Insights from Winston & Strawn

CFPB Proposals Regarding Debt Collection Practices

On July 28th, the Consumer Financial Protection Bureau (CFPB) released an “Outline of Proposals under Consideration and Alternatives Considered” regarding debt collection practices. These proposals deserve serious review, as debt collection is currently a $13.7 billion industry and these proposals have the potential to substantially overhaul the practices and marketplace of the debt collection industry. The primary goals of the proposals fall into a few major categories:

  1. Increasing the accessibility of information regarding a party’s debt by requiring additional disclosures to consumers, much of which must be contained in a plain-language format. Previously, debt collection notices from these agencies often chose to repeat, word for word, language from the relevant statutes. The CFPB is concerned that such letters present too much legalese for the average consumer.
  2. Increasing disclosures regarding consumers’ rights to dispute debt, as well as making the process for disputing such debt easier. For example, one proposal under consideration would mandate the inclusion of a “tear off” sheet at the bottom of each collection notice, allowing consumers to immediately send back the “tear off” sheet as notice to the collection agency that they were disputing the validity of the debt.
  3. Limiting the number of times and available channels that a debt collector can use to contact a consumer. For example, one provision would limit collectors on each account to no more than six attempts per week to contact a consumer they have not previously reached. This cap would cover all contact attempts through various phone numbers, email addresses, or postal addresses, including unanswered calls and voicemails. After the consumer has been contacted initially, a collector then would generally be limited on each account to one actual contact per week and no more than three attempted contacts per week.

A key point of the proposals is that if a dispute was not resolved when sold between debt collection agencies, the dispute would follow the debt and the new agency would be prevented from making collection efforts until it had resolved the dispute.

In connection with the release of the proposals, CFPB Director Richard Cordray gave a speech highlighting some of the elements of the proposals and the reasons the CFPB was taking these actions. In a significant development, Cordray also indicated that the CFPB plans to address first-party debt collectors soon. A copy of his remarks is available here.

A copy of the proposals being considered is available here.

While these proposals are currently only being considered by the CFPB, and have not been formally presented as proposed rules, any organization that must comply with the Fair Debt Collection Practices Act should carefully review these proposals and consider how they would impact their organization.

Winston & Strawn is actively monitoring this situation as well as other actions taken by the CFPB, and we will keep you updated with relevant information. Please contact a member of the Financial Services Regulatory Practice Group or your normal Winston & Strawn attorney with any questions regarding this matter.

Feature: U.K. Financial Conduct Authority Completes Review of Conflicts of Interest in Equity Market Dark Pools

On July 21st, the U.K. Financial Conduct Authority (“FCA”) published a report containing the findings of its thematic review of dark pools in the U.K equity market. The FCA’s review, launched as part of its 2015/2016 business plan, sought to examine conflicts of interest in these trading venues, which keep the details of order price and volume hidden and permit users to submit orders anonymously.

Dark pools have attracted increased scrutiny by regulators and the public after high-profile investigations in the U.S. earlier this year raised concerns that dark pool operators were misleading investors about their operations and that more sophisticated users gained an unfair advantage over other dark pool users. The FCA noted that the U.K. market and its regulation differ significantly from the U.S., especially in its approach to best execution obligations, and emphasized that it did not observe any violations of regulatory requirements during its review.

Although the FCA concluded that dark pools were complying with regulations and users identified many benefits of trading in dark pools, including additional liquidity; the reduced risk of revealing information about their trading activity; and the potentially beneficial impact on pricing and costs, the FCA identified areas where dark pool operators could improve their promotional practices and management of conflicts of interest. The FCA recommended that operators offer clear detail to users about the design and operation of their dark pools in their disclosure materials, especially regarding how a dark pool interacts with an operator’s wider electronic trading platform. The FCA also recommended that operators take steps to ensure that clients understand these disclosures. The FCA further noted that the monitoring of activity in dark pools by broker crossing networks was “weak” and suggested that operators increase their monitoring of operational integrity, best execution, client preferences, and unwanted trading activity. In addition, the FCA determined that dark pool operators should take additional measures to identify and manage conflicts of interest, both between clients and between the operator and its clients, by strengthening policies and procedures for oversight and conducting more frequent independent assessments.

