On February 26, 2020, a settlement agreement was filed in California Reinvestment Coalition et al. v. Kraninger et al., a lawsuit initiated by the California Reinvestment Coalition regarding the Consumer Financial Protection Bureau’s (the “Bureau”) failure to issue small-business data collection regulations under Section 1071 of the Dodd-Frank Act. Under Section 1071 of the Dodd-Frank Act, codified as 15 U.S.C. § 1691c-2, financial institutions are required to obtain and report certain data to the Bureau about lending to women-owned and minority-owned businesses to “facilitate enforcement of fair lending laws” and to “enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.” Even though the law was passed in 2010, financial institutions are not currently required to comply with Section 1071 reporting obligations because the Bureau has yet to issue implementing regulations.
On February 10, 2020, the Federal Deposit Insurance Corporation (FDIC) issued supplementary guidance intended to clarify existing procedures for deposit insurance applications for non-traditional banks.
On February 12, 2020, the Board of the International Organization of Securities Commissions (“IOSCO”) released a report titled Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms. The report describes the risks associated with crypto-asset trading platforms (“CTPs”) and sets forth key considerations for regulators in addressing such risks. IOSCO is an association of primary securities and futures regulators from over 100 different nations. The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission are ordinary and associate members, respectively, of IOSCO.
To prepare this report, IOSCO first issued a consultation report on May 28, 2019, which included a survey of the approaches member jurisdictions were currently undertaking or considering with respect to CTPs. The final report draws upon the consultation report and includes a summary of the survey’s findings.
The report notes that many of the issues and risks associated with trading on CTPs are similar to the issues and risks associated with trading traditional securities or financial instruments on trading venues. Consequently, IOSCO states that the three core objectives of securities regulation are relevant in the crypto-asset context. The three core objectives are: (1) protection of investors; (2) ensuring that markets are fair, efficient and transparent; and (3) reduction of systemic risk. Supporting these objectives are principles that foster efficient markets, including: effective price discovery, appropriate transparency, market integrity, and fair access. The final report, to assist regulators in evaluating CTPs under their purview, sets forth the following list of key considerations:
On January 30, 2020, five federal financial regulators jointly issued a proposed rule that would modify existing regulations implementing the Volcker Rule’s general prohibition on banking entities investing in, sponsoring, or having certain relationships with hedge funds or private equity funds (collectively, “covered funds”). The proposal, which follows a 2019 final rule revising the Volcker Rule’s proprietary trading provisions, is intended to simplify the covered fund provisions, and permit banking entities to engage in additional fund-related activities that do not present the risks that the Volcker Rule was intended to address.
Click here to read our Seven Things to Know about the Volcker Rule “covered funds” proposal.
In an article published in the Review of Banking & Financial Services, Covington partner Ashley M. Simonsen argues that “true lender” theories asserted in litigation to invalidate bank–fintech partnerships are inconsistent with federal law, and would chill the market for interstate lending. The article also suggests that both Congress and the federal banking regulators should act to reconfirm that banks that partner with non-banks remain the “true lender” entitled to federal preemption. To read the article, click here.
On January 30, 2020, the Board of Governors of the Federal Reserve System unanimously approved a final rule that establishes a comprehensive framework for determining whether a company controls another company for purposes of the Bank Holding Company Act and Home Owners’ Loan Act, and clarifies certain control-related concepts. After decades in which questions of control were addressed primarily through policy statements and individual interpretations and determinations, the final rule introduces, for the first time, clear standards codified in regulation.
Click here to read our Six Things to Know about the Federal Reserve’s final control rule.
On January 13, 2020, the House of Representatives in a vote of 384 to 7 passed a bill titled the 8-K Trading Gap Act. The bill would require companies to promulgate policies and procedures that prohibit corporate executives from trading company stock during the time period between the occurrence of a major corporate event and the public disclosure of the event. As brief background, a company must file SEC Form 8-K to report the occurrence of certain corporate events deemed by the SEC to be important to shareholders. Form 8-K lists specific qualifying events, which include senior officer appointments and departures, bankruptcies, and the acquisition or disposition of significant amounts of assets. A company has a maximum of four business days from the occurrence of an 8-K event to file the form. This time period is referred to as the “8-K trading gap” because, in theory, insiders would be able to trade on the basis of the information during this period.
On January 8, 2020, Federal Reserve Board (“FRB”) Governor Lael Brainard delivered remarks on the state of Community Reinvestment Act (“CRA”) reform before an audience at the Urban Institute. As we summarized in a client alert, last month, the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) released a proposed overhaul of the regulations implementing the CRA, which the FRB declined to join. While Governor Brainard’s speech made clear that she was not speaking on behalf of the FRB, her remarks provided insight into FRB decision-making on CRA reform and possible avenues to consensus among the agencies.
The House Financial Services Committee (“HFSC”) announced that it will convene hearings this month to consider both the trend of financial technology firms partnering with chartered banks to provide financial services and the rise of mobile payments. More information about the hearing schedule is available on the HFSC’s website.
On December 19, 2019, the Office of the Comptroller of the Currency (OCC) appealed a decision from the U.S. District Court for the Southern District of New York holding that the OCC cannot offer special purpose national bank charters to fintech companies. Lacewell v. Office of the Comptroller of the Currency, Case 1:18-cv-08377 (S.D.N.Y. Sept. 14, 2018).