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Market SolutionSEditorDorcas Pearce

Contributing Editors*Marc-Alain GaleazziBarbara R. Mendelson

Market Solutions is a quarterly newsletter about the activities of the Financial Markets Association as well as legislative/regulatory developments of interest to FMA members. The opinions expressed in this publication are those of the authors, not necessarily those of the Association and are not meant to constitute legal advice. Market Solutions is provided as a membership service of the Financial Markets Association, 333 2nd Street, NE - #104B, Washington, DC 20002, [email protected], 202/544-6327, www.fmaweb.org. Please let us have your suggestions on topics you would like to see addressed in future issues.

©2014, Financial Markets Association

Volume 23, Number 1 Financial Markets Association March 2014

Route to: ❏ Accounting ❏ Audit ❏ Compliance ❏ EDP ❏ Funds Management ❏ Operations ❏ Sales/Training ❏ Training ❏ Trust

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The SEC’s final Municipal Advisor Rules, effective July 1, 2014, apply to

many of the advisory services and products provided by banks and trust companies to municipal entities, such as state and local governments, and to “obligated persons” who have payment obligations in connection with municipal bond offerings.

Municipal advisory activities include advice about the issuance of municipal securities, plans and programs for the investment of the proceeds of municipal securities, such as investment in collective investments or common trust funds, and transactions in guaranteed investment contracts and derivatives.

There are exemptions for some traditional banking services, but other municipal advisory activities of banks and trust companies will require registration as a municipal advisor. Banks and trust companies (collectively, “banks”) that do business with municipal entities and obligated persons should review the rules and the nature of their services to those persons to determine whether they are required to register.

Statutory Background

The rules implement provisions in the Dodd-Frank Act amending Section 15B of the Securities Exchange Act of 1934 (“Exchange

What Banks and Trust Companies Need to Know About the SEC’s New Municipal Advisor Rules

By Peter W. LaVigne, Thomas J. LaFond and Brian Baum

Act”) to require registration of “municipal advisors,” a new class of regulated persons that, among other things, provide advice to or on behalf of a municipal entity or “obligated person” with respect to municipal financial products or the issuance of municipal securities.

The municipal advisor provisions of Section 15B, including the registration requirements, became effective on October 1, 2010. Since that date, municipal advisors have been required to register under temporary interim rule 15Ba2-6T, using Form MA-T. In separate rulemaking, the SEC amended rule 15Ba2-6T to provide that it will expire on December 31, 2014.

Section 15B provides exceptions from the definition of “municipal advisor” for some categories of persons, such as investment advisers and broker-dealers serving as underwriters, but does not include an exception for banks. This raised a concern that banks could be required to register as municipal advisors for providing traditional banking and fiduciary services to municipal entities or obligated persons, and many banks have temporarily registered as municipal advisors. The Municipal Advisor Rules as adopted contain an exemption for some activities of banks, and also permit banks that are required to register as municipal advisors to register a separately identifiable department or division.

LAST CHANCE TO REGISTER for FMA’s SECURITIES COMPLIANCE SEMINAR

April 23 – 25, 2014 ■ Nashville Marriott Hotel (at Vanderbilt University) ■ Nashville, Tennessee

Market SolutionSMarket SolutionS

In This Issue2014 Securities Compliance Seminar ..................................... 17

2014 Legal and Legislative Issues Conference ...................... 19

Job Bank ........................................ 6

Legislative/Regulatory Actions ..... 2

New Members ....................2,7,9,13

Program Update .......................... 17

Sponsor Acknowledgement ........ 19

Watch For ................................... 14

Who’s News ................................. 13

Established in 1991, FMA is the leading association specifically dedicated to meeting the special and unique needs of banks and bank-affiliated securities firms.

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FMA WelcomesNew Members!

Sara Andres Capital One ShareBuilder, Inc. and Capital One Advisor, LLC

Deborah Parker Bailey Deloitte & Touche LLP

Alyssa Ballis Thrivent Financial

Joanna Belbey Actiance, Inc.

Mark Carberry Neal, Gerber & Eisenberg LLP

Francois Cooke ACA Compliance Group

Leigh Davis-Schmidt Zions Direct, Inc.

Thomas DiLeonardo KPMG LLP

In this issue, we address various selected developments in connection with the Enhanced Prudential Standards under Section 165 of the Dodd-Frank Act and Title VII of the Dodd-Frank Act, and provide an update from the Consumer Financial Protection Bureau (“CFPB”).

ENHANCED PRUDENTIAL STANDARDS

Enhanced Prudential StandardsIn February 2014, the Federal Reserve Board issued a final rule to implement Section 165 of the Dodd-Frank Act, which requires the Federal Reserve to establish enhanced prudential standards for large financial institutions that increase in stringency based on the systemic footprint and risk characteristics of the financial institution. The enhanced prudential standards are designed to prevent or mitigate risks to U.S. financial stability that could arise from the material financial distress or failure, or ongoing activities of, large, interconnected financial institutions. These standards generally apply to bank holding companies and foreign banking organizations (“FBOs”) with global consolidated assets of $50 billion or more, and include risk-based capital requirements and leverage limits, liquidity requirements, risk management requirements, and stress testing. The final rule also establishes risk-committee requirements and capital stress testing for certain bank holding companies and FBOs with total consolidated assets of less than $50 billion but $10 billion or more.

In addition, the final rule imposes a conditional debt-to-equity limit of not more than 15-to-1, upon a determination by the Financial Stability Oversight Council that a U.S. bank holding company or FBO that is subject to the final rule poses a “grave threat” to U.S. financial stability, and that the debt-to-equity limit is necessary to mitigate that risk. Upon such determination, a company generally would

be expected to make a good faith effort to increase equity capital through limits on distributions, share offerings, or other capital raising efforts prior to liquidating margined assets in order to achieve the required ratio.

Capital RequirementsUnder the final rule, U.S. bank holding companies with total consolidated assets of $50 billion or more must comply with, and hold capital commensurate with the requirements of, any regulations by the Federal Reserve relating to capital planning and stress tests.

FBOs with $50 billion or more in worldwide assets must certify to the Board that they meet consolidated capital adequacy standards established by their home country supervisors that are consistent with the Basel Capital Framework. Risk Management and Risk Committee RequirementsSuch U.S. bank holding companies must maintain a risk committee that reports directly to the board of directors. The risk committee must have at least one member with risk management experience and one “independent” member. Among other requirements, the risk committee must approve and periodically review the risk-management policies of the bank’s global operations, and must oversee the operation

Legislative/Regulatory Actions

This column was written by lawyers from Morrison & Foerster LLP to update selected key legislative and regulatory developments affecting financial services and capital markets activities. Because of the generality of this column, the information provided herein may not be applicable in all situations, and should not be acted upon without specific legal advice based on particular situations.


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SEC’s New Municipal Advisor Rules…

Continued from Page 1


Banks may undertake a variety of activities related to municipal entities (as defined in Section 15B(e)(8) of the Exchange Act) and must therefore pay special attention to the municipal advisor rules to ensure compliance. For example, banks may take deposits from and issue letters of credit to municipal entities, manage collective funds, common trust funds or other investment accounts that include assets contributed by municipal entities, enter into repurchase agreements with municipal entities, advise municipal entities regarding derivatives contracts or guaranteed investment contracts (“GICs”) or enter into derivatives contracts or GICs on a principal basis with municipal entities. Although not all of these activities require that the bank register as a municipal advisor, any bank that interacts with a municipal entity should review the final rules to ensure that its activities are in compliance.

The Municipal Advisor Rules were originally effective on January 13, 2014 but the SEC stayed the rules until July 1, 2014. As discussed below in the section on “Registration Process and Timing,” permanent registration filings will be required to be made by temporary registrants based on their temporary registration numbers in the months of July through October 2014 and by persons not previously registered beginning October 1, 2014. Although the Municipal Advisor Rules are not effective until July 1, banks that are acting as municipal advisors within the clear meaning of Section 15B may not wait until July 1 to file for temporary registration.