In making its recommendations, the FCA addressed the impact of the U.K. referendum vote on EU membership on current and future U.K. financial regulations, which mostly derive from EU legislation. The FCA noted that the long term impact of the U.K.’s exit from the EU on the overall regulatory framework is not yet clear and that firms should continue to abide by all applicable regulations currently in effect. The FCA also advised firms to continue preparing for new EU rules for dark pools under the Directive on Markets in Financial Instruments (“MiFID II”), which will place limits on the volume of trading in any individual stock that can take place in a dark pool. These rules will become effective in January 2018.

FINRA – Regulatory Matters at a Glance

Please click here to view a summary of the regulatory notices, rule filings, guidance and the like published by the Financial Industry Regulatory Authority (“FINRA”) during the previous month.

Banking Agency Developments


OCC Issues ‘Corporate and Risk Governance’ Booklet

On July 29th, the Office of the Comptroller of the Currency (“OCC”) announced that it has issued the “Corporate and Risk Governance” booklet of the Comptroller’s Handbook. This new booklet provides examiners with an overview of corporate and risk governance, the associated risks, the board and management’s roles in these activities, and examination procedures to use during supervisory activities that focus on evaluating national banks’ and FSAs’ corporate and risk governance.

SNC Review Finds Risk Remains High, but Underwriting and Risk Management Improve

On July 29th, the OCC announced the release of the SNC review of large shared and complex credits, which determined that credit risk in the Shared National Credit (“SNC”) portfolio remained elevated, but underwriting and risk management practices improved from prior assessments. The SNC Program Review has been conducted by the OCC, the Board of Governors of the Federal Reserve System (“Federal Reserve Board”), and the Federal Deposit Insurance Corporation (“FDIC”) since 1977.

Federal Reserve

Comment Period Extended for ANPR Detailing Conceptual Frameworks for Capital Standards

On July 25th, the Federal Reserve Board announced that it has extended the comment period for the advanced notice of proposed rulemaking (“ANPR”) detailing conceptual frameworks for capital standards that could apply to systemically important insurance companies and to insurance companies that own a bank or thrift. Comments that were originally due by August 17, 2016 are now due by September 16, 2016.

Treasury Department Developments

Treasury Department

U.S., EU Participants Meet at Joint Financial Regulatory Forum

On July 25th, the Treasury Department summarized the meeting between U.S. and EU participants that recently took place at the Joint Financial Regulatory Forum in Washington, D.C. Issues discussed by the forum included: (i) the upcoming steps in finalizing the international regulatory reform agenda in banking; (ii) the importance of engaging in discussions regarding the equivalence of U.S. swaps trading platforms under the EU’s Markets in Financial Instruments framework; and (iii) the importance of implementing the G-20 financial regulatory reforms.


FinCEN Expands Reach of Real Estate ‘Geographic Targeting Orders’ Beyond Manhattan and Miami

On July 27th, the Financial Crimes Enforcement Network (“FinCEN”) announced Geographic Targeting Orders (“GTO”) that will temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas.

Securities and Exchange Commission


Corporation Finance Revises Guidance on Required Disclosures by Selling Security Holders under Regulation S-K

On July 26th, the Securities and Exchange Commission’s (“SEC”) Division of Corporation Finance revised its Compliance and Disclosure Interpretations (“C&DIs”) on Item 507 of Regulation S-K, which addresses selling security holders. The Division withdrew Question 240.04 and replaced Question 140.02 with a revised version, which discusses how selling security holders that are not natural persons can satisfy the obligation to disclose the nature of any position, office, or other material relationship that they have had with the registrant or any of its predecessors or affiliates. Regulation S-K C&DI 140.02.

Exemptive Orders and No-Action Relief

IEX Granted Limited Exemption from Securities Exchange Act Rule 10b-10’s Requirement to Identify Contra-Parties

The SEC issued an order on July 26th granting Investors’ Exchange LLC (“IEX”) a limited exemption from contra-party identification requirements under Securities Exchange Act Rule 10b-10(a)(2)(i)(A), which requires a broker-dealer acting as agent for a customer or some other person to disclose the name of the person who purchased or sold a security prior to the completion of the transaction. The exemption is limited to trades that IEX members execute on the exchange using IEX’s post trade anonymity feature. SEC Release No. 34-78417.

