DLA Piper May 25, 2017

United States

Proposed fiscal 2018 budget would restructure CFPB and SEC. Reuters reported that the CFPB and the SEC would face structural changes under the President's fiscal 2018 budget proposal. According to an Office of Management and Budget document, the CFPB would undergo a “restructure” that could reduce the federal deficit by as much as US$145 million. The SEC would have its reserve fund, which has recently been used to overhaul the SEC’s information technology and is funded outside the SEC's general budget by registration fees, be used to supplement the SEC's budget. According to the OMB, this could reduce the deficit by as much as US$50 million per year. (5/23/2017)

Canada

Roundtable agenda on proposed business conduct rules for derivatives dealers and advisers. The OSC announced the agenda and list of panelists for the upcoming roundtable to discuss CSA Notice and Request for Comment on Proposed National Instrument 93-101 Derivatives: Business Conduct. The roundtable will take place on May 29, 2017, from 9:00 a.m. to 12:00 p.m. on the 22nd floor of the OSC’s offices, located at 20 Queen Street West in Toronto, Ontario. (5/18/2017)

No-Action Relief and Exemptive Orders

Yahoo! can rely on defined formula to decide final purchase price paid for shares of common stock tendered into planned issuer tender offer. Yahoo! Inc. and Verizon entered into a stock purchase agreement for a sale transaction which, once completed, will result in Yahoo! becoming an investment company registered under the Investment Company Act of 1940 and shares of its common stock being removed from the S&P 500 index. The Division of Corporation Finance’s Office of Mergers and Acquisitions determined that it will not recommend that the SEC take enforcement action if Yahoo! relies on a defined formula to decide the final purchase price paid for the shares of common stock tendered into, and the number of shares ultimately accepted in, its planned issuer tender offer. (5/12/2017)

Selected Enforcement Actions

Fund manager and his firm settle insider trading charges. The New York Times reported that hedge fund manager Leon G. Cooperman and his firm, Omega Advisors, Inc., have reached a settlement with the SEC over insider trading charges brought by the agency last September. Under the terms of the settlement, they will pay nearly US$5 million in disgorgement, interest and penalties, and will be required to retain an independent compliance consultant until 2022, who will monitor trading activity and report to the SEC. The Times noted that the settlement does not require any admission of wrongdoing nor does it impose an industry bar. (5/18/2017)

Former SEC staff accountant charged with securities fraud. The SEC announced that it has charged a former SEC staff member with securities fraud in connection with his trading of options and other securities. The SEC alleged that a former staff accountant and branch chief in the SEC’s Division of Corporation Finance, violated SEC rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period. The staff member allegedly hid his trading activity from the SEC’s ethics office and misrepresented it to the Office of the Inspector General during an investigation. The staff member settled the charges by agreeing to a permanent practice suspension and paying over US$108,000 in disgorgement, prejudgment interest, and civil penalties. The staff member also pleaded guilty to charges in a parallel criminal proceeding. (5/9/2017)

Speeches and Statements

Clayton delivers first remarks as SEC Chairman to Small and Emerging Company Advisory Committee. At a public meeting of the SEC’s Advisory Committee on Small and Emerging Companies, Jay Clayton, in his first remarks as SEC Chairman, told the Committee that facilitating capital-raising opportunities for all companies, including small businesses, is among his priorities for the SEC. (5/10/2017)

Piwowar speculates about regulatory causes of flagging IPO market. Speaking at the SEC-NYU Dialogue on Securities Market Regulation, SEC Commissioner Michael S. Piwowar discussed the possible regulatory causes of the decline in initial public offerings. (5/10/2017) Piwowar remarks.

