SEC proposes rules to include certain major market participants as ‘dealers’ or ‘government securities dealers’ | Goodwin
SEC PROPOSES RULES TO INCLUDE CERTAIN SIGNIFICANT MARKET PARTICIPANTS AS “DEALERS” OR “DEALERS IN GOVERNMENT SECURITIES”
On March 28, the SEC propose new rules that would require certain market participants, such as proprietary trading firms, to perform certain brokerage roles by acting as liquidity providers and/or engaging in certain levels of buying and selling securities, to (1) register with the SEC, (2) become a member of an SRO, and (3) comply with federal securities laws and regulatory obligations. A broker is defined as a person “engaged in the business” of buying and selling securities for his own account. Excluded from this definition is a “trader” who “buys or sells securities…for his own account…but not in the course of a regular business”. The proposal would, in essence, eliminate the merchant exclusion for most businesses.
The proposal would apply to any person or business that owns or controls total assets of at least $50 million. The SEC’s proposal is designed to expand the definition of broker to include proprietary trading firms engaged in certain specified levels of trading activity to the extent that such firms play an important role in providing liquidity to the whole market. The proposal, if adopted, would extend the regulatory framework applicable to broker-dealers to these businesses. Interestingly, the SEC notes that the proposal would even apply to companies that trade in “digital asset securities.” Coupled with other recent SEC proposals, such as proposed changes to ATS regulations, this rule could be one of the SEC’s first major steps towards regulating cryptocurrency markets, in addition to corporations. proprietary trading companies that trade in traditional securities.
“I was pleased to support this proposal because I believe it reflects the statutory intent of Congress that companies that play a significant role in providing liquidity to securities markets, including the U.S. Treasury, must be registered with the Commission.”
— Gary Gensler, SEC Chairman
SEC PROPOSES CHANGES TO REGULATION M TO REMOVE CREDIT RATING REFERENCES
On March 23, the SEC proposed amendments to Regulation M which, if adopted, would remove references to credit ratings currently included in Regulation M. Under the proposed amendments, the measurement of the creditworthiness of non-convertible debt securities, non-convertible preferred securities and asset-backed transactions included in the exception to Rule 101 of Regulation M would be superseded by new standards. The exception to Rule 102 of Regulation M would be removed.
In addition, the SEC has proposed a new Rule 17a-4 subsection (b)(17) under the Securities Exchange Act of 1934, which would require broker-dealers relying on the Rule 101 exception for certain debt securities not convertible and non-convertible preferred securities to preserve, for a period of at least three years, the first two years in a readily accessible location, the written probability of default determination. The public comment period will remain open for 30 days after the publication of the proposed press release in the Federal Register or 60 days after the proposal release is posted on the SEC’s website, whichever is longer.
FDIC ISSUES REQUEST FOR INFORMATION ON BANK MERGERS
On March 25, the FDIC issued a bulletin seeking comment and feedback on the effectiveness of current rules and regulations related to bank mergers.
The FDIC wants to measure the effectiveness of the existing framework in meeting the requirements of the Bank Merger Act. The Request for Information (RFI) seeks comments regarding the application of laws, practices, rules, regulations, guidelines and policy statements that apply to mergers involving one or more insured deposit-taking institutions. This would include a merger between an insured depository institution and an uninsured institution.
RFI is driven by significant changes that have taken place over the past decades in the banking industry and the financial system. Specifically, the RFI indicates that three decades of consolidation and growth in the banking sector have significantly reduced the number of small banks and increased the number of large systemically important banks. In addition, a recent executive order directed US agencies to consider the impact consolidation might have on maintaining a competitive market.
The FDIC accepts comments within 60 days of publication in the Federal Register.
FINRA ISSUES CYBERSECURITY ALERT
On March 21, FINRA’s Cyber and Analytics Unit (CAU) Published a Cybersecurity Alert (Alert) highlighting a statement made by President Biden on the same date regarding potential threats to the cybersecurity of the United States. Growing reports that Russia is “exploring options for potential cybersecurity attacks” are of particular concern.
According to President Biden’s statement, most US critical infrastructure is privately owned and operated; as such, the CAU reiterates the President’s request that private sector companies immediately strengthen their cyber defenses and be vigilant against potential cybersecurity attacks. In addition to bolstering cybersecurity, the Alert also highlights the Department of Homeland Security’s efforts to share mitigation guidance and to actively engage organizations and critical infrastructure holders across the private sector to share information about cybersecurity attacks to help provide protection.
FDIC AND OCC DESIGNATE CONTACT POINTS FOR COMPUTER SECURITY INCIDENT NOTIFICATIONS
On March 29, the FDIC and the CCO published bulletins relating to the common rule establishing computer-security incident notification requirements for banking institutions and their banking service providers (Computer-Security Incident Notification: Final Rule) which will come into force on May 1, 2022.
FDIC-supervised banks can comply with the rule by notifying their case manager of an incident. To satisfy the notification requirement, an OCC-supervised bank can email or call its supervising office, submit a notification through BankNet’s website, BankNet.gov, or contact the help desk. of BankNet.
For the purposes of the rule, a “notification incident” generally includes “a material computer security incident that disrupts or degrades, or is reasonably likely to disrupt or degrade, the viability of the bank’s operations; prevents customers from accessing their deposit account and other accounts; or affects the stability of the financial sector”, including: a major failure of the computer system; a cybersecurity-related or other type of significant operational disruption. If a bank is unsure whether it is the victim of a notification incident for the purposes of the final rule, it should contact its supervisory office.
SEC PROPOSES NEW RULES APPLICABLE TO SPACS AND CERTAIN REVERSE MERGERS
On March 30, the SEC held a public meeting to review the proposed rules and amendments regarding special purpose acquisition companies (SPACs), shell companies and the disclosure of projections.
Read it customer alert for more information on the new rules and proposed changes.
CFPB EXPANDS REACH OF UDAAP AUTHORITY TO CONSUMER DISCRIMINATION AND REVIEW
The Consumer Financial Protection Bureau (CFPB) has actively reshaped the scope of its oversight and enforcement priorities with respect to unfair, deceptive or abusive acts or practices (UDAAP) under the Consumer Financial Protection Act. consumers (CFPA). On March 16, 2022, the CFPB updated its UDAAP Exam Procedures to guide examiners in identifying unfair discrimination in the offer or provision of financial products or services to consumers. Then, on March 22, the CFPB published political orientation on conduct prohibited under the CFPA regarding consumer reviews. These developments call for covered institutions to engage their change management processes and update their compliance management system (CMS) to mitigate UDAAP risk.
Read it customer alert to learn more.