The European Systemic Risk Board (the Board) published a recommendation that the European Union should adopt rules to prevent funds from taking on excessive debt and from allocating inadequate reserves to compensate for assets that are hard to sell. The board went so far as to suggest stronger liquidity stress tests, improved liquidity management and tighter supervision. Private funds whose portfolios are comprised of leveraged and complex derivatives are paying close attention to this call for action by the Board as it comes on the heels of a separate announcement detailing the International Organization of Securities Commissions’ (IOSCO) focus on improving how complex derivative products are being offered to retail investors. IOSCO is proposing everything from new leverage limits, minimum margin requirements and a host of other measures for products like binary options and contracts for differences. Asset managers who sought to reposition their derivative strategies in registered funds will need to monitor these developments closely with their counsel and consider repositioning certain strategies through over-the-counter transactions. While IOSCO’s proposal impacts EU as well as U.S. regulators alike, the impact would be minimal in the United States considering existing caps on Reg T and portfolio margining leverage capabilities along with restrictions on U.S. retail persons trading contracts for differences. For those who have benefitted from arranged financing or enhanced leverage platforms generally offered through UK broker dealers, it is important to determine whether the existing leverage model can be repositioned under alternative portfolio margining/stress models by consulting with qualified counsel.
On Jan. 31, 2018, the U.S. Court of Appeals for the District of Columbia Circuit issued its long-awaited ruling in the PHH v. Consumer Financial Protection Bureau case, finding that the structure of the Consumer Financial Protection Bureau (CFPB) is constitutional, but reinstating the previous panel decision rejecting the CFPB’s interpretations of the Real Estate Settlement Procedures Act (RESPA) and the relevant statute of limitations. While PHH may appeal the constitutional ruling to the Supreme Court, and other cases involving the CFPB continue to raise the separation of powers and other structural constitutional issues, this decision is significant in that (a) a three-judge panel of the same circuit court had previously ruled that the CFPB’s structure was constitutionally infirm, and (b) the court has now reinstated the prior ruling rejecting the CFPB’s interpretation of RESPA Section 8(c)(2) and the applicable statute of limitation.
For more information, read the GT Alert, “D.C. Circuit Court of Appeals Rules that CFPB Structure is Constitutional, but Rejects the CFPB’s Interpretations of RESPA.”
As it does every January, FINRA released its annual Regulatory and Examinations Priorities Letter identifying areas of examination focus for the coming year, recurring challenges faced by firms, and possible risks impacting the financial sector. FINRA’s 2018 exam priorities for the first time identify cryptocurrencies and related initial coin offerings (ICOs). Other first-mentions include technology governance, business continuity plans, and non-purpose loans. FINRA’s highest listed priorities this year are the repeated priorities of fraud and recidivist brokers.
Protecting senior investors was a prominent part of FINRA’s Exam Priorities in 2014, 2015, 2016, and 2017. In 2018, protection of seniors was not a delineated priority issue but permeated most all other topics.
Despite the fact that FINRA has announced a more strategic use of its resources, most of the old favorites make an appearance including suitability, AML, and cybersecurity.
For more information, please read the GT Alert “FINRA’s 2018 Annual Regulatory and Examination Priorities.”
The CFTC has asserted that Bitcoin is, and other virtual currencies may be, commodities under the Commodity Exchange Act. As such, pursuant to Section 2(c)(2)(D) of such Act, “off exchange” financed retail transactions in virtual currency are prohibited unless an exception applies. One exception found in Section 2(c)(2)(D)(ii)(III)(aa) provides, in relevant part, that such a prohibition shall not apply to a “contract of sale that results in actual delivery [of the commodity] within 28 days.” On December 15, 2017 the CFTC issued a proposed interpretation and requested comments on the meaning of “actual delivery” in the context of virtual currencies and retail financed transactions.
This GT Advisory discusses whether secured financing can be maintained while satisfying the CFTC’s interpretation of “actual delivery”. Moreover, the advisory considers whether the “actual delivery exception” is available for retail finance transactions that are not “contracts of sale.”
To read the full GT Advisory, please click here.
In February, President Trump signed an Executive Order directing the U.S. Department of Labor (DOL) to review the fiduciary rule for brokers that President Obama’s Labor Department adopted. The federal rule would expand the definition of “investment advice” in the retirement context and require brokers to provide advice that is in the consumer’s best interest. While the federal fiduciary rule is under review, the U.S. DOL delayed some of the rule’s requirements until July 1, 2019. In response, Governor Cuomo announced that the New York Department of Financial Services (DFS or Department) proposed a rule requiring brokers to put their customers’ best interests first in life insurance and annuity transactions.
Companies across many different industries are starting to look toward blockchain technology as a way to conduct business more effectively, efficiently, and securely. As a result, there are new blockchain technology startups and strategic partnerships being established at break-neck speed. And, like any burgeoning industry, there seem to be new innovations introduced almost every day.
Nanette Aguirre, corporate shareholder, will participate in the Florida Alternative Investment Association (FLAIA) Global Perspective 2018 Conference in Miami, FL, Dec. 5. Aguirre will participate as a speaker and provide an update on developments in current regulation and market trends. Aguirre is joined by a series of panelists from private funds who will address the global trading market. Greenberg Traurig is a sponsor of the program. Aguirre is a board member of FLAIA.
Jennifer Weddle and Gil Rudolph, Greenberg Traurig, LLP shareholders, will participate in the 2017 Tribal Financial Regulators Conference in Minneapolis, Nov. 30. Rudolph and Weddle will speak in the session titled “Hot Topics in Federal Consumer Protection and Best Practices for Addressing All That is in Third Party Vendor Contracts.” The conference brings together tribal financial regulators who engage in consumer lending and other financial services from tribes throughout the country.
Nanette Aguirre, Corporate Shareholder, will participate in the Fall 2017 Minorities in Restructuring and Alternative Investments (MRAI) Networking event in New York, NY, Nov. 30. Aguirre will participate in the program titled “Industries of the Future: How new technology and thinking will come of age and disrupt the status quo.” A panel of distinguished speakers from an array of leading private funds and financial institutions will address how their internal teams and investors are making demands in the Fintech space (blockchain/smart contracts) and the regulatory developments affecting new technology. Aguirre is a board member of MRAI.
Maria Sendra, a shareholder in the Silicon Valley office of global law firm Greenberg Traurig, LLP, will speak at Blockchain Expo North America 2017, at the Santa Clara Convention Center. The expo will feature interactive panel discussions and solution-based case studies with a focus on learning and building partnerships in the emerging blockchain space, and will explore the industries that are set to be disrupted most by this new technology. Sendra will participate in the “What are the Regulatory Implications of Using Blockchain Technologies,” panel Nov. 29. Greenberg Traurig is also a sponsor of the expo.