Piwowar, Stein address the NASAA conference. In opening remarks at the North American Securities Administrators Association Section 19(d) Conference, SEC Commissioner Michael S. Piwowar maintained that the SEC and NASAA must assess the effectiveness of new capital formation methods and address any concerns that may arise with these transactions, including fraud. Piwowar remarks. In closing remarks, SEC Commissioner Kara M. Stein said that regulators must be adaptable to changing markets, communicate and coordinate, and make use of high-quality data and data analytics. (5/9/2017) Stein remarks.

Investor advocate emphasizes demand side of the IPO market. Addressing the NASAA 2017 Public Policy Conference, SEC Investor Advocate Rick A. Fleming examined the role of the investor and the demand for IPOs to identify “some important causes of the dwindling IPO market.” (5/9/2017) Fleming remarks.

Other Developments

OCIE issues Risk Alert following ransomware attack. The SEC’s Office of Compliance Inspections and Examinations advised broker-dealers, investment advisers, and investment companies to reassess their cybersecurity risks and response capabilities in light of the recent WannaCry ransomware attack. (5/17/2017) OCIE Risk Alert.

Staff announcements. The SEC announced that David Peavler, the Associate Director of Enforcement in the Fort Worth Regional Office, will leave the agency by the end of May. (5/19/2017) The SEC announced that Sean Memon has been appointed to serve as the SEC’s deputy chief of staff, Robert B. Stebbins has been named General Counsel of the SEC and Jaime Klima will serve as Chief Counsel to SEC Chairman Jay Clayton. (5/15/2017) Lucas Moskowitz has been appointed to the role of SEC chief of staff. (5/11/2017) William H. Hinman will serve as the new Director of the Division of Corporation Finance. (5/9/2017)

Small and Emerging Companies Advisory Committee issues recommendations. Following a public meeting on May 10, 2017, the SEC’s Advisory Committee on Small and Emerging Companies issued two recommendations on secondary market liquidity for Regulation A, Tier 2 securities and the treatment of “finders” that assist companies in capital raising activities. (5/15/2017)

Anti-retaliation protections for whistleblowers strengthened; award claims review process enhanced. The CFTC announced that it has unanimously approved amendments to its whistleblower rules. Based on a reinterpretation of the CFTC’s anti-retaliation authority under the CEA, the CFTC or the whistleblower can now bring an action against an employer for retaliation against a whistleblower. The amendments also bar employers from taking steps to block a would-be whistleblower from communicating directly with CFTC staff about a possible violation of the CEA by using a confidentiality, pre-dispute arbitration or similar agreement. (5/22/2017) Fact Sheet: Strengthening Anti-Retaliation Protections for Whistleblowers and Enhancing the Award Claims Review Process. Federal Register: Whistleblower Awards Process.

LabCFTC launched as major FinTech initiative. The CFTC announced that it has approved the creation of LabCFTC, a new initiative aimed at promoting responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees. (5/17/2017) See Address of CFTC Acting Chairman J. Christopher Giancarlo before the New York FinTech Innovation Lab. Also see Statement of CFTC Commissioner Sharon Y. Bowen on the Launch of LabCFTC.

No-action relief extended for Shanghai Clearing House. The CFTC’s Division of Clearing and Risk announced that it has issued a no-action letter extending the relief provided to the Shanghai Clearing House (SHCH) in CFTC Letter 16-56, which expires on May 31, 2017. The extension will last until the earlier of November 30, 2017, or the date on which the CFTC exempts SHCH from registration as a DCO. Pursuant to the letter, the DCR will not recommend that the CFTC take enforcement action against SHCH for failing to register as a DCO pursuant to Section 5b(a) of the Commodity Exchange Act in light of SHCH’s pending petition for an exemption from registration as a DCO. SHCH is also permitted to clear certain swaps subject to mandatory clearing in the People’s Republic of China for the proprietary trades of SHCH clearing members that are US persons or affiliates of US persons. (5/16/2017)

OCC

OCC announces updated guidance. The OCC announced that it has updated its policies and procedures regarding violations of laws and regulations. This policy is effective on July 1, 2017. These updates are reflected in the “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies,” and “Large Bank Supervision” booklets and other sections of the Comptroller’s Handbook and internal guidance. (5/23/2017)

