Category Archives: Financial Institutions

Sustainable Finance and ESG reporting – EU pushing ahead, SEC cautious

by Dr. Katja Langenbucher

The market for “sustainable finance” has grown exponentially over the last few years.  The term usually denotes investment approaches that consider environmental, social and governance factors (“ESG”) in portfolio selection and management.  Following up on the Paris Agreement of 2016, the European Union has ambitious plans to mobilize private capital for contribution to sustainability concerns such as climate change and pollution.

In January 2018, the EU High-Level Expert Group on Sustainable Finance published its final report. [1]  It suggests focusing on common taxonomy and standards, investor duties, transparency of asset managers, governance of companies, and enhanced powers of the European Supervisory Authorities.  In March 2018, the European Commission went ahead with an action plan, announcing a number of short and long-term legislative steps that should be taken. Continue reading

New York Office Of The Attorney General Publishes Report On Virtual Currency Platforms And Their Potential Risks

by Arthur S. Long, Carl E. Kennedy, and Jeffrey L. Steiner

This post reviews the New York State Office of the Attorney General’s (the “OAG”) Virtual Markets Integrity Initiative Report (the “Report”), which was published on September 18, 2018.[1]  The publication of the OAG’s 42-page Report brings to a close its six-month fact-finding inquiry of several virtual currency platforms.[2]  The OAG sent out detailed letters and questionnaires to a number of virtual currency platforms seeking information from the platforms across a wide-range of issues, including trading operations, fees charged to customers, the existence of robust policies and procedures, and the use of risk controls.  Continue reading

Are U.K. Courts Pushing Back Against DOJ’s Global Reach?

by Evan Norris and Alma M. Mozetic

On July 31, 2018, the High Court of England and Wales denied the U.S. Justice Department’s request for the extradition of Stuart Scott, a British foreign exchange trader indicted in 2016 as part of the DOJ Fraud Section’s multi-year effort to investigate and prosecute foreign currency market manipulation.  The decision in Scott v. Government of the United States of America marks the second time in 2018 that DOJ has lost an extradition fight in London.  The Department has reportedly indicated that it will appeal.  If the decision stands, Scott will join a handful of U.S. court cases that have the potential to impact DOJ’s ability to reach across the globe to pursue foreign nationals for violations of the FCPA and other financial fraud statutes. Continue reading

The Post-Lucia Executive Order on ALJs

by Daniel Walfish

Last week, the White House, reacting to the Supreme Court’s June 21, 2018 decision in Lucia v. SEC, issued an Executive Order exempting Administrative Law Judges, or ALJs, from the competitive civil service. This post considers what the order might mean for the Securities and Exchange Commission and other agencies that use ALJs to adjudicate enforcement cases. Lucia held that the SEC’s ALJs are “officers” subject to the Constitution’s Appointments Clause, which means they have to be appointed by (as relevant here) the head of the agency – that is, the SEC’s Commissioners. Previously ALJs were hired through an examination-based process handled by the Office of Personnel Management, or OPM (effectively the human resources department of the federal government). OPM typically presented an agency with a list of eligible candidates ranked on the basis of the examination, among other things, and the agency selected an ALJ from among the top three candidates on the list. Continue reading

To Disclose or Not to Disclose: Analyzing the Consequences of Voluntary Self-Disclosure for Financial Institutions

by F. Joseph Warin, M. Kendall Day, Stephanie L. Brooker, Adam M. Smith, Linda Noonan, Elissa N. Baur, Stephanie L. Connor, Alexander R. Moss, and Jaclyn M. Neely.

One of the most frequently discussed white collar issues of late has been the benefits of voluntarily self-disclosing to the U.S. Department of Justice (“DOJ”) allegations of misconduct involving a corporation.  This is the beginning of periodic analyses of white collar issues unique to financial institutions, and in this issue we examine whether and to what extent a financial institution can expect a benefit from DOJ for a voluntary self-disclosure (“VSD”), especially with regard to money laundering or Bank Secrecy Act violations.  Although the public discourse regarding VSDs tends to suggest that there are benefits to be gained, a close examination of the issue specifically with respect to financial institutions shows that the benefits that will confer in this area, if any, are neither easy to anticipate nor to quantify.  A full consideration of whether to make a VSD to DOJ should include a host of factors beyond the quantifiable benefit, ranging from the likelihood of independent enforcer discovery; to the severity, duration, and evidentiary support for a potential violation; and to the expectations of prudential regulators and any associated licensing or regulatory consequences, as well as other factors.  Continue reading

“Economic Growth, Regulatory Relief, and Consumer Protection Act” is Enacted

by Samuel R. Woodall III, Mitchell S. Eitel, Michael T. Escue, C. Andrew Gerlach, Camille L. Orme, Benjamin H. Weiner, and Michael A. Wiseman

Summary

Earlier today, President Trump signed into law the “Economic Growth, Regulatory Relief, and Consumer Protection Act,”[1] which provides certain limited amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), as well as certain targeted modifications to other post-financial crisis regulatory requirements.  In addition, the legislation establishes new consumer protections and amends various securities- and investment company-related requirements.  The legislation, which enjoyed substantial bipartisan support, was adopted on May 22, 2018, in the U.S. House of Representatives, by a vote of 258 to 159, and in the U.S. Senate, by a vote of 67 to 31, on March 14, 2018.

