On June 3, 2021, in Lacewell v. OCC, the United States Court of Appeals for the Second Circuit (the “Second Circuit”) dismissed the New York State Department of Financial Services’ (“DFS”) lawsuit against the Office of the Comptroller of the Currency (“OCC”). DFS challenged the OCC’s decision to commence accepting applications for special-purpose national bank (“SPNB”) charters from financial technology companies (“fintechs”) that do not accept deposits. The Second Circuit ultimately decided the case on justiciability grounds, holding that DFS lacked standing and that its claims were constitutionally unripe without reaching the merits of DFS’s claims.
Continue Reading Second Circuit Rejects New York State Department of Financial Services’ Lawsuit Against the Office of the Comptroller of the Currency

On March 11, 2021, the Consumer Financial Protection Bureau (the “CFPB” or “Bureau”) announced it was rescinding its “Statement of Policy Regarding Prohibition on Abusive Acts or Practices” (the “2020 Policy Statement”).  The rescission is the latest in a series of actions under Acting Director David Uejio that demonstrate a recalibration in the Bureau’s regulatory

On January 19, 2021, the FDIC’s Board of Directors approved revised Guidelines for Appeals of Material Supervisory Determinations (the “Guidelines”), which are applicable to insured depository institutions (“IDIs”) the FDIC supervises as well as other IDIs for which the FDIC makes material supervisory determinations. The FDIC stated that the amendments are intended to: (1) improve the independence of appeals decisions via the implementation of an independent, standalone office—the Office of Supervisory Appeals (the “Office”)—that will replace the existing Supervision Appeals Review Committee (the “SARC”); and (2) clarify the procedures and timeframes applicable to appeals, including those relating to formal enforcement actions.
Continue Reading FDIC Adopts Revised Guidelines for Appeals of Material Supervisory Determinations

On Friday 14 August, the Court of Appeal handed down judgment in the FX dispute CFH Clearing Limited v Merrill Lynch International [2020] EWCA Civ 1064.  This appellate success was a comprehensive victory for the clear wording of standard ISDA documentation over creative legal arguments.

Despite, or even because of, the one-sided result, the judgment contains important lessons for market participants on the approach the English Courts will take to future interpretation issues in ISDA disputes.  
Continue Reading English Court of Appeal Upholds Merrill Lynch’s Reliance on ISDA Standard Terms

I.    Judgement

On 5 May 2020, the German constitutional court (Bundesverfassungsgericht BVerfG“) decided in a landmark judgment about the compatibility of the Public Sector Asset Purchase Program launched by the European Central Bank (“ECB“) in March 2015 (“PSPP“)[1] with German constitutional law.

The BVerfG expressly excluded the EUR 750 billion Pandemic Emergency Purchase Program (“PEPP“) launched in March 2020 to mitigate the economic impact of the COVID-19 pandemic from its decision.

In brief, the BVerfG ruled that with the establishment of the PSPP in 2015 the ECB by far exceeded its competences and, therefore, acted ultra vires. The main reason is that the decision of the ECB lacks sufficient proportionality considerations due to insufficient balancing of the ECB’s monetary policy objective against potential effects on this policy.

More fundamentally, the judges of the BVerfG further ruled that they are not bound by the judgment of the Court of Justice of the European Union (“CJEU“)[2]. The CJEU decided upon submission by the BVerfG in 2018 that the ECB had the power to establish the PSPP. The BVerfG argues that while generally the interpretation and application of the laws of the European Union fall within the responsibility of the CJEU (so-called principle of uniformity and coherence of EU law), there are – under the established case law of the BVerfG – exceptional cases of substantiated ultra vires challenges where the BVerfG is not bound by judgments of the CJEU. According to the BVerfG, this follows from the legal structure of the European Union which has not yet passed the threshold to a federal state. The BVerfG rejects the principle according to which the Member States, via the acceptance of the EU Treaties, have given power to the EU institutions, in particular to the CJEU. According to the BVerfG, the Member States of the European Union are still “Masters of the Treaties”. The European Union does not have the power to determine its own competences (so-called ‘competence-competence’). As a consequence,  Member States are not bound by decisions of EU institutions which would effectively amount to a treaty amendment or an expansion of competences which would in turn imply the existence of a competence-competence of EU institutions.