OCC to host Atlanta workshop for board directors bank management. The OCC announced that it will be hosting a workshop in Atlanta at the Sheraton Atlanta Hotel, June 26-28, for directors, senior management team members and other key executives of national community banks and federal savings associations supervised by the OCC. The Building Blocks for Directors workshop, which will provide practical information on the roles and responsibilities of board participation, will focus on duties and core responsibilities of directors and management, discuss major laws and regulations, and increase familiarity with the examination process. (5/16/2017)

OCC to host credit risk and operational risk workshops in Nashville. The OCC announced that it will be hosting two workshops at the Inn at Opryland in Nashville, Tenn., June 20-21, for directors of national community banks and federal savings associations supervised by the OCC. The June 20 Credit Risk workshop will focus on credit risk within the loan portfolio, identifying trends and recognizing problems, the roles of the board and management, how to stay informed of changes in credit risk, and how to effect change. The June 21 Operational Risk workshop, which will focus on the key components of operational risk: people, processes and systems, will also cover governance, third-party risk, vendor management, and cybersecurity. (5/11/2017)

CFPB

CFPB requests feedback on ways to bridge the information gap on small business lending. The CFPB announced that it has launched an inquiry into ways to gather and use new and existing information to identify the financing needs of small businesses, especially those owned by women and minorities. The request for information asks for public feedback to help the Bureau better understand how to bridge this information gap. (5/10/2017)

FINRA workshop on TRACE reporting of US Treasury Securities. The Financial Industry Regulatory Authority will hold a phone-in workshop on June 8, 2017, to help firms prepare to comply with the requirement to report transactions in US Treasury Securities to the Trade Reporting and Compliance Engine, which will be required starting on July 10, 2017. FINRA press release.

FINRA revises Investor Alert on crowdfunding. FINRA updated its Investor Alert on crowdfunding and the Jumpstart Our Business Startups Act to reflect the inflation-adjusted increase in investment limits for securities-based crowdfunding approved by the SEC at the beginning of May. (5/17/2017)

MSRB adopts continuing education requirements for municipal advisors. The Municipal Securities Rulemaking Board announced that the SEC has approved its proposal to establish continuing education requirements for municipal advisor firms. The MSRB will host an educational webinar on October 5, 2017, to help firms prepare for the new requirements, which will become effective on January 1, 2018. (5/17/2017)

FINRA to review rules on outside business activities and private securities transactions. FINRA requested comments on its rules governing the outside business activities and private securities transactions of employees of broker-dealers as part of a retrospective rule review. Comments are due on or before June 29, 2017. (5/15/2017) FINRA press release.

FINRA plans to enhance controls on high-risk brokers. FINRA announced that it intends to move forward with proposals to strengthen controls on brokers with a history of significant past misconduct and will issue Regulatory Notices requesting comments on these proposals and clarifying firms’ existing supervisory obligations concerning any high-risk brokers they employ. (5/11/2017) FINRA press release.

FINRA notifies firms of rules amended to conform to shortened settlement cycle. FINRA offered guidance on rule amendments that will become effective on September 5, 2017, to conform FINRA rules to rule amendments approved by the SEC that shorten the standard settlement cycle for most broker-dealer transactions from three to two business days after the trade date. (5/11/2017) FINRA regulatory notice.

