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Financial Services Law Insights and Observations


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  • FTC says misleading online endorsements may result in fines

    Federal Issues

    On October 13, the FTC issued a warning to more than 700 companies, including top advertisers, leading retailers, top consumer product companies, and major advertising agencies. The warning stated that the companies may face fines over misleading online endorsements. Citing the “rise of social media,” which has “blurred the line between authentic content and advertising,” the FTC used its Penalty Offense Authority to place companies on notice that they could face significant civil penalties of up to $43,792 per violation should a company “engage[] in conduct that it knows has been found unlawful in a previous FTC administrative order, other than a consent order.” The notice outlines several practices determined by the FTC to be unfair or deceptive in previous administrative cases, such as: “falsely claiming an endorsement by a third party; misrepresenting whether an endorser is an actual, current, or recent user; using an endorsement to make deceptive performance claims; failing to disclose an unexpected material connection with an endorser; and misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.” Additional FTC resources are available to help companies follow the law when advertising products and services.

    As previously covered by InfoBytes, earlier this month the FTC sent a similar notice to for-profit higher education institutions under the Penalty Offense Authority, advising against making false promises about their graduates’ job and earnings prospects. 

    Federal Issues FTC Enforcement Penalty Offense Authority Agency Rule-Making & Guidance Endorsements

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  • SEC announces final rule for filing fee disclosure and payment methods modernization


    On October 13, the SEC announced a final rule to adopt amendments to modernize filing fee disclosure and payment methods, which is intended to improve filing fee preparation and payment processing. Operating companies and investment companies (funds) pay filing fees when participating in some transactions, which include registered securities offerings, tender offers, and mergers and acquisitions. According to the SEC, the amendments revise most fee-bearing forms, schedules, and associated rules to require that companies and funds include all required information for filing fee calculation in a structured format. The amendments also create new options for ACH and debit and credit card payment of filing fees and remove options for filing fee payment by paper checks and money orders that are infrequently used. According to a statement by SEC Chair Gary Gensler, these amendments, “will make the filing process faster, less expensive, and more efficient for SEC staff and market participants.” The final rule is effective January 31, 2022, except for certain amendments that are effective May 31, 2022.

    Securities SEC Fees ACH Payments Agency Rule-Making & Guidance

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  • FINRA advises firms to incorporate FinCEN’s AML/CFT priorities

    Financial Crimes

    On October 8, the Financial Industry Regulatory Authority (FINRA) encouraged member firms to consider ways to incorporate recently issued anti-money laundering and countering the financing of terrorism priorities (AML/CFT Priorities) into their risk-based compliance programs. As previously covered by InfoBytes, the Financial Crimes Enforcement Network’s (FinCEN) AML/CFT Priorities—issued pursuant to the Anti-Money Laundering Act of 2020—highlighted key threat trends and provided informational resources to help covered institutions manage their risks and meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing.

    FINRA reminded member firms that FINRA Rule 3310 requires the development and implementation of a written AML program to achieve compliance with the Bank Secrecy Act (BSA). While FinCEN’s issuance of the AML/CFT Priorities “does not trigger an immediate change in the BSA requirements or supervisory expectations for member firms,” FINRA advised member firms to evaluate how they plan to incorporate these priorities into their risk-based AML programs. Among other things, FINRA advised member firms to: (i) review red flags based on potential risks presented by their business activities, size, geographic location, and types of accounts and transactions; and (ii) consider potential technical changes, including those used to monitor and investigate suspicious activity.

    Financial Crimes Of Interest to Non-US Persons FINRA Anti-Money Laundering Combating the Financing of Terrorism Agency Rule-Making & Guidance FinCEN Risk Management Bank Secrecy Act

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  • California clarifies CPRA rulemaking authority timing

    Privacy, Cyber Risk & Data Security

    On October 5, the California governor signed AB 694. The bill clarifies that the California Privacy Protection Agency (which was given “full administrative power, authority, and jurisdiction to implement and enforce the [California Consumer Privacy Act]”) would assume responsibility for rulemaking “on or after the later of July 1, 2021, or within six months of the agency providing the Attorney General with notice that it is prepared to assume rulemaking.” A previously covered by InfoBytes, last month the CPPA formally called on stakeholders to provide preliminary comments on proposed Consumer Privacy Rights Act rulemaking. However, the CPPA noted that the invitation for comments is not a proposed rulemaking action and stated that the public will have additional opportunities to provide comments on proposed regulations or modifications when it proceeds with a notice of proposed rulemaking action.