Municipal Advisor Definition

The term “municipal advisor” is defined by Section 15B to mean a person, other than a municipal entity or employee of a municipal entity, that provides advice to or on behalf of a municipal entity or obligated person (a person committed to support payment of the obligations on municipal securities sold in an offering) with respect to municipal financial products or the issuance of municipal securities, or undertakes a solicitation of a municipal entity or obligated person.

“Municipal financial products” mean municipal derivatives, GICs and investment strategies. Investment strategies include plans or programs for the investment of proceeds of municipal securities other than municipal derivatives or GICs, and the recommendation of and brokerage of municipal escrow investments. The term “municipal entity” is defined broadly in Section 15B(e)(8) and includes any state, political subdivision of a state, or municipal corporate instrumentality of a state, including state or municipal retirement plans and issuers of municipal

securities. As a result, persons that provide advice to, or solicit the purchase of certain services by, a state or municipal subdivision or instrumentality that does not issue securities may still be considered municipal advisors.

The “municipal advisor” definition is “broad,” in the

words of the SEC and, absent an exclusion, would include many ordinary banking services provided to municipal entities and obligated persons.

Limited Bank Exemption

Rule 15Ba1-1(d)(3)(iii) provides an exemption from the definition of municipal advisor for any bank to the extent that it provides advice with respect to:

• investments held in a deposit account, savings account, certificate of deposit, or other deposit instrument issued by a bank;

• any extension of credit to a municipal entity or obligated person, including the issuance of a letter of credit, the making of a direct loan, or the purchase of a municipal security by the bank for its own account;

• funds held in certain sweep accounts; or

• any investment made by a bank acting as an indenture trustee or in a similar capacity.

Other activities of banks providing advice to municipal entities or obligated persons are not exempt. The adopting release (SEC Release No. 34-70462) explicitly states that “the Commission is not

“There are exemptions for some traditional banking services, but other municipal advisory activities of banks

and trust companies will require registration as a municipal advisor.”


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exempting from registration [as a municipal advisor] banks that engage in municipal advisory activities, including without limitation banks that provide advice to municipal entities or obligated persons with respect to the issuance of municipal securities, or banks that provide advice with respect to municipal derivatives, unless the bank qualifies for another exclusion or exemption.”

Advice to a Municipal Entity

The statute does not define what constitutes “advice” to a municipal entity. Rule 15Ba1-1(d) provides an “advice standard” that excludes “the provision of general information that does not involve a recommendation regarding municipal financial products or the issuance of municipal securities (including with respect to the structure, timing, terms and other similar matters concerning such financial products or issues).”

Accordingly, a person may provide such general information to a municipal entity or obligated person without registering as a municipal advisor. However, specific advice to a municipal entity or obligated person, for example, about the purchase of GICs, municipal derivatives or investment strategies other than bank deposit and savings accounts could cause a bank to be deemed a municipal advisor.

Investment Strategies

The limited bank exemptions in the final rules do not cover investment advisory or management services. A bank that manages, or provides investment advice with respect to, assets of a municipal entity would need to determine whether such assets constitute proceeds of municipal securities or municipal escrow investments, in evaluating whether the bank is a municipal advisor.

Moreover, the adopting release clarified that the term “investment strategies” includes not only the provision of advice to a separately managed account but also the management of pooled investment vehicles, as when acting as a trustee of

collective investment or common trust funds, so that an advisor to a pooled investment vehicle is a municipal advisor if the vehicle contains proceeds of an issuance of municipal securities or municipal escrow investments, regardless of whether the vehicle also contains investments from persons that are not municipal entities. Therefore, a bank that manages or advises a pooled investment vehicle (including a collective investment fund or common trust fund) would be required to register as a municipal advisor if the vehicle includes proceeds of municipal securities or municipal escrow investments.

The final rules provide that when the proceeds of an issuance of municipal securities are spent to carry out their authorized purpose, they cease to be proceeds of municipal securities. The industry is awaiting guidance from the SEC concerning whether proceeds of municipal securities invested in state and local pension plans have been “spent” or

remain the proceeds of municipal securities. The final rules provide an exception for advice provided to Section 529 college savings plans.

In determining whether or not advised or managed assets include proceeds of municipal securities, a bank may rely on representations in writing made by a knowledgeable official of the municipal entity or obligated person whose funds are to be invested regarding the nature of such funds, provided the bank has a reasonable basis for such reliance.

Obligated Persons

A bank may be a municipal advisor if it provides non-exempted advisory services to an obligated person. An obligated person, as noted above, is a person—often, but not always, a bank—committed to support payment of the obligations on municipal securities sold in an offering. Rule 15Ba1-1(k) excludes the following from the definition of obligated person:

• a person who provides municipal bond insurance, letters of credit or other liquidity facilities;


“Section 15B provides exceptions from the definition of ‘municipal advisor’ for some categories of persons, such as

investment advisers and broker-dealers serving as underwriters, but does not

include an exception for banks.”


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• a person whose financial information or operating data is not material to a municipal securities offering, without reference to any municipal bond insurance, letter of credit, liquidity facility or other credit enhancement (for consistency with Rule 15c2-12 disclosure obligations for municipal securities); or

• the federal government.

The adopting release provides guidance about when a person becomes an obligated person, stating that a bank or other person that advises a client about conduit financing or other financing options would not be providing municipal advisory services to an “obligated person” until the client has begun the process of applying to, or negotiating with, a municipal entity to issue conduit bonds on behalf of the client. Similarly, the SEC has clarified that a person is not an obligated person with respect to unrelated matters.

Banks should have processes to determine whether persons to whom they provide financial advice or services other than exempted services are obligated persons with respect to the subject matter of the advisory services.

Registration of Separately Identifiable Departments or Divisions

Rule 15Ba1-1(d)(4) provides that if a bank engages in municipal advisory activities exclusively through a “separately identifiable department or division” (“SID”) that meets certain requirements, the SID will be deemed to be the municipal advisor rather than the bank as a whole. A SID is that unit of the bank that conducts all of the municipal advisory activities of the bank, provided that the following requirements are met:

• Supervision. The unit is under the direct supervision of an officer or officers designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank’s municipal advisory activities, including

the supervision of all bank employees engaged in the performance of such activities.

• Separate Records. All of the records relating to the bank’s municipal advisory activities are separately maintained in, or extractable from, the unit’s own facilities or the facilities of the bank,

and such records are so maintained or otherwise accessible as to permit independent examination thereof and enforcement of applicable provisions of the Exchange Act, the SEC rules and regulations under the Act and the rules of the Municipal Securities Rulemaking Board (“MSRB”) relating to municipal advisors.

Registration Process and Timing

Municipal advisors must submit registration applications on newly adopted Form MA through EDGAR. The SEC has staggered the timing during which municipal advisors must register, with registration of advisors previously registered on temporary Form MA-T required during the months of

“…persons that provide advice to, or solicit the purchase of certain services

by, a state or municipal subdivision or instrumentality that does not issue

securities may still be considered municipal advisors.”


o


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July, August, September or October 2014, depending on the temporary registration number that a municipal advisor received when it registered pursuant to Rule 15Ba2-6T.

Firms that begin municipal advisory activities before October 1, 2014 must register on temporary Form MA-T and then on new Form MA during the applicable period as described above. Firms that begin municipal advisory activities on or after October 1, 2014 and do not have a temporary registration number as of October 1, 2014 must register with the SEC on Form MA prior to engaging in municipal advisory activities.

“The statute does not define what constitutes ‘advice’ to a

municipal entity.”

