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Financial Services Law Insights and Observations


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  • OCC seeks input on LCR and NSFR reporting and recordkeeping requirements

    On April 16, the OCC released a request for comment on proposed revisions to its “Reporting and Recordkeeping Requirements Associated with Liquidity Coverage Ratio: Liquidity Risk Measurement, Standards, and Monitoring” to account for three new recordkeeping requirements to be included in 12 CFR part 50, which applies to large national banks and Federal savings associations. The notice outlined steps that such institutions should take to ensure they properly document compliance with the “liquidity coverage ratio” (LCR), which is designed to “promote the short-term resilience” of a bank’s liquidity risk profile, and the “net stable funding ratio” (NSFR), which is designed to reduce disruptions to a bank’s funding sources. The revised reporting obligations require covered institutions to self-report when LCR falls below the minimum threshold or when there is an NSFR shortfall and, in some cases, to submit a liquidity or remediation plan, including estimated time frame for resuming compliance with LCR or NSFR requirements. The recordkeeping revisions require covered entities to, among other things, establish and maintain written policies and procedures for a number of processes, including monitoring changes in relevant laws related to master netting agreements, determine the composition of its eligible high-quality liquid assets (HQLA), and ensure consistent treatment for determining eligible HQLA. Comments must be received by June 17.

    Bank Regulatory OCC Recordkeeping Liquidity Compliance FDIC

  • FTC amends the TSR on recordkeeping and prohibiting misrepresentations

    Agency Rule-Making & Guidance

    On April 16, the FTC issued a final rule amending the Telemarketing Sales Rule (TSR) to add requirements for telemarketers to maintain transaction records, prohibit misrepresentations, and add a new definition for “previous donor” in the context of robocalls on behalf of charitable organizations. This will be the fifth time the TSR has been amended since its enactment in 1995, with previous amendments creating the National Do Not Call Registry in 2003, prohibiting sellers to use prerecorded messages (i.e., robocalls) in 2008, banning debt relief services from requiring an advance fee in 2010, and most recently, barring certain payment mechanisms used in fraudulent transactions in 2015. The FTC’s new amendments to the TSR will require telemarketers to retain a copy of each prerecorded message, call detail records, records to show an established business relationship, records on charitable donations and the do-not-call registry. On the rule’s efforts to prohibit misrepresentations, marketers will be prohibited from making misrepresentations about the good or service they are selling or false statements to induce a charitable contribution. The final rule also will update the definition of “previous donor” to allow telemarketers to place robocalls on behalf of a charity only to customers who have donated to a charity within the previous two years. The amendment will go into effect on May 16 with mandatory compliance beginning October 16.

    Agency Rule-Making & Guidance FTC TSR Recordkeeping

  • West Virginia updates its bank recordkeeping requirements to equate copies with originals

    State Issues

    On March 27, the Governor of West Virginia signed into law HB 4837, which amended the state’s general banking services code to permit banks to photographically or photo-statically reproduce its checks, documents, records, or other instruments (other than notes, securities, and investments) and use such photographic copies (e.g., scans) as substitutes for the originals. Under the law, the photographic copy would be deemed an original counterpart, having the same force and effect as the original, and would constitute admissible evidence in court. While the law would permit the bank to destroy the original copy, the bank must retain either the original or photographic reproductions of the documents for five years from the date of the last entry. Finally, the law would limit actions against any bank for “any balance, amount or proceeds from any time, savings or demand deposit account based on the contents of records” to a five-year retention period. This bill will go into effect after 90 days from passage: June 6.

    State Issues State Legislation Recordkeeping Securities

  • SEC charges broker-dealer with failure to file suspicious activity reports


    On August 29, the SEC announced that it had brought charges against a Chicago-based broker-dealer. The SEC alleged that between August 2012 and September 2020 the broker-dealer failed to file over 400 hundred legally required suspicious financial transaction reports related to over-the-counter securities transactions executed in the broker-dealer’s alternative trading system (ATS). According to the SEC’s order, it was found that the broker-dealer did not establish an anti-money laundering surveillance program until September 2020, despite having thousands of high-risk microcap and penny stock securities transactions executed daily on its ATS.

    Daniel R. Gregus, Director of the SEC’s Chicago Regional Office, stated, “All SEC-registered broker-dealers have the responsibility to comply with the requirements of the Bank Secrecy Act, including the obligation to file SARs.”

    Without admitting or denying that it violated Section 17(a) of the Securities Exchange Act and Rule 17a-8, the broker-dealer agreed to a censure and a cease-and-desist order, along with a $1.5 million penalty.


