CFTC News Roundup for October and November and a Look Ahead

There has been a flurry of activity at the Commodity Futures Trading Commission (“CFTC”) in recent weeks.  As we reported previously, the CFTC approved three final rules, including the much-anticipated position limits rule, at its October 15 open meeting, and announced significant organizational changes to its operating divisions on November 3.  This post highlights additional significant actions by the CFTC in October and November and previews what is next for the CFTC under a Biden Administration.

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Federal Banking Agencies and FinCEN Issue Joint Statement on Risk-Based Approach to Customer Due Diligence for Charities and Non-Profit Organizations

On November 19, 2020, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively, the “Agencies”) issued a joint fact sheet clarifying how banks subject to the Bank Secrecy Act (“BSA”) should apply a risk-based approach to customer due diligence (“CDD”) requirements for charities and other non-profit organizations.

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Federal Reserve’s LISCC Program to Apply Only to U.S. G-SIBs

On November 6, 2020, the Board of Governors of the Federal Reserve System (the “FRB”) announced that, beginning in 2021, its Large Institution Supervision Coordinating Committee (“LISCC”) supervisory program will apply only to Category I firms as defined in the FRB’s tailoring framework.  This change will have the effect of removing three foreign banking organizations (“FBOs”) with U.S. operations from the LISCC portfolio.  Going forward, only U.S. firms that are designated as global systemically important banks (“U.S. G-SIBs”) will be included in the LISCC portfolio. Continue Reading

Privacy Oversight and the California Department of Financial Protection and Innovation

Introduction  

On August 21, 2020, the California legislature enacted the California Consumer Financial Protection Law (CCFPL), which is to take effect on January 1, 2021.[1]  The law renames the “Department of Business Oversight” (DBO) the “California Department of Financial Protection and Innovation (DFPI)” and, among other things, empowers the department to regulate the offering and provision of consumer financial products or services under California consumer financial laws.[2]  The California legislature noted that the CCFPL strengthens “consumer protections by expanding the ability of the department to improve accountability and transparency in the California financial system and promote nondiscriminatory access to responsible, affordable credit, among other purposes.”[3]  In this blog post, we examine the DFPI’s possible authority over California’s principal privacy laws.  Covington will monitor how active the DFPI is in promulgating and enforcing privacy rules as the contours of the DFPI’s authority become apparent over time.

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CFTC Announces Organizational Changes to Agency Divisions

On November 2, 2020, the U.S. Commodity Futures Trading Commission (CFTC) issued a press release announcing organizational changes to several areas of the agency’s operating divisions. According to CFTC Chairman Heath P. Tarbert, these changes are intended to better align the agency’s structure with its strategic objectives.

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OCC Issues True Lender Rule

On October 27, 2020, the Office of the Comptroller of the Currency (“OCC”) issued a final rule that determines when a national bank or Federal savings association (collectively, “banks”) makes a loan and therefore is the “true lender” in the context of a partnership between a bank and a third party.  The rule provides that a bank makes a loan if, as of the date of origination, it (1) is named as the lender in the loan agreement or (2) it funds the loan.  It differs from the proposed rule only in providing that, in the case where one bank is named as the lender in the loan agreement and a different bank funds the loan, the bank named in the agreement is the one that makes the loan.

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FRB and FinCEN Issue Joint Notice of Proposed Rulemaking Amending Recordkeeping Rule and Travel Rule Regulations

On October 23, 2020, the Federal Reserve Board (“FRB”) and Financial Crimes Enforcement Network (“FinCEN”) issued a joint notice of proposed rulemaking that would amend the Bank Secrecy Act’s Recordkeeping Rule and Travel Rule regulations.  Comments will be accepted for 30 days after Federal Register publication of the proposed rule on October 27, 2020.  The proposed amendments would lower the threshold for covered cross-border transactions from $3,000 to $250 and also extend the applicability of the rules to convertible virtual currency and digital assets used for legal tender.

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Recent Developments on the German Ringfencing Regulation

I. The German Ringfencing Act

As a reaction to the financial crisis in 2007/2008 and to address risks in connection with the “too big to fail” phenomena, the German legislature issued the Ringfencing Act in 2014 (the “Act”).

In a nutshell, the Act forbids big CRR-credit institutions (depending on certain balance sheet thresholds) to engage in proprietary business (Eigengeschäft), proprietary trading (Eigenhandel) and credit/guarantee business with hedge funds (i.e., AIFs whose leverage exceeds three times their NAV).

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CFTC Approves Three Final Rules at Open Meeting

At an open meeting on October 15, 2020, the Commodity Futures Trading Commission (“CFTC” or the “Commission”) voted to adopt three final rules.  First, the Commission adopted by a 3–2 vote a final rule overhauling its regulatory framework governing speculative position limits on a large variety of commodities.  Second, the Commission unanimously approved amendments to margin requirements for uncleared swaps for swap dealers and major swap participants.  Third, the Commission unanimously voted to finalize amendments to Regulation 3.10(c), which sets forth exemptions from registration for certain foreign intermediaries.

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OCC Issues Guidance on National Banks and Stablecoin Activities

On September 21, 2020, the Office of the Comptroller of the Currency (“OCC”) published a letter addressing the authority of nationals banks to hold deposits that serve as reserves for stablecoins, which is a type of cryptocurrency designed to have a stable value. The OCC concludes that national banks and federal savings associations may engage in certain stablecoin activities as described in the letter.

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