Job bank

Position SoughtChief audit executive with high integrity and ethical values seeking a position to lead or to build a team of internal audit professionals, with ability to attract talent promptly. Successful track record of progressive experience working with large international and public companies, particularly in the financial services industry. Results oriented leader with superior business acumen, dynamic communication skills and a proven ability for developing talent and motivating professionals. Cost effective delivery and execution of internal audit services. Open to east coast and mid-Atlantic locations including New York City. Contact Steve Homza at [email protected] or 410/837-1515.

Registered municipal advisors must also become members of the MSRB. The MSRB has published for comment draft Rule G-42, on the duties and conduct of non-solicitor municipal advisors, draft Rule G-44, on

supervisory and compliance obligations of municipal advisors, and amendments to Rules G-8 (books and records) and G-9 (preservation of records) to add references to the books and records required to be maintained by municipal advisors.

Banks that registered on temporary Form MA-T but determine that they are exempt under the new rules or are otherwise no longer required to be registered may withdraw by filing a Form MA-T indicating withdrawal. If a person that is registered on temporary Form MA-T does not withdraw and does not register on Form MA by the end of the filing period applicable to it, the person’s temporary registration will expire 45 days after the end of the applicable filing period. ■

Mr. LaVigne is a partner in the New York office of Goodwin Procter LLP. He advises investment banks, securities brokers, banks and private investment managers in securities distributions, broker-dealer regulation and other securities matters. Mr. LaFond is a partner in Goodwin Procter’s Boston office. He counsels financial services firms on fiduciary, regulatory and securities matters and advises on mergers and acquisitions of asset managers. Mr. Baum is a Senior Attorney in Goodwin Procter’s New York office, and advises clients with respect to swaps transactions, regulation under the Commodity Exchange Act and other regulatory matters. Information about the authors and Goodwin Procter LLP can be found at www.goodwinprocter.com.


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of its global risk-management framework that is commensurate with the structure, risk profile, complexity, and size of the bank. Such bank holding companies must also appoint a chief risk officer who meets certain qualifications and performs specified risk management functions.

An FBO with $50 billion or more in total consolidated assets, or, if publicly traded, $10 billion or more, but less than $50 billion in combined U.S. assets, must annually certify to the Board that it maintains a risk committee of its global board of directors, on a standalone basis or as part of an enterprise-wide risk committee that (i) oversees the risk management policies of the combined U.S. operations, and (ii) includes at least one member with extensive experience relating to risk exposures of large, complex firms. The FBO must take appropriate measures to ensure that its combined U.S. operations implement such risk management policies and provide the U.S. risk committee with sufficient information to carry out its responsibilities. If an FBO does not comply with these requirements, the Board may impose requirements, conditions, or restrictions relating to the activities or business operations of the combined U.S. operations of the FBO.

An FBO with $50 billion or more in combined U.S. assets is required to have a U.S. risk committee that, among others, approves and periodically reviews the risk management policies of the combined U.S. operations and oversees the risk management framework of such combined U.S. operations. In addition, such FBO with a large U.S. footprint must appoint a U.S. chief risk officer who must be resident in the United States. The final rule sets forth responsibilities for the U.S. risk committee and for the U.S. chief risk officer.

Liquidity Risk-Management RequirementsAmong other requirements, U.S. bank holding companies subject to the final rule must establish and maintain an independent liquidity risk management review function, produce comprehensive cash flow projections, establish and maintain a contingency funding plan, monitor sources of liquidity risk and establish liquidity risk limits consistent with liquidity risk tolerance, conduct liquidity stress tests, and maintain a liquidity buffer of unencumbered highly liquid assets sufficient to meet projected net stressed

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FMA WelcomesMore New Members!

Buddy Doyle Oyster Consulting, LLC

Brian Edwards Wells Fargo

Connie Edwards Wells Fargo Securities

Laura Gellman Bank of America

Mark Griffin Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

Patricia Harrison Simmons & Company International

Jeffrey Holik PNC Financial Services Group, Inc.

Ana-Maria Ignat Morrison & Foerster LLP

cash-flow need over a 30-day planning horizon. The final rule also requires the board of directors, risk committee, and senior management to perform specific actions on a periodic basis.

FBOs with $50 billion or more in worldwide assets but less than $50 billion in U.S. assets, must conduct internal liquidity tests on their consolidated operations or combined U.S. operations, consistent with the Basel Committee principles on liquidity risk-management and other requirements. For FBOs with combined U.S. assets of $50 billion or more, stress testing is required for the FBO’s combined U.S. operations as a whole, its U.S. branches and agencies on an aggregate basis, and its U.S. intermediary holding company, if any (see below). FBOs with combined U.S. assets of less than $50 billion must conduct the test and report the results to the Board on an annual basis; FBOs with more than $50 billion U.S. assets must do so monthly.

Capital Stress-Test RequirementsU.S. bank holding companies subject to the final rule must also conduct supervisory and company-run stress tests, which are a process to assess the potential impact of scenarios on the consolidated earnings, losses, and capital of a company over a nine-quarter planning horizon, taking into account the current condition of the company and its risks, exposures,


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strategies, and activities. Scenarios are those sets of conditions that affect the U.S. economy or the financial condition of a company, including but not limited to baseline, adverse, and severely adverse scenarios.

Under the final rule, FBOs with $10 billion or more in total consolidated assets are subject to an annual capital stress testing regime. However, in recognition of their home-country supervisory regime, the final rule relies on the home-country capital stress testing regimes applicable to such FBOs, if the home-country stress testing regime has governance and control requirements and is conducted by the home-country supervisor, or is a company-run test reviewed and evaluated by that supervisor. To the extent that an FBO’s home-country capital stress test standards do not meet the standards set forth in the final rule or the FBO fails to meet home-country standards, the Board may subject the FBO to an asset maintenance requirement for its U.S. branches and agencies, and may require the FBO to conduct an annual stress test of its U.S. subsidiaries and to meet certain Board reporting requirements. FBOs with more than $50 billion in U.S. assets must make certain annual reports to the Board regarding their home-country stress tests and are subject to additional requirements if the U.S. operations are in a net “due from” position.

Intermediate Holding Company RequirementIn addition, the final rule requires FBOs with U.S. non-branch assets, as defined in the final rule, of $50 billion or more to form a U.S. intermediate holding company (“IHC”) and to transfer their ownership interests in any U.S. subsidiary (excluding so-called section 2(h)(2) companies and branch subsidiaries related to debt previously contracted) to the IHC. The final rule imposes enhanced risk-based and leverage capital requirements on the IHC that are comparable to those required for similarly-sized U.S. bank holding companies. In addition, it requires an IHC to establish and maintain a risk committee that approves and periodically reviews the risk management policies and oversees the risk-management framework of the IHC. The IHC must appoint an experienced U.S. chief risk officer and the risk committee must have qualified individuals, including at least one member who is independent of the FBO. Under the final rule, IHCs are also subject

to the liquidity risk management and stress testing requirements applicable to FBOs with U.S. assets of $50 billion or more.

Mid-Size Bank Holding CompaniesSimilar to smaller FBOs as described above, under the final rule, U.S. bank holding companies with total consolidated assets over $10 billion and less than $50 billion are subject to stress testing, and if publicly traded, risk committee requirements that are less stringent than those applicable to larger entities.

Changes from the ProposalAmong other changes, the final rule differs from the proposal by extending compliance dates for certain requirements of foreign banking organizations and defers action on single-counterparty credit limits and early remediation standards. The final rule also raises the threshold for requiring an FBO to establish an intermediate holding company and requires an implementation plan to be submitted by January 1, 2015. With the exception of the supervisory and company-run stress test requirements, the enhanced prudential standards do not apply to nonbank financial companies supervised by the Federal Reserve, and such requirements will be separately imposed by rule or order.

For more information, read our client alert at http://www.mofo.com/files/Uploads/Images/140224-Final-Rule-FBO-Standards.pdf.