Hong Kong

SFC enhances the position limit regime. The SFC announced that enhancements to the position limit regime, including introducing various excess position limits and raising the statutory position limit for stock options contracts, will come into operation on June 1, 2017, the commencement date of amendments to the Securities and Futures (Contracts Limits and Reportable Positions) Rules. For details, market participants may refer to the March 21, 2017, press release. (5/22/2017

SFC issues guidance on corporate transactions and the use of valuations. The SFC announced that it has issued a guidance note on directors’ duties and a circular to financial advisers regarding valuations in corporate transactions, together with a statement on the liability of valuers for disclosure of false or misleading information. (5/15/2017)

SFC and FCA sign FinTech cooperation agreement. The SFC announced that it has entered into a cooperation agreement with the FCA to foster collaboration in support of financial technology innovation. Under the agreement, the SFC and the FCA will cooperate on information sharing and referrals of innovative firms seeking to enter one another’s markets. (5/12/2017)

Singapore IFC and Monetary Authority of Singapore collaborate to advance FinTech innovation in Asia. The IFC, a member of the World Bank Group and the MAS, signed a memorandum of cooperation agreeing to work together to establish and develop the ASEAN Financial Innovation Network. (5/23/2017)

CP on proposed amendments to requirements in credit loss provisioning. The MAS has published Consultation Paper on Proposed Amendments to Requirements in Credit Loss Provisioning. Written comments on the Consultation Paper are due by June 12, 2017. (5/12/2017)

Australia

ASIC consults on expiring class orders about licensing relief for financial counselling agencies and rural financial counseling service providers. ASIC announced that it has released a consultation paper proposing to remake three ASIC instruments relating to financial counselors, which are due to expire between October 1, 2017, and April 2026. Submissions to Consultation Paper 282 Remaking ASIC class orders on financial counselling licensing relief (CP 282) are due by June 15, 2017. (5/17/2017)

European Union

EBA publishes final technical standards on valuation in resolution. The EBA announced that it has published its final draft Regulatory Technical Standards on valuation in resolution. (5/23/2017)

EBA publishes an Opinion on own funds in the context of the CRD CRR review proposal. The EBA announced that it has published an Opinion addressed to EU institutions expressing its views on a number of aspects related to own funds in the context of the European Commission’s proposal to amend the Capital Requirements Regulation and Capital Requirements Directive. In the Opinion, the EBA particularly calls for a possible strengthening of the Authority’s role in assessing issuances of CET1 instruments. In addition, the Opinion elaborates on restrictions on distributions in the context of capital conservation measures and suggests introducing a general anti-circumvention principle. (5/23/2017)

EBA updates on monitoring of CET1 instruments. The EBA announced that it has published its fifth updated list of capital instruments that Competent Supervisory Authorities across the EU have classified as Common Equity Tier 1. The list is for the first time accompanied by a Report, which includes additional information on the underlying objectives of the monitoring update as well as on the consequences of including or excluding instruments in or from the list. (5/23/2017)

Commission issues country-specific economic recommendations. The European Commission announced that it has set out economic policy guidance and called on Member States to pursue structural reforms, boost investment and strengthen public finances. (5/22/2017)

ESMA clarifies "traded on a trading venue" under MiFID II. ESMA announced that it has issued an opinion regarding the implementation of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). (5/22/2017)

Euro area financial integration stalls during 2016. The European Central Bank announced that, according to its annual report on Financial Integration in Europe, overall financial integration in the euro area stalled in 2016. (5/19/2017)

EBA consults on its guidance for the use of cloud computing. The EBA announced that it has launched a consultation setting out its guidance for the use of cloud service providers by financial institutions. The EBA Recommendations intend to clarify the EU-wide supervisory expectations if institutions intend to adopt cloud computing, so as to allow them to leverage the benefits of using cloud services, while ensuring that any related risks are adequately identified and managed. The consultation runs until August 18, 2017. (5/18/2017)

ESMA finds improvements in regulators’ supervisory practices concerning MiFID rules on fair, clear and not misleading information. ESMA announced that it has published a Follow-up Report on the actions undertaken by ten National Competent Authorities in addressing deficiencies identified in the 2014 Peer Review on MiFID Conduct of Business rules relating to fair, clear and not misleading information. (5/18/2017)