    Securities Federal Issues SEC Broker-Dealer Enforcement Recordkeeping SARs Cease and Desist

  • Senators, Reps request record retention information from the FTC

    Federal Issues

    On August 18, members of the House and the Senate issued a letter to the FTC with various inquiries related to the FTC’s preservation of agency records. The letter notes that the FTC “has struggled to comply” with the Federal Records Act citing a February 2022 memo from the FTC Inspector General issuing two recommendations for improving records management. The letter further indicates that the FTC has not provided explanations for instances of document deletion and have asked for responses by the end of the month to identify (i) what records have been deleted and why; (ii) how the FTC is working to company with retention requirements; (iii) whether it has notified National Archives and Records Administration of any deleted records; and (iv) how it has addressed prior recommendations.

    Federal Issues U.S. Senate U.S. House FTC Recordkeeping

  • Futures commission merchant fined $6M for communication failures

    Federal Issues

    On August 8, the CFTC issued an order simultaneously filing and settling charges against a California-based futures commission merchant, requiring it to pay $6 million. The CFTC claims that the respondent violated the Commodity Exchange Act and Commission Regulations by “failing to maintain, preserve, or produce records required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to its business as a CFTC registrant.” According to the order, respondent’s employees allegedly communicated through personal text messages regarding information required to be maintained under the CFTC-mandated recordkeeping requirements. The CFTC stated that if the information were to be requested, respondent would not be able to furnish the communications promptly. The CFTC further alleged that the use of unauthorized communication was also in violation of the respondent’s own policies and procedures. In addition to the $6 million civil money penalty, the order requires the respondent to cease and desist any further violations of the commission’s regulations that were previously violated. The CFTC noted that the SEC also announced an order filing and settling charges against the merchant for “related recordkeeping and supervision violations.”

    Federal Issues CFTC Enforcement Commodity Exchange Act Recordkeeping

  • SEC amends electronic recordkeeping requirements for security-based swap entities

    Agency Rule-Making & Guidance

    On October 12, the SEC adopted final amendments to its rule governing the electronic recordkeeping requirements for security-based swap entities. (See SEC fact sheet here.) The updates are applicable to security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs), and are intended to make the rule adaptable to new technologies in electronic recordkeeping. The amendments will also facilitate examinations of broker-dealers, SBSDs, and MSBSPs by “designating broker-dealer examining authorities as Commission designees for purposes of certain provisions of the broker-dealer record maintenance and preservation rule,” the SEC said. Specifically, the amendments address requirements related to the maintenance and preservation of electronic records, the use of third-party recordkeeping services to hold records, and the prompt production of records. Under the SEC’s broker-dealer electronic recordkeeping rule, broker-dealers are required “to preserve electronic records exclusively in a non-rewriteable, non-erasable format,” known as the “write once, read many format.” The amendments now provide an audit-trail alternative under which broker-dealers “must preserve electronic records in a manner that permits the recreation of an original record if it is altered, over-written, or erased.” According to the SEC’s announcement, the audit-trail alternative is intended to provide broker-dealers greater flexibility when configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices, while also ensuring that the authenticity and reliability of the original records are protected. The amendments are also applicable to nonbank SBSDs and MSBSPs.

    The final amendments are effective 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Securities SEC Federal Issues Swaps Recordkeeping

  • SEC, CFTC fine Wall Street firms $1.8 billion


    On September 27, the SEC and CFTC announced settlements (see here and here) with numerous broker-dealers for alleged recordkeeping failures. According to the SEC, from January 2018 through September 2021, the firms’ employees communicated about business matters using text messaging applications on their personal devices. The SEC further alleged that the firms violated federal securities laws by failing to maintain or preserve the substantial majority of these off-channel communications. The SEC charged each of the firms with violating certain recordkeeping provisions of the Securities Exchange Act of 1934, and with failing to reasonably supervise and detect such violations. Additionally, an investment adviser was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940. In addition to paying a total of $1.1 billion in fines, the firms were ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured. The firms agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices. The SEC recognized the firms’ cooperation with the investigation.

    Separately, in a related action, the CFTC announced settlements with many of the same firms for related conduct, totaling nearly $710 million. The CFTC noted that each firm acknowledged to CFTC staff that it was aware employees used unapproved methods to engage in business-related communications. The CFTC also said that as a result of each firm’s failure to ensure that its employees complied with communication policies and procedures, the firms failed to maintain business-related communications. The CFTC found that each firm failed to diligently “supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.”

    Securities Enforcement SEC CFTC Recordkeeping Securities Exchange Act

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