Interagency Guidance on Company-Run Stress Tests for Mid-Size InstitutionsIn February 2014, the Federal Reserve, OCC, and FDIC issued supervisory guidance on implementing company-run stress tests required under Section 165(i)(2) of the Dodd-Frank Act for banking organizations with total consolidated assets of more than $10 billion but less than $50 billion. These companies are required to perform their first Dodd-Frank Act stress tests by March 31, 2014. The guidance intends to assist companies in complying with the stress test rules and conducting stress tests that are appropriate for their risk profile, size, complexity, business mix, and market footprint.

The guidance provides illustrative examples of satisfactory practices and discusses supervisory





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expectations regarding Dodd-Frank stress test timelines, scenarios, methodologies, and practices, estimating the potential impact on regulatory capital levels and capital ratios, controls, oversight, documentation, reports to supervisors, and public disclosure of Dodd-Frank Act stress tests. The supervisory guidance is available at http://www.gpo.gov/fdsys/pkg/FR-2014-03-13/pdf/2014-05518.pdf.

Enhancing Transparency in the Federal Reserve’s Applications ProcessIn addition to the enhanced prudential standards, in February 2014, the Federal Reserve issued guidance on its approach to applications and notices that may not satisfy statutory requirements for approval of the proposal or otherwise raise supervisory or regulatory concerns.

The guidance, which applies to state member banks, bank and savings and loan holding companies (including their nonbank subsidiaries), and foreign banks with operations in the United States, discusses issues that could result in less than satisfactory ratings, and factors considered in the evaluation of applications and notices. It states that when the Federal Reserve staff identifies substantive issues under the statutory factors that must be evaluated in an application or notice, often such issues are resolved after informing the applicant and receiving additional information or changes to the proposal. However, in those instances in which the staff would recommend denial of the proposal (if substantive issues are not resolved during the application review process), the staff usually informs the filer before final Board action, to give the filer the option to withdraw. Withdrawals are noted on the Federal Reserve’s public H.2 Release.

The Federal Reserve will start publishing a semi-annual report that provides pertinent information on applications and notices filed with the Federal Reserve to provide better insight into the issues that could prevent the Federal Reserve from acting favorably on a proposal. The report will include statistics on the length of time taken to process various applications and notices and the overall volume of approvals, denials, and withdrawals, and provide the primary reasons for withdrawals. The first report will be released in the second half of 2014 and include filings acted on from January through

June 2014. The complete guidance is available on the Federal Reserve’s website at http://www.federalreserve.gov/bankinforeg/srletters/sr1402.htm.

TITLE VIIThe phase-in of Title VII of the Dodd-Frank Act

and the CFTC’s regulations thereunder continues. The most significant event in recent months has been the introduction of mandatory trading of many interest rate swaps and index credit default swaps on swap execution facilities (“SEFs”). Also important has been the appearance of enhanced cooperation between the CFTC and EU authorities in their attempts to harmonize their swaps regulatory regimes.

The implementation of the SEF execution mandate, which is intended to promote pre-trade price transparency, marks a significant departure from historical swap trading practices. Swaps that are required to be cleared must also be executed on a designated contract market (“DCM”) or SEF, unless the relevant swap is not available to trade on any DCM or SEF or an exception to mandatory clearing applies. The Dodd-Frank Act defines a SEF, in part, as a trading system or platform in which multiple participants have the ability to execute


FMA Welcomes

More New Members!

Daniel Johnson Credit Suisse

Marianne Kelly UMB Bank, n.a.

Ally Kidik KeyBank

Howard Kirkham Federal Reserve Bank of Chicago

Gary Klein NEXT Financial Group, Inc.

Daniel Nathan Morrison & Foerster LLP

Brian Portman Ernst & Young LLP

Julie Wilson Portera Maynard, Cooper & Gale, PC


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or trade swaps by accepting bids and offers made by multiple participants. CFTC rules provide that transactions that are required to be executed on SEFs must generally be executed either by means of an “Order Book,” defined to include a trading platform in which all market participants have the ability to enter multiple bids and offers, observe or receive bids and offers of other market participants, and transact on such bids and offers, or a “Request for Quote System,” a platform in which a market participant transmits a request for a quote to buy or sell a specific instrument to multiple market participants.

In recent weeks, determinations by SEFs that certain transactions were “available to trade,” submitted late last year, became effective. As a result, starting on February 15, many of the transactions that the CFTC has designated as being subject to mandatory clearing, including many interest rate swaps and index credit default swaps, became subject to mandatory SEF execution by many market participants. Reports indicated that, while volume was somewhat lower than usual in certain cases, the phase-in of mandatory SEF trading did not cause any major market disruptions.

In addition, the CFTC and its EU counterparts appear to have made progress toward harmonizing their rules, including with respect to SEFs, or, as they are known within the European regulatory scheme, Multilateral Trading Facilities (“MTFs”). In a guidance letter last November, the CFTC stated its expectation that a multilateral swaps trading platform located outside the United States providing U.S. persons with the ability to trade or execute swaps on or pursuant to the rules of the platform, either directly or indirectly through an intermediary, would register as a SEF or DCM. This meant that many multilateral swaps trading platforms outside of the U.S. are, under CFTC guidance, required to register with the CFTC. Having created this requirement last year, the CFTC in February of this year helped to resolve many of the issues caused by the requirement in relation to EU trading facilities by issuing two no-action letters that, among other things, subject to conditions, provide relief from the registration requirement to EU-regulated MTFs overseen by “competent authorities.”

The market has perceived these no-action letters to reflect progress made by the CFTC and EU authorities in implementing the “path forward”

statement for derivatives market reforms that they issued in July 2013. More broadly, at the G20 finance meeting held in February of this year, the G20 committed to cooperate across jurisdictions with a renewed focus on timely and consistent implementation supported by meaningful peer reviews, with particular attention to OTC derivatives reform.

A greater willingness to recognize foreign regulations may also have played a role in recent steps taken by the CFTC to blunt the effects of its controversial interpretation of its authority with regard to swaps between two non-U.S. persons. The interpretation, released last November, stated that even a swap between a non-U.S. swap dealer and a non-U.S. person that is booked in a non-U.S. branch of the dealer is subject to the CFTC’s transactional rules, if the non-U.S. swap dealer uses personnel or agents located in the U.S. to negotiate, arrange or execute the swap. This position roiled the market and led many to question the CFTC’s interpretation of the scope of its authority. However, a CFTC no-action letter, issued early this year, extended relief until September 15, 2014 to non-U.S. swap dealers failing to comply with the CFTC’s transactional requirements in relation to swaps with many non-U.S. persons. In addition, the CFTC also issued a request for comment on whether the Commission should adopt the advisory as its policy after all.

CFPB

Are You a Larger Participant of the Remittance Transfer Market?In January 2014, the CFPB proposed another in its series of “larger participant rules.” The proposal would specifically allow the CFPB to supervise nonbank international money transfer providers that provide more than one million transfers annually. Such authority would allow the CFPB to supervise and examine designated nonbanks for compliance with the Electronic Fund Transfer Act and Regulation E, which includes the “Remittance Transfer Rule,” among other federal consumer financial laws, as well as the Dodd-Frank Act prohibition on unfair, deceptive, or abusive acts or practices.





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On October 22, 2013, the CFPB released Remittance Transfer Rule exam procedures for use in the CFPB’s examinations of entities within its supervisory authority. If adopted, the proposal would enable the CFPB to use these exam procedures – the same exam procedures the CFPB uses for the largest banks and credit unions providing remittance transfers currently subject to its supervisory authority – to examine nonbank larger participants in the international money transfer market.