EBA publishes final Guidelines on credit institutions credit risk management practices and accounting for expected credit losses. The EBA announced that it has published today its final Guidelines on credit institutions’ credit risk management practices and accounting for expected credit losses. These Guidelines aim at ensuring sound credit risk management practices associated with the implementation and on-going application of the accounting for expected credit losses. (5/12/2017)

EBA publishes final guidelines to assess ICT risk. The EBA announced that it has published its final Guidelines on the assessment of the Information and Communication Technology risk in the context of the Supervisory Review and Evaluation Process. (5/11/2017)

ESMA workshop on the European Single Electronic Format. ESMA announced that it will be holding a workshop on the European Single Electronic Format on June 6, 2017. (5/11/2017)

United Kingdom

FCA releases findings of review of advice suitability. The UK Financial Conduct Authority published the results of its review of the suitability of pensions and investment advice. The review found that the vast majority of the advice it examined complied with the FCA’s suitability rules, while almost half of the advice it studied failed to comply with the FCA’s disclosure rules. (5/18/2017) FCA press release.

Regulation round-up. The FCA published the May 2017 edition of its Regulation round-up. (5/18/2017)

FCA consults on guidance for its approach to the review of insurance business transfers. The FCA requested comments on proposed guidance that would establish its approach to reviewing insurance business transfer schemes under Part VII of the Financial Services and Markets Act 2000. Comments are due on or before August 15, 2017. (5/15/2017) FCA press release.

PRA updates its strengthening accountability regime. The Prudential Regulation Authority published a policy statement that establishes final rule amendments to the Senior Managers and Certification Regime and Senior Insurance Managers Regime, which set out the PRA’s expectations on the duty of responsibility, apply certain Conduct Rules/Conduct Standards to those non-executive directors who are not approved persons under the regimes, and create a new streamlined regime for firms in run-off, among other changes. The PRA also updated its supervisory statements on strengthening individual accountability in banking and insurance, as well as its statement of policy on conditions, time limits and variations of approval, to reflect the amendments. (5/12/2017) PRA press release.

FCA launches strategic review of retail banking business models. The FCA announced the commencement of a strategic review of the business models used in the retail banking sector in an effort to assess the impact of changes to these models on competition and conduct. The FCA will engage with relevant financial service providers during May and June 2017 before requesting information from firms, and expects to publish an update during the second quarter of 2018. (5/11/2017) FCA press release.

FSB report on governance frameworks and misconduct risks. The FSB issued a report that contains the findings of its review of efforts underway by international bodies, national authorities, industry associations and firms on the use of governance frameworks to address misconduct risk. The report also sets out the FSB’s next steps in this area, including additional study of responsibility mapping, culture, and effective employee screening and due diligence. (5/23/2017) FSB press release.

FSB report finds opportunities and risks in FinTech credit. The FSB and the Committee on the Global Financial System published a report that examines the nature of FinTech credit as well as associated risks and opportunities. The report found that FinTech credit markets are growing at a fast pace and business models and investor profiles vary widely across countries. (5/22/2017) FSB press release.

IOSCO emphasizes building securities market resilience at annual conference. The International Organization of Securities Commissions held its annual public conference on May 17, 2017. The conference discussions focused on the challenges of strengthening market resilience, addressing financial misconduct and financing the real economy through capital markets. (5/17/2017) IOSCO press release.

FSB Regional Consultative Group for the MENA meeting. The FSB summarized the discussions of its Regional Consultative Group for the Middle East and North Africa at its meeting on May 15, 2017. The areas of focus for the group included regional macroeconomic, financial market, and financial stability developments; banking supervision issues; and correspondent banking and its impact on financial inclusion. (5/15/2017) FSB press release.

FSB reports on shadow banking trends and risks. The FSB released the Global Shadow Banking Monitoring Report 2016, which contains the results of its sixth annual monitoring exercise to assess global trends and risks in the shadow banking system. (5/10/2017) FSB press release.