Blog: FinCEN Issues NPRM Regarding Access To Beneficial Ownership … – Mondaq

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In This Issue. The Financial Crimes Enforcement Network
(FinCEN) Issues Notice of Proposed Rulemaking Regarding Access to
Beneficial Ownership Information and Related Safeguards; the
Consumer Financial Protection Bureau (CFPB) Proposes Rule to
Establish Public Registry of Supervised Nonbanks’ Terms and
Conditions; the Board of Governors of the Federal Reserve System
(Federal Reserve) and Federal Deposit Insurance Corporation (FDIC)
Issue New Asset-Size Thresholds under Community Reinvestment Act
(CRA); the CFPB Issues Three Annual Threshold Adjustment Final
Rules; the Office of the Comptroller of the Currency (OCC), the
Federal Reserve, and the FDIC Issue Revised Interagency Statement
to Extend the “Extension of the Revised Statement Regarding
Status of Certain Investment Funds and their Portfolio Investments
for Purposes of Regulation O and Reporting Requirements under Part
363 of FDIC Regulations”; the Federal Reserve Adopts Final
Rule to Implement the Adjustable Interest Rate (LIBOR) Act; and the
Federal Reserve Adopts Revised “Guidelines for Appeals of
Material Supervisory Determinations.” These and other
developments are discussed in more detail below.

REGULATORY DEVELOPMENTS

FinCEN Issues NPRM Regarding Access to Beneficial Ownership
Information and Related Safeguards

On December 15, FinCEN issued a Notice of Proposed Rulemaking (NPRM) that
would implement provisions of the Corporate Transparency Act (CTA)
that govern the access to and protection of beneficial ownership
information. The NPRM follows the final rule that FinCEN issued on
September 30, 2022, requiring most corporations, limited liability
companies, and other similar entities created in or registered to
do business in the United States to report information about their
beneficial owners to FinCEN (see the Goodwin alert here). The NPRM proposes regulations that
would govern the circumstances under which such information may be
disclosed to federal agencies; state, local, tribal, and foreign
governments; and financial institutions, and how it must be
protected.

The proposed regulations specify how government officials may
access beneficial ownership information in order to support law
enforcement, national security, and intelligence activities, and
how certain financial institutions and their regulators would
access such information in order to fulfill customer due diligence
requirements and conduct supervision. The NPRM also proposes
amendments to the final rule to specify when reporting companies
may report FinCEN identifiers associated with entities. Comments to
the proposed rule are due within 60 days after being published in
the Federal Register.

“In this next step, the proposed rule would provide
the highest standards of security and confidentiality while
ensuring that the new beneficial ownership database is highly
useful to law enforcement agencies in its efforts to combat
financial crime. As we drive toward full implementation of the
Corporate Transparency Act, we move closer to exposing criminals,
corrupt actors, and anyone trying to hide ill-gotten gains in the
United States.”

– FinCEN Acting Director, Himamauli Das

CFPB Proposes Rule to Establish Public Registry of Supervised
Nonbanks’ Terms and Conditions

On January 11, following a December 2022 proposed rule to
establish a registry of nonbank financial institutions, the CFPB
proposed another rule that would generally require supervised
nonbanks to register annually if they use terms or conditions that
waive or limit consumer rights or other legal protections –
for example, servicemembers’ legal protections; credit
reporting rights; lender liability; unenforceable waivers in
mortgage contracts; bankruptcy or complaint rights; any
constitutional, statutory, or common law legal protection, right,
or defense; time or place for consumers to bring legal actions;
class action rights; or arbitration provisions. Both company
information and information about the use of the terms and
conditions would be published for the CFPB and agencies from all
levels of government to consider when prioritizing their
supervision and enforcement resources. The public comment period
will remain open until the later of 60 days following publication
of the proposed rule on the CFPB’s website or 30 days following
publication of the proposed rule in the Federal
Register
.

Federal Reserve and FDIC Issue New Asset-Size Thresholds under
CRA

Effective January 1, the Federal Reserve and the FDIC announced
updated asset-size thresholds to define certain banks under CRA
regulations. The updates to the asset-size thresholds occur
annually and apply to the definition of a “small bank”
and an “intermediate small bank” and are based on
measures of inflation. With the updates, a “small bank”
is defined as of December 31 of either of the prior two calendar
years, an institution with assets less than $1.503 billion. A
“intermediate small bank” is defined as an institution
with assets of at least $375 million as of December 31 of both of
the prior two calendar years and less than $1.503 billion as of
December 31 of either of the prior two calendar years. The
classification of the various institutions impact how the
institution is examined under the CRA and certain reporting
requirements. The final rule can be found here.