Using different terminology than the Remittance Transfer Rule (“international money transfer” and “international money transfer provider,” as compared to “remittance transfer” and “remittance transfer provider”), the proposal also differs substantively from the Remittance Transfer Rule. The proposal would cover all transfers without regard to the amount of the transfer, while the Remittance Transfer Rule excludes transfers of $15 or less (i.e., the Dodd-Frank Act’s small-value transaction exclusion). Based on “highly approximated estimates,” the CFPB believes that approximately 25 nonbanks would be covered by this proposed rule. Comments on this larger participant rule must be received by April 1, 2014.

For more information, read our client alert at http://www.mofo.com/files/Uploads/Images/140124-CFPB.pdf.

CFPB Explores Expansion of HMDA ReportingIn February 2014, the CFPB announced that it is considering a significant expansion of the Home Mortgage Disclosure Act (“HMDA”). Specifically, the CFPB is considering requiring reporting of the additional data recommended in the Dodd-Frank Act (total points and fees, rate spreads, certain features perceived as risky, loan term, property value, etc.), as well as a long list of additional data (e.g., debt-to-income and combined loan-to-value ratios, automatic underwriting system results, etc.). The CFPB also is considering requiring all banks and nonbanks to report if they make 25 or more mortgage loans in a year. Per the CFPB, the information “would make it easier to identify new consumer protection concerns . . . and to assess whether consumers have equal and fair access to mortgages.”

The proposal sparked concern in the industry, not only because of the obvious privacy concerns,

but also because of the operational burdens and litigation risks it may impose, especially in light of the Department of Housing and Urban Development’s new disparate impact rule and the CFPB’s stepped-up HMDA enforcement.

For more information, read our client alert at http://www.mofo.com/files/Uploads/Images/131015-HMDA-Violations.pdf.

Enforcement Action Cites Mortgage Insurers for RESPA ViolationsAlso in February 2014, the CFPB filed an administrative enforcement action against PHH Corporation, alleging a nearly 15-year “mortgage insurance kickback scheme” by its mortgage origination and reinsurance subsidiaries involving “hundreds of millions of dollars” in allegedly improper reinsurance fees. This action follows on the heels of the CFPB’s consent orders totaling $15.5 million with five mortgage insurers, settling allegations that the insurers’ agreements with mortgage originators violated the Real Estate Settlement Procedures Act (“RESPA”). Captive reinsurance is perfectly legal, but CFPB and HUD enforcement actions reflect these agencies’ distrust of these arrangements and willingness to push the boundaries of Section 8.

Section 8 of RESPA prohibits paying a referral fee in connection with a residential mortgage transaction, including, as interpreted by the CFPB, mortgage insurance transactions. Specifically, Section 8, as promulgated by Regulation X, prohibits “accept[ing] any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise” in exchange for the referral of any real estate settlement business. A Section 8 violation may result in civil and/or criminal liability, including (1) a fine of up to $10,000, (2) imprisonment up to one year, and (3) civil liability of up to three times the amount of the amounts paid for the settlement service at issue.

The newly public docket for this matter indicates that PHH is fighting the charges and filed a motion to dismiss or for summary judgment, arguing that (1) the CFPB’s Office of Administrative Adjudication lacks jurisdiction over the claims; (2) the CFPB’s earlier consent orders with the mortgage insurers bar the action; (3) the claims are time-barred; and (4) the





12Market SolutionS

CFPB failed to plead a viable RESPA claim because, among other reasons, PHH actually paid out more than $156 million in claims in connection with its reinsurance agreements.

For more information, read our client alert at http://www.mofo.com/files/Uploads/Images/140203-CFPB-Targets-Mortgage-Reinsurance.pdf.

Bulletin Reminds Furnishers of Duty to InvestigateOn Thursday, February 27, the CFPB released Bulletin 2014-01 detailing additional expectations for furnishers of data to consumer reporting agencies to conduct an investigation of consumer disputes (“Bulletin”), supplementing previous CFPB guidance on a furnisher’s duties under the Fair Credit Reporting Act (“FCRA”).

The Bulletin focuses on the furnisher obligation to conduct an investigation under Sections 623(a) and 623(b) of the FCRA. Section 623(a)(8)(E) of the FCRA requires a furnisher that is subject to such regulations and receives a notice of a consumer dispute to (1) conduct an investigation with respect to the disputed information, (2) review all relevant information provided by the consumer in connection with the dispute, (3) complete the investigation and report back to the consumer in the same time frame as would be required of a consumer reporting agency, and (4) promptly notify the relevant consumer reporting agencies and provide any corrections needed to make the disputed information accurate.

While reminding furnishers of their statutory and regulatory obligations to investigate information that has been identified by a consumer as potentially inaccurate, the Bulletin also warns furnishers against assuming that they have fulfilled their statutory obligation to conduct an investigation by merely directing a consumer reporting agency to delete the



disputed item. In this regard, the CFPB appears to signal that furnishers may not be able to avoid an FCRA violation by skipping an investigation and directing the consumer reporting agencies to delete the reported item, even if that action appears to mitigate the consumer harm. However, the Bulletin also states that such actions will not “generally” constitute an investigation, suggesting that the CFPB recognizes there may be some limited circumstances in which directing a consumer reporting agency to delete furnished information without an investigation will be an acceptable action.

A copy of the Bulletin may be found at http://files.consumerfinance.gov/f/201402_cfpb_bulletin_fair-credit-reporting-act.pdf, and an overview of previous FCRA guidance may be found at http://www.mofo.com/files/Uploads/Images/130909-Brave-New-World-for-Data-Furnishers.pdf.

CFPB Requests “Top” Credit Card Issuers Disclose Credit Scores In February 2014, the CFPB also announced that Director Cordray has written to “top” credit card issuers to request that they provide credit scores on their cardholder statements. In doing so, the letter indicates that the CFPB may not understand the data and underwriting models used by banks. For example, Director Cordray’s letter requests that the issuers make the credit scores on which they rely available to consumers. Yet in practice, many creditors do not rely solely on commercial credit scores to make underwriting decisions. Instead, some creditors use a combination of consumer reporting agency-produced credit scores and proprietary scores, while other creditors view consumers in risk tiers based upon information provided from consumer reporting agencies.

To save on printing/postage costs, FMA uses email “blasts” as much as possible to let our members and contacts know about our upcoming educational programs. FMA’s email program format necessitates that these “blasts” be addressed “To: Dorcas

Pearce/FMA” / “From: Dorcas Pearce/FMA” with the recipients in the “Bcc” section. Please make sure your technology department allows these emails, typically providing information on our annual Compliance Seminar and Legal & Legislative Issues Conference, to get through to you. Unless you are a FMA member, you should receive no more than 5–7 emails annually. If you no longer want to be on FMA’s distribution list, please contact Dorcas Pearce ([email protected] or 202/544-6327) to be deleted. At that time, please provide an alternate contact at your firm so that someone can route our emails appropriately…perhaps a training director or a compliance officer / internal auditor / attorney in the legal dept. Thanks for your help in keeping our costs in line and for getting our notices into the proper hands.



13Market SolutionS

Mountains of Mortgage Rules ImplementedIn general, the CFPB’s bevy of new mortgage rules took effect in January 2014. These rules include the CFPB’s Ability to Repay/Qualified Mortgage, 2013 Home Ownership and Equity Protection Act (“HOEPA”), Loan Originator, Equity Credit Opportunity Act (“ECOA”), Valuations, Truth in Lending Act (“TILA”), Higher Priced Mortgage Loans (“HPML”), Appraisals, Escrows, and TILA and Real Estate Settlement Procedures Act (“RESPA”), Servicing rules, and HUD’s separate QM rule. The rules are already reshaping the market with, for example, some lenders getting out of the non–qualified mortgage business altogether.