Division of Trading and Markets Grants IEX’s Request for No-Action Relief from Exchange Act Rule Requirements for Agent Identification and Books and Records Retention.  On July 26th, the SEC’s Division of Trading and Markets granted IEX’s request for no-action relief for an IEX member to confirm that it has acted as agent when it submits a customer's order to IEX, in its role as the customer's agent, and the order is executed in a trade with an anonymous contra-party that turns out to be the member or one of its affiliates trading in a principal (including proprietary) capacity. The no-action relief is limited to situations in which the member submitting a principal order does not have knowledge about the customer orders submitted by the member, or vice versa, and the member does not determine or influence the selection of the contra-party against which customer orders will be executed. The Division of Trading and Marketsalso granted IEX’s request for no-action relief for IEX members that rely on IEX to make, keep current, and preserve a record of the identities of the members that execute anonymous trades on IEX to fulfill the requirements of Securities Exchange Act Rules  17a-3(a)(1) and 17a-4(a). No-Action Letter.

Other Developments

SEC Releases Agenda for Equity Market Structure Advisory Committee Meeting

The SEC announced the agenda for the upcoming meeting of the Equity Market Structure Advisory Committee, which will take place on August 2, 2016. The meeting will focus on recommendations related to market quality and customer issues, as well as updates from the subcommittees. The Equity Market Structure Advisory Committee invited the public to submit written comments on the matters it will discuss at the meeting. SEC Press Release.

Private Fund Statistics

On July 27th, the SEC’s Division of Investment Management released private fund statistics for the fourth quarter of 2015.

Money Market Fund Statistics

On July 26th, the SEC’s Division of Investment Management issued updated money market fund statistics. The statistics contain data as of June 30, 2016.

Staff Announcements

The SEC announced on July 22nd that Vincente L. Martinez, Chief of the SEC’s Office of Market Intelligence, will leave the agency in early August. The SEC also announced the departure of Deputy Chief Accountant Brian T. Croteau.

Commodity Futures Trading Commission

CFTC, Four Canadian Authorities Sign Counterparts to MOU to Enhance Supervision of Cross-Border Regulated Entities

On July 28th, the U.S. Commodity Futures Trading Commission (“CFTC”) announced that Chairman Timothy Massad signed Counterparts with authorities in four Canadian provinces or territories to a 2014 Memorandum of Understanding (“MOU”) regarding cooperation and the exchange of information in the supervision and oversight of regulated entities that operate on a cross-border basis in the U.S. and in Canada. Chairman Massad signed the Counterparts to the MOU with Fred Pretorius, Superintendent of Securities in the YukonTerritory; Thomas Hall, Superintendent of Securities in the Northwest Territories; Jeff Mason, Superintendent of Securities in Nunavut; and Steven Dowling, Superintendent of Securities in Prince Edward Island. The scope of the MOU includes markets and organized trading platforms, central counterparties, trade repositories, intermediaries, dealers, and other market participants.

CFTC Proposes to Amend Conditions for Exemption from Registration for Certain Foreign Persons

On July 27th, the CFTC announced that it will publish in the Federal Register proposed amendments to CFTC Regulation 3.10(c). The proposed amendments would amend conditions for exemption from registration for certain foreign persons in connection with commodity interest transactions exclusively on behalf of persons located outside the U.S. or on behalf of certain international financial institutions. The CFTC is seeking comment on the proposed amendments. The comment period ends 30 days after the proposal’s publication in the Federal Register.

CFTC Announces Fourth Whistleblower Award

On July 26th, the CFTC announced an award of approximately $50,000 to a whistleblower who voluntarily provided significant original information that led to a successful CFTC enforcement action. This is the fourth award made by the CFTC’s Whistleblower Program to a whistleblower who provided valuable information about violations of the Commodity Exchange Act, and the third whistleblower award made in the last 10 months.

Staff Issues Advisory Clarifying CCO Reporting Line Requirements

On July 25th, the CFTC’s Division of Swap Dealer and Intermediary Oversight announced its issuance of a staff advisory regarding chief compliance officer (“CCO”) reporting line requirements for swap dealers, major swap participants, and futures commission merchants under Commission Regulation 3.3. The advisory clarifies Regulation 3.3’s required elements and addresses additional supervisory relationships that a CCO may have with senior management.

Federal Rules Effective Dates

Click here to view table.

