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On July 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), along with the Departments of State, Commerce, Homeland Security, and Labor, as well as the Office of the U.S. Trade Representative, issued an updated advisory on the risks for businesses with possible exposure in their supply chain to entities involved in human rights abuses in the Xinjiang Region. The recent advisory updates the original version released in July 2020 (covered by InfoBytes here), which was issued after OFAC announced sanctions pursuant to Executive Order 13818 against a Chinese government entity and four current or former government officials for alleged corruption violations of the Global Magnitsky Human Rights Accountability Act. The updated advisory outlines risks to be considered when “assessing business partnerships with, investing in, sourcing from, or providing other support to companies operating in Xinjiang, linked to Xinjiang, or with laborers from Xinjiang.”
On August 9, the U.S. Department of Labor (DOL) filed a notice of administrative action in the U.S. District Court for the District of Minnesota as part of an ongoing lawsuit between the DOL and a wealth management firm. In the notice, the DOL said that it has submitted a proposal (text currently unavailable) to the Office of Management and Budget to delay the fiduciary rule’s second applicability date to July 1, 2019, instead of taking effect January 1, 2018 as previously announced (portions of the rule, however, took effect June 9, 2017). (See previous InfoBytes coverage here.) The rule—which expands the definition of who qualifies as a “fiduciary” under ERISA and the Internal Revenue Code—will allow for a delay of applicability under the proposal for certain exemptions, such as (i) “Best Interest Contract Exemption”; (ii) “Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs”; and (iii) “Prohibited Transaction Exemption . . . for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters.”
On May 22, the U.S. Department of Labor (DOL) issued a news brief providing Fiduciary Rule guidance in anticipation of the upcoming June 9 partial effectiveness date. The Fiduciary Rule—a 2016 final rule expanding the definition of who qualifies as a “fiduciary” under ERISA and the Internal Revenue Code—will go into effect as planned with full implementation on January 1, 2018. DOL Secretary Alexander Acosta wrote in a Wall Street Journal op-ed that the Administrative Procedures Act, which governs federal rulemaking, would not allow a further delay. “We...have found no principled legal basis to change the June 9 date while we seek public input,” Acosta wrote. “Respect for the rule of law leads us to the conclusion that this date cannot be postponed.” The DOL’s release also includes Frequently Asked Questions, which provides clarification on the release dates of the provisions and related prohibited transaction exemptions. Although Acosta declined to authorize a further delay, he said that the DOL will continue its review of the final rule pursuant to the President’s February 3 Presidential Memorandum on Fiduciary Duty Rule. (See previous InfoBytes summary here.)
Notably, the DOL asserted that its general approach to implementation will be marked by an emphasis on compliance assistance (rather than citing violations and imposing penalties). Accordingly, during the phased implementation period, the DOL will not pursue claims against “fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions,” or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.
On April 4, the U.S. Department of Labor (DOL) issued a 60-day extension of the applicability dates of its “Fiduciary Rule”—a 2016 final rule expanding the definition of who qualifies as a “fiduciary” under ERISA and the Internal Revenue Code. The rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of “advice relationships.” The extension also delays (by 60 days) the applicability of certain prohibited transaction exemptions. Accordingly, exemptions such as the “Best Interest Contract Exemption” and the “Principal Transaction Exemption” will become applicable on June 9, 2017. In its press release announcing the issuance of the final rule, the DOL noted, among other things, that the extensions are necessary to enable the DOL to perform the examination of the fiduciary rule directed by the President in his February 3 Presidential Memorandum (see previously posted InfoBytes summary regarding February 3 memo) to consider possible changes with respect to the fiduciary rule and related Prohibited Transaction Exemptions based on new evidence or analysis developed pursuant to the examination.
On February 3, President Trump issued an Executive Memorandum directing the Department of Labor (DOL) to examine the Fiduciary Rule—an April 2016 DOL rule that expands the circumstances in which a person will be treated as a fiduciary under both ERISA and Section 4975 of the Internal Revenue Code by reason of providing investment advice to retirement plans and IRAs. In the memorandum, President Trump calls for an examination of the Fiduciary Rule to determine whether it (i) has harmed or is likely to harm investors; (ii) has resulted in dislocations or disruptions within the retirement services industry; and (iii) is likely to cause an increase in litigation and an increase in the prices that investors and retirees must pay to gain access to retirement services. If the Secretary of Labor makes any of these findings, the memorandum directs the Secretary of Labor to publish a proposed rule rescinding or revising the Fiduciary Rule. Initial compliance with the Fiduciary Rule is currently required by April 10, but the DOL has announced that it “will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”
On January 13, the Department of Labor (DOL) released a second set of frequently asked questions (FAQs) in response to comments from financial services firms and other stakeholders on its recently-released Fiduciary Rule, which redefines a fiduciary investment advisor under the Employee Retirement Income Security Act of 1974. The DOL issued an initial set of 34 answers to FAQs about the Fiduciary Rule back in October, focusing on the rule’s exemptions, such as the “best-interest contract” exemption and the “prohibited-transaction” exemption. The second set of FAQs provides further clarification on the scope of various exemptions regarding investment recommendations, but also includes guidance on topics such as: (i) investment education; (ii) general communications versus fiduciary investment advice; (iii) fees and other compensation; and (iv) platform providers.
The FAQs further reflect, among other things, that an adviser charging clients a level asset-based fee for providing advice on 401(k) fund offerings may use revenue-sharing payments to offset part or all of that level fee, without running afoul of the fiduciary regulation. The guidance also clarifies that providing educational information to IRA and retirement customers about investment alternatives—such as product features, returns and fees—will not be considered “investment advice” so long as a bank does not make any specific investment recommendations. And, in question 34, the DOL explains that fiduciary status is not triggered by offering to customers an automatic sweep of any uninvested cash from the customer’s account into a short-term investment vehicle on a daily basis.
- Daniel R. Alonso to moderate an interactive roundtable at the Latin Lawyer and GIR Connect: Anti-Corruption & Investigations Conference
- APPROVED Checkpoint Webcast: You have license renewal questions, we have answers
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek