In this week's newsletter, we provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
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US Consumer Financial Protection Bureau Issues Information Request for Civil Investigative Demands
On January 26, 2018, the U.S. Consumer Financial Protection Bureau published a notice in the Federal Register requesting public comment regarding the agency's Civil Investigative Demands (CID) processes. Further to statements issued by CFPB Acting Director Mick Mulvaney, the request for information provides an opportunity for the public to provide comments aimed at improving and streamlining the CID processes for consumers and financial institutions. The request for information asks for comment regarding a number of aspects of the CFPB's CID processes, including suggestions for modifying or updating CID processes, proposed improvements to how information is conveyed to entities that receive CIDs and suggestions regarding the timing and deadlines under the existing CID framework. Comments are due by March 27, 2018.
The CFPB's Information Request is available at: https://www.gpo.gov/fdsys/pkg/FR-2018-01-26/pdf/2018-01435.pdf.
US Federal Banking Regulators Announce Favorable Community Reinvestment Act Consideration to Aid Areas Affected by Hurricane Maria
On January 25, 2018, the U.S. Board of Governors of the Federal Reserve System, the U.S. Office of the Comptroller of the Currency and the U.S. Federal Deposit Insurance Corporation announced that the agencies will give favorable consideration under the Community Reinvestment Act for bank activities that helped with revitalization and stabilization of the U.S. Virgin Islands and Puerto Rico, which were designated as major disaster areas because of Hurricane Maria. The agencies announced that financial institutions located anywhere in the United States, including outside of the affected areas, will receive favorable CRA consideration for their community development activities concerning affected areas and individuals, provided that the institution has been responsive to the CRA needs of its own assessment area. The agencies clarified that favorable CRA consideration will be given to institutions that aid affected areas and individuals— including those who have been displaced and relocated outside of the affected areas—regardless of census information or the personal income of the individual being assisted. The agencies did, however, note that greater weight will be given to activities that assist areas and individuals that are of low and moderate income.
The interagency statement regarding the announcement is available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180125a1.pdf.
US Consumer Financial Protection Bureau Issues Final Rule Regarding Prepaid Accounts
On January 25, 2018, the CFPB published a final rule that amends the regulations implementing the Electronic Funds Transfer Act (Regulation E), the Truth in Lending Act (Regulation Z), and corresponding official interpretations. The final rule makes a number of modifications to these regulations, including changes to error resolution requirements and limited liability provisions, which will now apply after a consumer's identity has been verified, designed to promote prompt registration of prepaid cards by individuals. In addition, the final rule clarifies how the prepaid rule applies to credit cards linked to digital wallets, which promotes consumer use of digital wallets, while providing the same protections that apply to traditional credit card accounts. The final rule also delays the effective date of these provisions until April 1, 2019.
The CFPB's final rule is available at: http://files.consumerfinance.gov/f/documents/cfpb_prepaid_final-rule_2018-amendments.pdf.
UK Financial Conduct Authority Provides Reassurance for Manufacturers of Packaged Retail and Insurance-based Investment Products
On January 24, 2018, the U.K. Financial Conduct Authority issued a public statement on the Packaged Retail and Insurance-based Investment Products Regulation, which took effect on January 1, 2018.
The PRIIPs Regulation requires manufacturers of PRIIPs to prepare and publish a stand-alone, standardized Key Information Document for each of their PRIIPs. Those advising retail investors on PRIIPs, or selling PRIIPs to retail investors, must provide the retail investors with a KID in good time before the transaction is concluded.
The information to be included in a KID is set out in Regulatory Technical Standards and includes information on risks, performance scenarios, costs and other pre-contractual information. Some PRIIPs manufacturers have expressed concerns to the FCA that the "performance scenario" information required in the KID may in some cases (and for valid reasons) appear too optimistic and have the potential to mislead consumers. This would contravene the regulatory obligations of those manufacturers to act in the clients' best interests and to ensure communications are fair, clear and not misleading. The FCA has confirmed that, where a PRIIPs manufacturer has concerns that the "performance scenario" information might be misleading, the manufacturer may provide explanatory materials to put the calculation in context and set out its concerns for investors to consider. The FCA also invites sellers of, or advisers on, PRIIPs to consider how best to address similar issues, for example by providing additional information in communications.
The FCA statement is available at: https://www.fca.org.uk/news/statements/statement-communications-relation-priips.
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