CFPB Issues Three Annual Threshold Adjustment Final Rules

On December 27, the CFPB issued three annual threshold
adjustment final rules. First, the CFPB increased the asset-size exemption threshold in Regulation C
from $50 million to $54 million so that banks, savings
associations, and credit unions with assets of $54 million or less
as of December 31, 2022 are exempt from collecting data in 2023.
Second, the CFPB increased exemption thresholds in Regulation Z for
certain creditors and their affiliates that regularly extend
covered transactions secured by first liens from $2.336 billion to
$2.537 billion and for certain insured depository institutions and
insured credit unions with assets of $10 billion or less from
$10.473 billion to $11.374 billion. Finally, the CFPB increased the
maximum amount of each civil penalty within its jurisdiction;
the new maximums will apply to civil penalties assessed after
January 15, 2023 associated with violations that occurred November
2, 2015 or later.

Agencies Issue Revised Statement to Extend the Extension of the
Revised Statement Regarding Status of Certain Investment Funds and
their Portfolio Investments

On December 22, the OCC, the Federal Reserve, and the FDIC
(collectively, the agencies) issued a revised interagency statement to extend the
“Extension of the Revised Statement Regarding Status of
Certain Investment Funds and their Portfolio Investments for
Purposes of Regulation O and Reporting Requirements under Part 363
of FDIC Regulations.” Regulation O, 12 CFR 215, places
quantitative limits and qualitative restrictions on extensions of
credit by banks to executive officers, directors, principal
shareholders, and related interests of such persons. Over the past
few years, fund complexes have acquired or have approached
acquiring more than 10 percent of a class of voting securities of a
wide range of public companies, including banks and non-bank
companies. The revised interagency statement explains that the
agencies will continue to exercise discretion not to take action
against banks or against certain companies that sponsor, manage, or
advise investment funds and institutional accounts (fund complexes)
that become principal shareholders of banks (principal shareholder
fund complexes). The discretion relates to certain extensions of
credit by banks to portfolio companies of the principal shareholder
fund complex (fund complex-controlled portfolio companies) that
otherwise would violate Regulation O, 12 CFR 215, provided certain
eligibility criteria are satisfied.

Highlights of the statement include that (i) the agencies will
continue to exercise discretion in not bringing action against
principal shareholder fund complexes and banks for extensions of
credit to fund complex-controlled portfolio companies that would
otherwise violate Regulation O, provided the principal shareholder
fund complexes and banks satisfy certain criteria that ensure the
principal shareholder fund complex does not control the bank and
(ii) the agencies are providing this no-action position while the
Federal Reserve, in consultation with the other agencies, considers
whether to amend Regulation O to address this issue.

Federal Reserve Adopts Final Rule to Implement the Adjustable
Interest Rate (LIBOR) Act

On December 16, the Federal Reserve adopted a final rule implementing the Adjustable
Interest Rate (LIBOR) Act. The final rule established benchmark
replacements based on Secured Overnight Financing Rate (SOFR) that
will replace LIBOR-based rates in certain financial contracts after
June 30, 2023. The final rule will take effect 30 days after
publication in the Federal Register.

The London Interbank Offered Rate (LIBOR), the dominant
benchmark rate used in financial contracts for decades, will be
phased out after June 30, 2023, while many existing financial
contracts do not have terms that provide for the use of a clearly
defined and practicable replacement benchmark rate after that date.
As required by the LIBOR Act, the final rule establishes benchmark
replacements for such contracts governed by U.S. law that reference
overnight, one-month, three-month, six-month, and 12-month LIBOR.
The final rule also ensures that LIBOR contracts adopting a
benchmark rate selected by the Federal Reserve will not be
interrupted or terminated following LIBOR’s replacement.

Federal Reserve Adopts Revised ‘Guidelines for Appeals of
Material Supervisory Determinations’

On December 13, in response to the Federal Reserve’s October
2022 request for comment on proposed changes to Guidelines for Appeals of Material Supervisory
Determinations
(“Guidelines”), the Federal Reserve
adopted revised Guidelines for Appeals of Material Supervisory
Determinations (“Guidelines”), incorporating changes
proposed by the FDIC as well as further changes incorporating
suggestions and addressing concerns raised by commenters.