    Privacy/Cyber Risk & Data Security State Issues State Legislation CPRA CPPA CCPA Agency Rule-Making & Guidance

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  • SEC Division of Enforcement says firms should take proactive compliance measures


    On October 6, the SEC Director of the Division of Enforcement, Gurbir Grewal, discussed the agency’s mission to maintain market integrity and improve public confidence in the securities market. While Grewal noted that enforcement actions taken over the past few years have helped to significantly animate the idea that the SEC “will pursue potential violations by any market participant,” he stressed the need for joint coordination to promote better conduct among market participants. According to Grewal, this includes firms examining ways their specific business models and products interact with both emerging risks and enforcement priorities and tailoring compliance practices and policies accordingly. He stressed that market participants should take “proactive” compliance measures, including enhancing recordkeeping requirements, and anticipate emerging challenges instead of waiting for an enforcement action to implement the appropriate policies and procedures. Grewal also discussed the key role market participants play in identifying and addressing emerging risks. This could include ensuring proactive compliance efforts continue even after violative conduct has occurred, cooperating with SEC investigations, and voluntarily self-reporting potential violations “before the violation is about to be publicly announced." Grewal also noted that the SEC is currently evaluating its approach to enforcement action penalties to better assess whether past penalties have sufficiently deterred misconduct. 

    Securities SEC Enforcement Compliance Agency Rule-Making & Guidance

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  • CFPB issues semi-annual report to Congress

    Federal Issues

    On October 8, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from October 1, 2020 to March 31, 2021. The report, which is required by Dodd-Frank, addresses, among other things, the effects of the Covid-19 pandemic on consumer credit, significant rules and orders adopted by the Bureau, consumer complaints, and various supervisory and enforcement actions taken by the Bureau. In his opening letter, Director Dave Uejio discusses the Bureau’s efforts to increase racial equity in the marketplace and to mitigate the financial effects of the Covid-19 pandemic on consumers, including measures such as reinstituted regular public reporting, developing Prioritized Assessments to protect consumers from elevated risks of harm related to the pandemic, and numerous enforcement actions with claims or findings of various violations. Uejio also notes that communities of color, particularly Black and Hispanic communities, have disproportionately experienced the health and economic effects of the pandemic, and states that the Bureau is utilizing “all [of its] tools to ensure that all communities, of all races and economic backgrounds, can participate in and benefit from the nation’s economic recovery.”

    Among other topics, the report highlights two publications by the Bureau: one focusing on the TRID Integrated Disclosure Rule (covered by InfoBytes here), and another focusing on credit record trends for young enlisted servicemembers during the first year after separation (covered by InfoBytes here). The effects of the Covid-19 pandemic on consumer credit are also discussed, as are the results from the Bureau’s Making Ends Meet Survey. In addition to these areas of focus, the report notes the issuance of several significant notices of proposed rulemaking related to remittance transfers, debt collection practices, the transition from LIBOR, and qualified mortgage definitions under TILA. Multiple final rules were also issued concerning Truth in Lending Act (Regulation Z); remittance transfers; and payday, vehicle, title, and certain high-cost installment loans. Several other rules and initiatives undertaken during the reporting period are also highlighted.

    Federal Issues CFPB Covid-19 Consumer Finance Agency Rule-Making & Guidance TRID Servicemembers LIBOR TILA Payday Rule

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  • FTC resurrects authority to penalize for-profit education institutions

    Federal Issues

    On October 6, the FTC unanimously resurrected the Penalty Offense Authority under Section 5 of the FTC Act to deter for-profit higher education institutions from engaging in certain unlawful practices. The Commission sent notices to 70 of the nation’s largest for-profit institutions to inform them that the FTC is “cracking down on any false promises they make about their graduates’ job and earnings prospects and other outcomes and will hit violators with significant financial penalties.” The notice outlines several practices previously found to be unfair or deceptive that could lead to civil penalties of up to $43,792 per violation and puts institutions on alert that they could incur significant sanctions should they engage in certain unlawful practices. Commissioner Rohit Chopra, who was recently confirmed as Director of the CFPB, issued a statement commending the initiative, noting that “[u]nder the FTC’s Penalty Offense Authority, the Commission and the Attorney General can seek substantial civil penalties against companies that engage in practices where they had knowledge that the practices were previously determined by a prior Commission order to be illegal.” This is a particularly important tool, Chopra stressed, given the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC, which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement” (covered by InfoBytes here).