For those lenders still in the market, Morrison Foerster’s User Guide (http://www.mofo.com/files/Uploads/Images/130313-CFPB-Mortgage-Rules.pdf) summarizes the rules’ coverage, and the firm’s Regulatory Reform Glossary (http://www.mofo.com/files/Uploads/Images/131216-A-Regulatory-Reform-Glossary.pdf) defines the key terms and provides a list of resources for keeping up to date. ■

Matthew W. Janiga, Diana E. Whitaker, and James Schwarz contributed to this column.



FMA WelcomesMore New Members!

Michael Post MSRB

William Prickett Seyfarth Shaw LLP

Christopher Robertson Seyfarth Shaw LLP

Brian Rubin Sutherland, Asbill & Brennan LLP

James Sallah Sallah Astarita & Cox, LLC

Caesar Velasco

Jeff Walter U.S. Bancorp Investments, Inc.

Ann Wilson JJB Hilliard, WL Lyons, LLC

Who’s NewsBecky Dooley, formerly SVP & Chief Compliance Officer/Key Corporate Bank Compliance and Control at KeyBank, NA, has retired after 35 years in the financial services industry. Becky has moved to the Phoenix area where she plans to perfect her golf game and travel to visit her grandchildren, including the recent addition of twins. Congratulations and best of luck, Becky!

Long time FMA friend and supporter Doug Hanefeld recently turned 70. Congratulations!

Ben Kavanagh has been named External Reporting Manager in the Accounting Department at Frost Bank.

Stephen Luparello has been named Director of the SEC’s Division of Trading and Markets. He succeeds John Ramsay, formerly Acting Director of the division, who has left the SEC and plans to return to the private sector.

Daniel and Rachel Tannebaum welcomed their second daughter, Marin Fox, on February 18. Dan is Director and Leader of the U.S. Sanctions Practice at PricewaterhouseCoopers LLP. Congratulations!

Cindy Valasek, formerly SVP/Manager, Operational Risk/Finance, has been named Manager of Internal Control & Operational Risk in the Finance Division at BBVA Compass.

Blane Warrene has co-founded QuonWarrene, a firm advising the financial services industry on digital and technology matters — www.quonwarrene.com.

Michael Yanick, formerly Senior Examiner at the Federal Reserve Bank of Cleveland, has retired after 10 years of service. Before that, Mike was a SVP and Senior Trust Officer at FirstMerit Bank.


14Market SolutionS

FINRA Regulatory Notice 14-13 (March 25, 2014) – FINRA is updating the Regulatory Extension (REX) system to enable firms to file extension of time requests relating to new Securities Exchange Act Rule 15c3-3(d)(4). Firms may file such requests beginning April 2, 2014.

OCC Bulletin 2014-10 (March 25, 2014) – On January 14, 2014, the OCC, FRB, FDIC, SEC and CFTC approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities, notwithstanding the investment prohibitions of section 619 of the Dodd-Frank Act (the Volcker Rule). The interim final rule was published in the Federal Register on January 31, 2014, and becomes effective on April 1, 2014.

OCC Bulletin 2014-9 (March 25, 2014) – On December 10, 2013, the OCC, FRB, FDIC, SEC and CFTC issued jointly developed final regulations to implement section 619 of the Dodd-Frank Act (the Volcker Rule). The final regulations were published in the Federal Register on January 31, 2014, and become effective on April 1, 2014. National banks (other than certain limited-purpose trust banks), federal savings associations, and federal branches and agencies of foreign banks are required to fully conform their activities and investments to the requirements of the final regulations by the end of the conformance period, which the FRB has extended to July 21, 2015.

FINRA Regulatory Notice 14-12 (March 24, 2014) – FINRA announced updates of the interpretations of Financial and Operational Rules (Securities Exchange Act Rules 15c3-1, 15c3-3, 15c3-3a, 17a-3 and 17a-4).

FINRA Regulatory Notice 14-11 (March 19, 2014) – The SEC approved amendments to Uniform Branch Office Registration Form BR. The revised form becomes effective April 7, 2014.

FINRA Regulatory Notice 14-10 (March 19, 2014) – The SEC approved FINRA’s new consolidated supervision rules. The new Rules 3110, 3120, 3150 and 3170 replace NASD Rules 3010, 3012 and 3110(i) and other corresponding NYSE rule provisions. The new rules become effective on December 1, 2014. The text of the new rules is available at www.finra.org/notices/14-10.

CFTC Press Release 6882-14 (March 19, 2014) – The CFTC requested comment on the Commission’s swap data recordkeeping and reporting requirements under part 45 and related provisions.

MSRB Notice 2014-08 (March 17, 2014) – The MSRB requested comment on a proposal to establish qualification requirements for municipal advisor professionals. Comments should be submitted no later than May 16, 2014.

OCC Bulletin 2014-7 (March 14, 2014) – The OCC adopted interagency examination procedures reflecting new mortgage rules requirements.

March 14, 2014 – The MSRB is developing an interactive price comparison feature on its EMMA website.

MSRB Notice 2014-07 (March 12, 2014) – The MSRB received approval from the SEC to adopt new MSRB Rule G-47 (on time-of-trade disclosure obligations), new MSRB Rules D-15 and G-48 (on sophisticated municipal market professionals), and revisions to MSRB Rules G-19 (on suitability of recommendations and transactions) and G-8 (on books and records). The SEC also approved the deletion of interpretive guidance that is being substantively codified by these rule changes which will be archived and remain available for review on the MSRB’s website. The new and revised rules will take effect July 5, 2014.

SEC Press Release 2014-49 (March 12, 2014) – The SEC proposed rules to enhance the oversight of clearing agencies that are deemed to be systemically important or that are involved in complex transactions, such as security-based swaps.

SEC Press Release 2014-46 (March 10, 2014) – The SEC launched a new cooperation Enforcement Division initiative to encourage issuers and underwriters of municipal securities to self-report certain violations of the federal securities laws rather than wait for their violations to be detected.

OCC Bulletin 2014-6 (March 7, 2014) – Basel III Conforming Amendments – the OCC issued an interim final rule with request for comments (final rule) that makes technical and conforming amendments to its regulations governing national banks and federal savings associations. The final rule, which is effective March 31, 2014, amends various regulations in order to make those regulations consistent with the recently adopted Basel III Capital Framework.

Federal Reserve Press Release (March 5, 2014) – Three federal bank regulatory agencies issued final guidance describing supervisory expectations for stress tests conducted by financial companies with total consolidated assets between $10 billion and $50 billion. These medium-sized firms are required to perform their first stress tests under the Dodd-Frank Act by March 31, 2014.

March, 2014 – The MSRB is developing a professional qualification test for municipal advisor professionals. The MSRB will soon request comment on a proposal to establish certain key features of the exam with the goal of implementing a pilot exam in late 2014 or early 2015. The MSRB also plans to seek approval from the SEC to charge municipal advisor firms an annual fee of $300 per professional to be implemented during the second half of 2014 in parallel with the SEC’s permanent registration process for municipal advisors.

CFTC Press Release 6871-14 (February 28, 2014) – CFTC staff reissued FAQs on commodity options.

Watch For




15Market SolutionS

Watch For (Continued from page 14)

MSRB Notice 2014-05 (February 27, 2014) – The MSRB received approval from the SEC to amend, consolidate and streamline its multiple registration requirements and forms for municipal securities dealers and municipal advisors. The changes establish a single new MSRB registration rule, revised Rule A-12, and new Form A-12, and detail the process of registering with the MSRB and of updating certain key information pertaining to categories of registration, types of business and contact personnel. The changes require all MSRB regulated entities to verify and augment their existing registration information with the MSRB beginning May 12, 2014 and complete this process no later than August 10, 2014.

CFTC Press Release 6866-14 (February 26, 2014) – The CFTC’s Division of Swap Dealer and Intermediary Oversight issued a Staff Advisory on best practices for complying with the Gramm-Leach-Bliley Act security safeguards.