The legislation preserves the fundamental elements of the post-Dodd-Frank regulatory framework, but it includes modifications that will result in some meaningful regulatory relief for smaller and certain regional banking organizations. Continue reading

Banking Regulators’ Examination Authority Does Not Override Attorney-Client Privilege

by Cleary Gottlieb Steen & Hamilton LLP, Covington & Burling LLP, DavisPolk, Debevoise & Plimpton, Simpson Thacher & Bartlett LLP, Sullivan & Cromwell LLP, and Wilmer Cutler Pickering Hale and Dorr LLP

MEMORANDUM[1]

RE: Bank Regulators’ Legal Authority to Compel the Production of Material That Is Protected by Attorney-Client Privilege

I. Introduction

The attorney-client privilege (the “Privilege”) is deeply enshrined in the common law.[2] In protecting the confidentiality of communications between lawyers and their clients, the Privilege both bars the admission of such communications as evidence in legal proceedings and insulates the communications from compelled disclosure by government authorities. Accordingly, absent an explicit exception, neither courts nor government authorities may require a client or the client’s lawyer to produce or reveal privileged information. Continue reading

FinCEN Releases Frequently Asked Questions Regarding Customer Due Diligence and Beneficial Ownership Requirements

by David S. Cohen, Franca Harris Gutierrez, Sharon Cohen Levin, Jeremy Dresner and Michael Romais

Last week the Financial Crimes Enforcement Network (FinCEN) issued much-anticipated Frequently Asked Questions (PDF: 387 KB) (FAQs) that provide additional guidance to financial institutions relating to the implementation of the new Customer Due Diligence Rule (CDD Rule), set to go into effect on May 11, 2018.[1] In general, the FAQs clarify certain issues that have caused implementation challenges for financial institutions. While FinCEN’s earlier guidance provided a general overview of the CDD Rule—including the purpose of the rule, the institutions to which it is applicable, and some relevant definitions—the new FAQs provide greater detail for financial institutions seeking to comply with the CDD Rule. The FAQs are meant to assist covered financial institutions in understanding the scope of their customer due diligence (CDD) obligations, as well as the rule’s impact on their broader anti-money laundering (AML) compliance. While the guidance is helpful in clarifying some of FinCEN’s expectations, the implementation challenge lies in applying the CDD Rule to a financial institution’s specific products and services.

As financial institutions work to meet the CDD Rule’s fast-approaching May 11 compliance deadline, they should pay special attention to the following key areas summarized below. Continue reading

Ninth Circuit Rejects Challenges to a Cease-and-Desist Order Imposed by the FDIC for Violations of the Bank Secrecy Act

by Thomas C. Baxter Jr., Michael M. Wiseman, and Jordan M.H. Wish

Court Defers to the FDIC and the Bank Secrecy Act/Anti-Money Laundering Examination Manual in Rejecting a Rare Challenge by a Bank to an Agency-Imposed Cease-and-Desist Order

Summary

On March 12, in California Pacific Bank v. FDIC, the U.S. Court of Appeals for the Ninth Circuit refused to set aside a cease-and-desist order imposed by the Federal Deposit Insurance Corporation (the “FDIC”) on California Pacific Bank (“California Pacific”).[1]  The order requires the bank to comply with, and correct identified violations of, the Bank Secrecy Act (the “BSA”) by improving the bank’s BSA compliance program and Suspicious Activity Report (“SAR”) filing procedures.  In reaching its decision, the court deferred to the Bank Secrecy Act/Anti-Money Laundering Examination Manual, which is published by the Federal Financial Institutions Examination Council (the “FFIEC Manual”),[2] as a definitive statement of the regulatory requirements for satisfying BSA program obligations.  This deference along with an agency-friendly standard of review confirm the broad discretion that the FDIC and other federal banking agencies have in determining violations of the BSA and requiring related remedial actions. Continue reading

Increasing Regulatory Focus on Reforming Financial Institution Culture and Addressing Employee Misconduct Risk

by Brad Karp, H. Christopher Boehning, Susanna Buergel, Jessica Carey, Michael Gertzman, Roberto Gonzalez, and Grace Tiedemann

Since the financial crisis—and more recently in the wake of the Wells Fargo sales practices scandal and the benchmark manipulation enforcement actions—bank regulators in the United States and around the world have become increasingly focused on reforming institutional culture and pursuing other actions to mitigate employee misconduct risk. The Federal Reserve Board’s recent and unprecedented enforcement action against Wells Fargo, which we have discussed previously,[1] is a stark demonstration of regulators’ vigorous focus on these issues. In addition to misconduct that may take place against customers, counterparties, and markets, the recent attention on sexual harassment and employee treatment has also raised questions about the capacity of companies across sectors to address misconduct that takes place within the walls of the company itself. Continue reading