    Federal Issues FTC FCPA Enforcement FTC Act For-Profit College Agency Rule-Making & Guidance Penalty Offense Authority

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  • HUD and Fed consider transition from LIBOR

    Agency Rule-Making & Guidance

    On October 5, HUD issued an advanced notice of proposed rulemaking (ANPRM) seeking comments regarding the transition from the London Interbank Offered Rate (LIBOR) to alternate indices on adjustable rate mortgages (ARMs). According to the ANPRM, most ARMs insured by FHA are based on LIBOR, which is likely to become uncertain after December 31 and to no longer be published after June 30, 2023. Due to the uncertainty, HUD has begun to transition away from LIBOR and has approved the Secured Overnight Financing Rate (SOFR) index in some circumstances. In recognizing that there may be certain difficulties for mortgagees transitioning to a new index, HUD “is considering a rule that would address a Secretary-approved replacement index for existing loans and provide for a transition date consistent with the cessation of the LIBOR index.” Furthermore, HUD “is also considering replacing the LIBOR index with the SOFR interest rate index, with a compatible spread adjustment to minimize the impact of the replacement index for legacy ARMs.” Comments on the ANPRM are due by December 6.

    The same day, Federal Reserve Vice Chair for Supervision Randal K. Quarles spoke at the Structured Finance Association Conference in Las Vegas, Nevada, reminding participants that they should cease utilizing LIBOR by the end of the year, “no matter how unhappy they may be with their options to replace it,” and further warned that the Fed will supervise firms accordingly. Quarles emphasized that, “[g]iven the availability of SOFR, including term SOFR, there will be no reason for a bank to use [LIBOR] after 2021 while trying to find a rate it likes better.”

    Agency Rule-Making & Guidance HUD LIBOR Federal Register Federal Reserve SOFR Adjustable Rate Mortgage Mortgages

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  • FDIC updates brokered deposits FAQs

    Federal Issues

    On October 5, the FDIC released an update to the Questions and Answers Related to the Brokered Deposits Rule document. The FDIC added an FAQ to expressly state that a broker-dealer that sweeps deposits to only one insured depository institution (IDI) does not need to file a notice to rely upon the 25 percent designated exception, because a third party that has an exclusive deposit placement arrangement with only one IDI does not meet the definition of “deposit broker.” The FAQs also specify that an individual “meets the first part of the ‘deposit broker’ definition when it is ‘engaged in the business of placing deposits’ on behalf of a third party (i.e., a depositor) at IDIs.” The FAQs further clarify that an individual “is ‘engaged in the business of placing deposits’ of third parties if that person, while engaged in business, receives third party funds and deposits those funds at more than one IDI.”

    Federal Issues FDIC Brokered Deposits Agency Rule-Making & Guidance

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  • Fed to adopt Fedwire message format, asks for comments on expedited adoption

    Agency Rule-Making & Guidance

    On October 4, the Federal Reserve Board announced that it will adopt the International Organization for Standardization’s (ISO) 20022 message format for its Fedwire Funds Service—a real-time gross settlement system owned and operated by the Federal Reserve Banks that enables businesses and financial institutions to quickly and securely transfer funds. This change will enable “enhanced efficiency of both domestic and cross-border payments, and a richer set of payment data that may help banks and other entities comply with sanctions and anti-money laundering requirements,” the Fed stated. Additionally, the Fed requested public comments on a revised plan (targeted for no earlier than November 2023) to implement the ISO 20022 message format on a single day rather than in three separate phases, as originally proposed. According to the Fed, the adoption of ISO 20022 is part of the agency’s initiative to enhance its payment services. Comments must be received 90 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve Board Federal Issues Payments Payment Systems Depository Institution Federal Reserve Banks

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