Exchanges and Self-Regulatory Organizations


BATS Exchange’s Proposed Generic Listing Standards for Managed Fund Shares Gains SEC Approval

On July 22nd, the SEC approved BATS Exchange, Inc.’s (“BZX”) proposed rule change to adopt generic listing standards for Managed Fund Shares. SEC Release No. 34-78396.

Financial Industry Regulatory Authority

FINRA Offers Guidance on Arbitration Agreement Rules

The Financial Industry Regulatory Authority (“FINRA”) published a Regulatory Notice on July 22nd that reminded firms of FINRA’s rules regarding its arbitration forum and pre-dispute arbitration agreements. In the notice, FINRA maintained that agreements with customers or associated persons that require them to waive their right to arbitration under FINRA’s rules, agree to another dispute resolution process, or arbitrate in a venue other than the FINRA arbitration forum would violate FINRA’s rules and make member firms subject to possible disciplinary action. FINRA Regulatory Notice 16-25.

International Securities Exchange

SEC Rejects ISE Exchanges’ Proposals to Require Clearing Member Approval for Market Makers to Resume Trading After a Market-Wide Speed Bump

On July 27th, the SEC issued orders disapproving the International Securities Exchange’s (“ISE”) and ISE Gemini, LLC’s (“ISE Gemini”) separately filed proposals to amend their respective rules to require clearing member approval for a market maker to resume trading after the activation of a market-wide speed bump. In its disapproval orders, the SEC noted that the exchanges failed to address concerns about how the proposals would impact continuous quoting obligations of market makers and to explain sufficiently why the proposed rules would result only in a minimal delay for a market maker to resume quoting.

International Swaps and Derivatives Association

ISDA Announces FRTB Data Standards Initiative

On July 28th, the International Swaps and Derivatives Association (“ISDA”) announced that it has launched a new project to develop standard data requirements in response to the Basel Committee on Banking Supervision’s Fundamental Review of the Trading Book (“FRTB”). The initiative will seek to gain industry consensus on the interpretation of risk-factor modellability rules under the FRTB and generate a common set of business requirements for risk-factor assessment and data capture. ISDA Press Release.

ISDA Clearing Letter Now Includes Hong Kong Clearing Classifications

On July 25th, ISDA published a clearing classification letter containing a new appendix for Hong Kong clearing classifications. The clearing letter allows counterparties to communicate their classification status under the Hong Kong mandatory clearing regime, which will become effective on September 1, 2016. ISDA Press Release.


NYSE Arca Receives SEC Approval to Adopt Generic Listing Standards for Managed Fund Shares

On July 22nd, the SEC issued an order approving a proposed rule change filed by NYSE Arca, Inc. (“NYSE”) that would permit the exchange to adopt generic listing standards for Managed Fund Shares. SEC Release No. 34-78397.

Judicial Developments

Panel Affirms Insider Trading Conviction of Tile Salesman Who Gave Stock Tips to Golfing Buddies in Anticipation of Steak Dinners

Defendant Eric McPhail, a tile salesman, was convicted at a 2015 jury trial of committing securities fraud after receiving material, non-public information from a corporate insider and then passing that information along to golfing buddies who then used it to obtain substantial trading gains of nearly $500,000. The First Circuit affirmed the conviction on July 26th, determining that the government’s evidence properly showed that McPhail anticipated receiving a personal benefit, in the form of steak dinners, in return for the stock tips even if the promised benefit of steak dinners never materialized. McPhail.

Industry News

Anticipating Competition from New Stock Exchange, Nasdaq Is Seeking Customer Feedback on Possible New Features

On July 27th, Bloomberg reported that Nasdaq Inc. is seeking customer feedback on adding a “speed bump” to delay orders for one or more of its U.S. markets. CEO Robert Greifeld stated that the company is asking clients what features or changes they would like to see, as it anticipates IEX Group Inc.’s August arrival. In June, the SEC approved IEX’s request to run a stock market with a “speed bump” in the form of 350-microsecond delay to orders.

U.S. Government Monitor Says U.S. Financial Stability Faces Threat from Brexit

On July 25th, Reuters reported on the Office of Financial Research’s statement that the U.S. financial system faces greater potential instability due to Britain's decision to leave the European Union while low and negative interest rates also raise risks.