FINRA Regulatory Notice 14-09 (February 26, 2014) – FINRA requested comment on a proposed rule set for limited corporate financing brokers. The comment period expires April 28, 2014.

MSRB Notice 2014-04 (February 25, 2014) – The MSRB requested comment on proposed supervisory and compliance obligations for municipal advisors when engaging in municipal advisory activities. Comments on the MSRB’s supervision proposal, draft Rule G-44, are due no later than April 28, 2014.

Federal Reserve Press Release (February 25, 2014) – The Federal Reserve Board announced that results from the latest supervisory stress tests conducted as part of the Dodd-Frank will be released on March 20, and the related results from the Comprehensive Capital Analysis and Review, or CCAR, will be released on March 26. To see the instructions and scenarios for the 2014 Dodd-Frank Act stress tests and CCAR, go to www.federalreserve.gov/bankinforeg/stress-tests-capital-planning.htm.

MSRB Press Release (February 24, 2014) – The MSRB received approval from the SEC to collect additional data from underwriters of 529 college savings plans; effective February 24, 2015. New MSRB Rule G-45 requires 529 plan underwriters to submit new information to the MSRB electronically, including information regarding the plan’s assets, contributions, withdrawals, fee and cost structure and performance. The rule establishes a semiannual reporting period, with the first submission of the additional information due by August 30, 2015 (60 days after the end of the first reporting period of January 1 - June 30, 2015). The SEC also approved electronic Form G-45, as well as associated amendments to MSRB Rules G-8, on books and records, and G-9, on preservation of records.

Federal Reserve Press Release (February 21, 2014) – The FRB and OCC permitted certain banking organizations to begin using an “Advanced Approach” framework to determine their risk-based capital requirements. The Federal Reserve Board also issued a final rule clarifying that bank holding companies using the Advanced Approaches framework will incorporate those changes into the capital planning and stress testing cycles that begin October 1, 2015. The Board previously adopted two interim final rules requiring firms to incorporate the Advanced Approaches framework into their capital planning and stress testing cycles that begin October 1, 2014.

SEC Press Release 2014-35 (February 20, 2014) – The SEC announced that its OCIE is launching an initiative directed at investment advisers that have never been examined, focusing on those that have been registered with the SEC for three or more years.

FINRA Regulatory Notice 14-08 (February 20, 2014) – The SEC approved two rule changes to FINRA Rule 8312 to: 1) expand the categories of civil judicial disclosures permanently included in BrokerCheck, and 2) include in BrokerCheck information about member firms and their associated persons of any registered national securities exchange that uses the CRD system for registration purposes; both effective June 23, 2014.

MSRB Press Release (February 19, 2014) – The MSRB requested comment on a proposal to establish for the first time explicit requirements for municipal securities dealers to seek the most favorable price possible when executing transactions for retail investors. Comments were due no later than March 21, 2014.

Federal Reserve Press Release (February 18, 2014) – The Federal Reserve Board approved a final rule strengthening supervision and regulation of large U.S. bank holding companies and foreign banking organizations. U.S. bank holding companies subject to the rule will need to comply by January 1, 2015.

FINRA Regulatory Notice 14-07 (February 14, 2014) – The SEC approved new requirements for alternative trading systems. Implementation dates: May 12, 2014 (ATS reporting requirement) and November 10, 2014 (MPID requirement).

Federal Reserve Press Release (February 12, 2014) – The Federal Reserve Board requested comment on proposals to repeal its Regulation DD (Truth in Savings) and Regulation P (Privacy of Consumer Financial Information) and to make amendments to the Identity Theft Red Flags rule in Regulation V (Fair Credit Reporting).



16Market SolutionS

Watch For (Continued from page 15)

CFTC Press Release 6853-14 (February 10, 2014) – The CFTC announced measures to promote trading on swap execution facilities and support an orderly transition to mandatory trading, which began for certain interest rate swaps on February 15, 2014.

FINRA Regulatory Notice 14-06 (February 7, 2014) – FINRA announced updates of the interpretations of Financial and Operational Rules (Securities Exchange Act Rules 15c3-1, 15c3-1a, 15c3-2, 15c3-3, 17a-5 and 17a-11).

OCC Bulletin 2014-1 (February 5, 2014) – The OCC issued a notice of proposed rulemaking that would establish minimum standards for the design and implementation of a risk governance framework for large insured national banks, insured federal savings associations, and insured federal branches of foreign banks with average total consolidated assets of $50 billion or more (covered banks). The comment period ends March 28, 2014.

CFTC Press Release 6851-14 (February 5, 2014) – The CFTC’s Division of Swap Dealer and Intermediary Oversight provided additional guidance to futures commission merchants and depositories regarding procedures for new filing requirements.

FINRA Regulatory Notice 14-05 (February 3, 2014) – The SEC approved consolidated FINRA Rules 4314 (Securities Loans and Borrowings), 4330 (Customer Protection – Permissible Use of Customers’ Securities) and 4340 (Callable Securities); effective May 1, 2014. The deadline for notification to FINRA of existing programs under Rule 4330.06 is May 30, 2014. The effective date for FINRA Rule 4330(b)(2)(B) is October 28, 2014.

January, 2014 – The SEC published FAQs on its permanent registration rule for municipal advisors – http://www.sec.gov/info/municipal/mun-advisors-faqs.pdf.

FINRA Regulatory Notice 14-04 (January 31, 2014) – The SEC approved amendments to FINRA Rules 6271 and 6272 regarding the requirements for firms seeking registration as FINRA alternative display facility (ADF) market participants; effective February 3, 2014. The text of the new rule is available in the online FINRA Manual.

January 29, 2014 – The MSRB requested approval from the SEC of a proposal to streamline and consolidate into a single rule existing obligations of municipal securities dealers related to fair pricing. Under the proposal, most pricing obligations would be contained in revised MSRB Rule G-30 on prices and commissions, including duties and guidance under current MSRB Rules G-18 on execution of transactions and G-17 on fair dealing.

SEC Press Release 2014-14 (January 28, 2014) – The SEC issued a Risk Alert on investment advisers’ due diligence processes for selecting alternative investments.

FINRA Regulatory Notice 14-02 (January 27, 2014) – FINRA requested comment on proposed amendments to FINRA Rule 4210 to establish margin requirements for transactions in the TBA market. The comment period has been extended to March 28, 2014.

Available Publications

OCC Bulletin 2014-8 (March 24, 2014) – The OCC is supplementing the examination procedures in the “Risk Management of Financial Derivatives” booklet of the Comptroller’s Handbook. Since the booklet’s publication, national banks (particularly large banks) have significantly expanded their end-user derivatives and trading activities, requiring focused examination procedures to detect, monitor, and evaluate these activities’ risks.

SEC Press Release 2014-56 (March 24, 2014) – SEC staff made available certain analyses of data and academic literature related to money market fund reform.

The MSRB published its annual Fact Book, an online sourcebook that analyzes trading data and other statistics for the $3.7 trillion municipal bond market – http://www.msrb.org/msrb1/pdfs/MSRB-Fact-Book-2013.pdf.

The newly updated GASB 2013-2014 annual bound editions are now available for purchase. These publications equip preparers, auditors, and financial statement analysts with resources needed to stay abreast of the evolving governmental accounting environment – https://www.gasb.org/jsp/GASB/Page/GASB/Store/SubjectPage&subjectId=20GBAN.

February 12, 2014 – The OCC issued the “Retirement Plan Products and Services” booklet of the Comptroller’s Handbook. This updated booklet replaced a similarly titled booklet issued in December 2007.

OCC Bulletin 2014-2 (February 7, 2014) – The OCC issued the “Mortgage Banking” booklet of the Comptroller’s Handbook. This updated booklet replaced a similarly titled booklet issued in March 1996 (and examination procedures issued in March 1998). The updated “Mortgage Banking” booklet also replaced Section 750, “Mortgage Banking,” issued in November 2008 as part of the former OTS Examination Handbook for the examination of federal savings associations.