The revised Guidelines expand and clarify the role of the
FDIC’s Ombudsman in the appeals process, adding the Ombudsman
to the Supervision Appeals Review Committee (“SARC”) as a
non-voting member. Both parties to the appeal will receive
materials considered by the SARC on a timely basis, and in time to
prepare for a meeting with the SARC, if one is requested, subject
to applicable legal limitations. Additionally the revised
Guidelines permit institutions to request a stay of a supervisory
action or determination from the appropriate Division Director who
will have discretion to grant a stay and may grant a stay subject
to certain conditions, where appropriate, while an appeal is
pending. The Guidelines also provide that decisions regarding a
stay must be provided to institutions, in writing, including the
reasons for the decision. The revised Guidelines became effective
on December 13, 2022.

SEC Staff Issues Important New Guidance on Presentation of
Investment-Level Performance Under the Marketing Rule

On January 11, 2023, the staff of the Division of Investment
Management at the US Securities and Exchange Commission (“SEC
Staff”) updated their Marketing Rule FAQs. A new FAQ appears
to impose the net performance presentation requirement at the
investment-level (and not just the portfolio-level) under the
amended Rule 206(4)-1 under the Investment Advisers Act of 1940
(the new “Marketing Rule”). This FAQ represents the most
significant interpretative position that the SEC Staff has taken
publicly since the Marketing Rule’s November 4, 2022 compliance
date.

Read more about the updated FAQs in a recent client alert.

FINRA Reminds Firms of Trusted Contact Person Requirement,
Benefits, and Related Effective Practices

FINRA remains very focused on preventing financial exploitation
of seniors and other investors. Firms can expect to see senior
investor protection as a key area of focus in the forthcoming 2023
Report on FINRA’s Examination and Risk Monitoring Program, as
it has been perennially. In the meantime, FINRA published
Regulatory Notice 22-31 reminding members of their regulatory
obligations under Rule 4512 with respect to “Trusted Contact
Persons” or “TCPs,” explaining the benefits of
designating TCPs, and providing resources to educate customers
about the role and value of TCPs. Perhaps the most significant
section of the notice is the non-exhaustive list of effective
practices FINRA provided to assist firms with obtaining TCP
information.

Read more about this update here.

SEC Adopts Amendments to Rules Governing Rule 10b5-1 Trading
Plans

On December 14, 2022, the Securities and Exchange Commission
unanimously adopted final rules relating to Rule 10b5-1 plans.
Properly structured, a Rule 10b5-1 plan provides an affirmative
defense to Rule 10b-5 liability for insider trading. The SEC
adopted the new rules to address its concerns that corporate
insiders may be trading under Rule 10b5-1 in ways that harm
investors and undermine the integrity of securities markets. The
newly-adopted rules implement amendments to the requirements for
establishing the Rule 10b5-1 affirmative defense and require
enhanced disclosures for trading plans. Trades made pursuant to
plans that do not conform to the new requirements will not be
entitled to the benefit of the affirmative defense provided by Rule
10b5-1.

Read the client alert for key takeaways.

SEC “Gift” to the Industry: Four Market Structure
Proposals, 3-2 Votes (In Part), but No Partridge in a Pear
Tree

On December 14, 2022, the SEC proposed four separate equity
market structure rulemakings, each of which, if adopted, will have
significant effects on the markets and various industry
participants. The rulemakings cover proposed new “Regulation
Best Execution” (new Exchange Act Rules 1100, 1101, and 1102
establishing a best execution standard and requiring robust
policies and procedures for firms engaging in certain conflicted
transactions with retail customers); a proposed new “Order
Competition Rule” (new Exchange Act Rule 616, including
requiring certain retail equity orders to be exposed in auctions
before being internalized); amendments to Exchange Act Rule 605
(enhancing broker disclosure of order execution information);
amendments to Exchange Act Rules 610 and 612 (amending minimum
pricing increments and exchange access fee caps and enhancing the
transparency of better-priced orders); and amendments to Exchange
Act Rule 10b5-1 (including requiring enhanced disclosures related
to insider trading plans).

Read the client alert for more information on this
topic.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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