses on identified risks. Areas targeted for scrutiny may include the municipal advisor’s compliance with its fiduciary duty to its municipal entity clients, books and recordkeeping obligations, disclosure, fair dealing, supervision, and employee qualifications and training. (8/19/2014) SEC press release.

Credit rating reforms., covering an article published by the Wall Street Journal, reported that the SEC will soon adopt new rules for credit rating agencies aimed at limiting possible conflicts of interest in the industry. (8/18/2014) Credit rating reforms.

Form PF study. In accordance with the Dodd-Frank Act, the SEC published its second annual report to Congress regarding how it uses the data it collects regarding private funds. During the past year, Commission staff focused its efforts on utilizing Form PF data in examinations and investigations of private fund advisers, and in the Commission’s risk monitoring activities; providing additional guidance to filers; and working with other federal regulators and international organizations regarding issues relating to private fund advisers. (8/15/2014) SEC study.

US Commodity Futures Trading Commission Developments

FCM acknowledgement letters. The Divisions of Clearing and Risk and Swap Dealer and Intermediary Oversight issued a no-action letter stating that the Divisions will not recommend enforcement action against the Clearing House of the Chicago Mercantile Exchange, Inc., or certain of its clearing members, in connection with the execution and submission of futures commission merchant acknowledgment letters required by Regulation 1.20. (8/18/2014) CFTC press release.

Registration exemption extended. The Division of Market Oversight extended to November 15, 2014, the conditional time-limited relief previously provided to Yieldbroker Pty Limited, an Australian-based trading platform. Enforcement action will not be recommended for failure to register as a swap execution facility. (8/11/2014) CFTC press release.

CPO registration relief. The Division of Swap Dealer and Intermediary Oversight’s June 20, 2014 letter, granting a request for relief from the requirements to register as a commodity pool operator, was made public on August 6, 2014. (6/20/2014) CFTC no-action letter.

US Banking Agency and Treasury Department Developments

Revised sanctions guidance. The Department of the Treasury’s Office of Foreign Assets Control revised its guidance regarding entities owned 50 percent or more in the aggregate by more than one blocked person. (8/13/2014) OFAC notice.

New York Fed mortgage operations counterparty pilot. The Federal Reserve Bank of New York will conduct a pilot program for certain smaller firms to act as counterparties in agency mortgage-backed securities operations conducted for the System Open Market Account portfolio. The pilot will explore ways to broaden access to open market operations and improve operational capacity and resiliency. (8/5/2014) New York Fed notice.

US Judicial Developments

Loss causation. The US Court of Appeals for the Ninth Circuit held that the announcement of an investigation, by itself, does not establish loss causation in a private securities fraud lawsuit. Such an announcement only makes investors aware of a possible future disclosure of misconduct. As a result, a decline in an issuer’s share price following the disclosure of an investigation can only be attributed to market speculation, which cannot form the basis of a viable loss causation theory. (8/8/2014) Loos v. Immersion Corp.

Corporate merger challenge reinstated. The dismissal of a stockholder class action suit challenging the fairness of a corporate merger has been vacated. The US Court of Appeals for the First Circuit found that in light of plaintiffs’ Rule 56(d) affidavit outlining its discovery needs, plaintiffs should have been allowed to conduct additional discovery. (8/6/2014) In re PHC, Inc. Shareholder Litigation.

US Exchanges and Self-Regulatory Organizations

NFA notice concerning anti-money laundering advisories. The National Futures Association informed members that the Financial Crimes Enforcement Network has issued an advisory on the FATF-identified jurisdictions with AML/CFT deficiencies and an advisory on promoting a culture of BSA/AML compliance. (8/18/2014) NFA Notice I-14-19.

FINRA examination programs revised. Revisions have been made to the Financial Industry Regulatory Authority’s General Securities Principal (Series 24) and General Securities Principal Sales Supervisor Module (Series 23) examination programs. The changes will appear in Series 24 and 23 examinations administered on or after October 13, 2014. (8/13/2014) FINRA Regulatory Notice 14-33.

ISDA reporting delegation agreement. The International Swaps and Derivatives Association has published the Reporting Delegation Agreement, which provides a bilateral standard form of reporting delegation agreement. (8/8/2014 ISDA press release.

FINRA definition of “Hearing Officer” amended. The Financial Industry Regulatory Authority amended the definition of “Hearing Officer” to include a former FINRA employee who previously acted as a Hearing Officer and who is a licensed attorney. The implementation date of the amendment is August 12, 2014. (8/6/2014) FINRA Regulatory Notice 14-32.


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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