On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) became the largest U.S. lender since the Great Financial Crisis to enter into receivership with the Federal Deposit Insurance Corporation. SVB was a major provider of depository services and liquidity to various investment funds, managers and their related entities through subscription
FinCEN Proposal Looks to Extend AML Requirements to Non-Federally Regulated Banks
On August 25, 2016, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, proposed a rule that would require all banks, regardless of whether they are subject to regulation by a “Federal functional regulator,” to establish and implement written AML programs, conduct ongoing customer due diligence, and identify and verify the identity of the beneficial owners of their legal entity customers. The proposal would also extend customer identification program requirements to banks not covered under existing rules.
In Conflict With Other Circuits, Seventh Circuit Rules That Certain Transfers Involving Financial Institution Intermediaries Not Immune From Recovery By Bankruptcy Trustee
Section 546(e) of the bankruptcy code prohibits a bankruptcy trustee from avoiding “settlement payment[s]”, or payments “made in connection with a securities contract,” that are “made by or to (or for the benefit of)” qualifying financial entities, including financial institutions, stockbrokers, commodities brokers and others. In a ruling that conflicts with precedent from the Second, Third, Sixth, Eighth, and Tenth Circuits, a decision last week by a Seventh Circuit panel held that the safe harbor provision of section 546(e) does not preclude a trustee from recovering a transfer to a party that was not a qualifying financial entity, where a qualifying financial institution was merely the conduit for the transaction. See FTI Consulting v. Merit Management Group, LP.
First SEC Case Against Municipal Advisor Under New Fiduciary Duty
Yesterday the SEC announced its first enforcement proceeding for breach of the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act.
Regulators Fail To Identify Cause Of Abnormal US Treasury Trading on October 15, 2014
Yesterday, the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the SEC and the CFTC issued a Joint Staff Report analyzing the significant volatility in the U.S. Treasury market on October 15, 2014. The analysis, however, “did not reveal a clear, single cause of the price movement.”
SEC Approval of New FINRA Public Arbitrator Rule Imposes New Limits on the Pool of Potential Public Arbitrators
The SEC recently approved FINRA’s proposed new rule changes to the definitions of public arbitrator (FINRA Rules 12100(u) and 13100(u)) and non-public arbitrator (FINRA Rules 12100(p) and 13100(p)), after receiving over 300 comment letters in addition to two letters from FINRA responding to the comment letters. The new rule significantly limits the pool of potential public arbitrators by, chiefly, permanently disqualifying any person who worked in the financial industry from being a public arbitrator. FINRA believes that this and other changes to the definitions of public and non-public arbitrators, as discussed below, address both investor and industry concerns about perceived bias and arbitrator neutrality.
FINRA’s New Background Investigation Rule Will Likely Increase Firms’ Costs and Potentially Increases Exposure for Firms in Customer Disputes
Recently, the SEC approved FINRA’s proposed new Rule 3110(e) relating to background investigations of registered persons. FINRA Rule 3110(e), which replaces NASD Rule 3010(e) and goes into effect on July 1, 2015, streamlines and clarifies the rule language by providing that “each member shall ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the member applies to register that applicant with FINRA and before making a representation to that effect on the application for registration.” The rule further clarifies that a firm is required to review a copy of an applicant’s most recent Form U5, if available. Most importantly, the rule requires that firms adopt “written procedures that are reasonably designed to verify the accuracy and completeness of the information contained in an applicant’s Form U4 no later than 30 calendar days after the form is filed with FINRA.”
Companies and Individuals Alike Should Heed DOJ’s Focus on Individual Liability
Attorney General Eric Holder and Principal Deputy Assistant Attorney General for the Criminal Division Marshall Miller have sent the message that the Department of Justice is looking to hold individuals responsible for corporate crime.
Holder, speaking at New York University, announced that the department is currently investigating the conduct of individuals at certain financial institutions and “expect[s] to bring charges in the coming months.” Holder also called on Congress to provide more robust incentives for whistleblowers under the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), and suggested a reward commensurate with that provided under the False Claims Act (up to 30% of the sanction imposed) to induce employees to come forward with information.