17Market SolutionS

Program Update

2014 Securities Compliance Seminar

Registrations are still being accepted for FMA’s 23rd Securities Compliance Seminar taking place April 23 – 25 at the Marriott Nashville Hotel (@ Vanderbilt University) in Music City…Nashville! This annual program is a three-day educational and networking experience for securities compliance professionals, internal auditors, risk managers, attorneys and regulators. And, CPE and CLE accreditation (among others) will be available. The Planning Committee has been hard at work developing varied agenda topics and confirming noted industry leaders and regulators as speakers. Members include: Cindy Keenum Brown (Sterne Agee); Kevin Lesinski (Seyfarth Shaw LLP); Penny Michael (FTN Financial); Mac Northam (Securities Risk Management, Ltd.); Diane Novak (RBS Citizens Wealth Management Division); and Jeff Suhanic (PNC Investments, LLC).

The current agenda (which can be viewed at www.fmaweb.org) includes these general sessions, concurrent workshops and confirmed speakers:

Key 2014 Legislative and Regulatory Initiatives› Russell Bruemmer ■ WilmerHale› Deborah Parker Bailey ■ Deloitte & Touche LLP› Mark Carberry ■ Neal, Gerber & Eisenberg LLP› Jeffrey Holik ■ PNC Financial Services Group, Inc.

The Volcker Rule...At Last› David Block ■ Union Bank, NA› Donald Lamson ■ Shearman & Sterling LLP

Internal Audit Hot Topics› Daniel Johnson ■ Credit Suisse› Ally Kidik ■ KeyBank› Brian Portman ■ Ernst & Young LLP

Financial Crimes: Money Laundering and Bribery and Corruption› Laura Gellman ■ Bank of America› Alistair Johnson ■ FINRA› Daniel Tannebaum ■ PricewaterhouseCoopers

Regulatory Forum› Anthony DiMilo ■ FDIC› Askari Foy ■ SEC› Donald Litteau ■ FINRA› Michael Post ■ MSRB› Brandon Reddington ■ OFAC› Daphne Smith ■ Tennessee Dept. of Commerce and Insurance

Municipal Advisor Compliance› Cynthia Friedlander ■ FINRA› Michael Post ■ MSRB› Mary Simpkins ■ SEC

KYC and Suitability Rule 2111› Sara Andres ■ Capital One› Buddy Doyle ■ Oyster Consulting› Julie Wilson Portera ■ Maynard, Cooper & Gale, PC

Dual Registrants (BD & RIA)› Louis Dempsey ■ Renaissance Regulatory Services› Gary Klein ■ NEXT Financial Group, Inc.› James Sallah ■ Sallah Astarita & Cox, LLC

WORKSHOPS Retail Compliance› Christine Kaufman ■ Impact Consultants, Inc.

Institutional Compliance› Matthew Hardin ■ Hardin Compliance Consulting› James Rabenstine ■ Nationwide Financial Services

(Continued on page 18)


18Market SolutionS

Program Update (continued from page 17)

Electronic Communications / Social Media Update› Joanna Belbey ■ Actiance, Inc.› Mark Griffin ■ Baker, Donelson, Bearman, Caldwell & Berkowitz, PC › Patricia Harrison ■ Simmons & Company International

Whistleblowers and CCO Liability› Thomas DiLeonardo ■ KPMG LLP› Christopher Robertson ■ Seyfarth Shaw LLP› Brian Rubin ■ Sutherland, Asbill & Brennan LLP

Conflicts of Interest / Insider Trading› Francois Cooke ■ ACA Compliance Group› David Porteous ■ Ulmer & Berne LLP› Jeff Walter ■ U.S. Bancorp Investments

PEER GROUP DISCUSSIONS

Peer group discussions (lead by facilitators) will take place on Wednesday and Thursday afternoons. Possible topics include: Broker-Dealer Compliance Hot Topics; Business Continuity; Conflicts of Interest/Insider Trading; Control Room 101; Dual Registrants; Electronic Communications/Social Media; Financial Crimes/AML/ABAC; Fixed Income Fair Pricing; Internal Audit Hot Topics; Key 2014 Legislative & Regulatory Initiatives; KYC & Suitability Rule 2111; Municipal Advisor Compliance; Municipal Bond Rules; Privacy & Protection of Information/Identity Theft; Risk 2014 & Beyond; Surviving a Regulatory Exam; TMPG/Master Security Forward Transaction Agreements; Volcker Rule; and Whistleblowers & CCO Liability. If you would like to facilitate one of these discussions, please contact FMA (see below).

Register today for this important spring conference – team discounts are still available. Contact Dorcas Pearce at [email protected] or 202/544-6327 with questions and/or to register. Online registration is also available at www.fmaweb.org.

PRE-SEMINAR WORKSHOP

Chris Kaufman of Impact Consultants, Inc. will lead an optional pre-seminar interactive

workshop on Wednesday, April 23 from 8:30–10:45 am. This workshop will present a unique opportunity to network with other compliance and audit professionals and discuss the matters that most concern you.

A myriad of topics will be discussed – such as “hot topics” from the SEC’s and FINRA’s examination priority lists; assessing supervisory systems in light of FINRA’s new consolidated supervision rules; concerns arising from the MSRB’s manual re-write project and training proposal; best practices for reducing compliance officer liability; and more – based on the needs of the participants.

This session is designed for persons new to the securities industry as well as seasoned compliance and audit personnel. This is your chance to get answers to specific questions about your compliance and audit programs and to come away with new ideas and resources for making your job more manageable. An additional $125 registration fee will apply. Contact Dorcas Pearce at [email protected] or 202/544-6327 for details and/or to register.


Capital Connection

Brought to you ByAPrIL 2013

Capital ChapterAssociation of Legal Administrators®

Special Section:Issues Leaders Face Leading as a Legal Administrator ......... 3 Do You Encourage Conflict? .................. 5Member Appreciation/Change of gavel. 10Benefits of Membership Meeting ........... 14Calendar ................................................... 20ALA Compensation & Benefits Survey.. 21A Capitol Affair Fundraiser .................... 25

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19Market SolutionS

Program Update (continued from page 18)

2014 Legal & Legislative ConferenceFMA’s 23rd Legal & Legislative Conference is set to take place October 23–24 at the Hyatt Regency Washington (on Capitol Hill) here in Washington, DC. This annual program is a high-level forum for banking and securities attorneys as well as senior compliance officers/risk managers, internal auditors and regulators. The day and a half program provides participants with an opportunity to share information on current legal and regulatory developments as well as network with peers.

FMA will assemble a Program Planning Committee in the coming weeks to develop an agenda focusing on current areas of regulatory and Congressional scrutiny/activity. If you would like to volunteer for the committee (or serve as a speaker), contact Dorcas Pearce at [email protected] or 202/544-6327.

FMA requests your input! An e-survey will be sent out in April or May to a sampling of past conference attendees and colleagues asking for

topical as well as speaker suggestions for the agenda. The Planning Committee will rely greatly on these responses when formulating the program...so please respond quickly and share your thoughts and ideas…even if you do not receive the survey. Help us make this the best conference ever.

CLE and CPE accreditation…as well as 2-for-1 registration discounts…will be available, so be sure to budget for (and plan to attend) the 2014 Legal & Legislative Issues Conference. Contact Dorcas Pearce at [email protected] or 202/544-6327 with questions and/or to volunteer.

ATTENTION SPONSORS! FMA is actively pursuing sponsorship opportunities regarding

this conference. Please contact FMA if your firm would like to support this event.

Seminar Sponsors

audit edp sales/training trust market solutions · route to: accounting audit compliance edp funds...

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