The BVerfG also ruled that the decision of the ECB about the PSPP does not infringe the prohibition of monetary financing under Art. 123(1) of the Treaty of the Functioning of the European Union (TFEU).

The BVerfG defined the following legal consequences resulting from the ultra vires infringement:

  • As of the end of a three months period following the judgement of the BVerfG, Deutsche Bundesbank will no longer be allowed to participate in the implementation and execution of the ECB-Decision, unless the ECB describes by the end of that period in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects.
  • The German government and the German parliament (Bundestag) must take active steps against the PSPP in its current form, e. they are required to take steps seeking to ensure that the ECB conducts an improved proportionality assessment.

By way of background, the BVerfG has no legal power over institutions of the European Union. Accordingly, the ECB is not bound by the judgment of the BVerfG and, thus, not legally bound to implement its orders. Only German institutions (such as Deutsche Bundesbank, the German government and the German parliament) must observe the judgement of the BVerfG.


Continue Reading Judgement of the BVerfG dated 5 May 2020: ECB’s Public Sector Asset Purchase Program

On March 3, 2020, the U.S. Supreme Court heard oral arguments in Seila Law LLC v. Consumer Financial Protection Bureau, a case centered on the constitutionality of the Bureau’s leadership structure.  A transcript of the argument is available here, and an audio recording is available here.

Continue Reading U.S. Supreme Court Hears Arguments on Constitutionality of CFPB

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).
Continue Reading OCC Appeals Fintech Charter Ruling to Second Circuit

The U.S. Government’s fiscal year-end filing rush has resulted in a wave of new spoofing enforcement.  In August, the Fraud Section of the Department of Justice’s (“DOJ”) Criminal Division charged four individuals with spoofing in precious metals futures markets.  In September, the Commodity Futures Trading Commission (“CFTC”) brought overlapping charges against three of those individuals, and separately charged two trading firms and their employees.  Finally, in an independent development, the United Kingdom’s Office of Gas and Electricity Markets (“Ofgem”) announced its first-ever spoofing charges against an energy trading firm in September.

The new cases show that the DOJ’s Criminal Fraud Section and the CFTC are continuing to coordinate their enforcement activities.  On the same day, September 16, 2019, the DOJ unsealed the August indictment and the CFTC announced civil charges for the same conduct.  The agencies first unveiled their heightened coordination in this area in January 2018, when they initiated parallel spoofing takedowns that have since resulted in several guilty pleas, settlements, an acquittal (Flotron), and a hung jury (Thakkar).

In their recent filings, the agencies reveal new charging strategies.  The DOJ’s unsealed indictment includes the first-ever RICO charge for spoofing.  Both agencies are also charging attempted manipulation under the Commodity Exchange Act (“CEA”) in certain cases.  While attempted manipulation previously has been applied to spoofing, the DOJ and CFTC omitted the charge in their parallel actions in January 2018.

The new strategies may be belated responses to the DOJ’s April 2018 trial defeat in Flotron, in which the jury acquitted a trader of a single count of conspiracy to commit spoofing.  A broader menu of charges allows the DOJ to introduce a wider array of evidence at trial, and gives the jury more options to convict.

Spoofing enforcement has taken a new turn overseas as well.  On September 5, Ofgem announced its finding that Engie Global Markets (“EGM”) engaged in spoofing to manipulate wholesale gas prices between June and August 2016.  Ofgem’s press release defined spoofing as “manipulating prices by placing bids or offers to trade with no intention of executing those bids or offers in order to buy or sell at a higher or lower price and increase trading profits.”

Ofgem found that EGM’s spoofing conduct violated Article 5 (prohibition on market manipulation) of Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency.  This appears to be the first time that Ofgem has issued a fine for spoofing.

As the DOJ and CFTC continue to dedicate significant resources to spoofing enforcement, and overseas regulators, such as Ofgem, increasingly enter the mix, it is safe to assume that spoofing will continue to be a key risk area for commodities and derivatives traders and the firms and institutions that employ them.


Continue Reading Spoofing Enforcement Heats Up with Recent Filing Wave and New Legal Charges

On September 17, Consumer Financial Protection Bureau (“CFPB”) Director Kathleen Kraninger sent letters to House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell stating that the CFPB “has determined that the for-cause removal provision of the Consumer Financial Protection Act . . . is unconstitutional.”  The Bureau now affirms that the for-cause removal provision