Insights from Winston & Strawn 

Two Ranking Members of the House and Senate Move to Intervene on Behalf of the CFPB

On January 26, Sen. Sherrod Brown (D-Ohio), a ranking member of the Senate Banking Committee, and Rep. Maxine Waters (D-Calif.), a ranking member of the House Financial Services Committee, filed a motion (“Motion”) to intervene in the Consumer Financial Protection Bureau’s (“CFSB”) petition to the Court of Appeals for the D.C. Circuit for a rehearing en banc of the Circuit’s previous decision, which found that certain parts of the CFPB structure were unconstitutional.

Specifically, in October 2016, a panel of the D.C. Circuit found that the provision of the Dodd-Frank Act that established that the CFPB would be headed by a single Director who could not be removed by the President except for cause, violated Article II of the Constitution. As a remedy, the Court ordered that the “for cause” provision be severed from the statute, giving the President the power to supervise, direct, and remove the CFPB Director at any time, and essentially transforming the CFPB into an executive agency. The CFPB filed a petition for hearing en banc in November 2016.

In their Motion, Sen. Brown and Rep. Waters claim that they have standing to intervene because they both voted for the Dodd-Frank Act, and the Court’s decision nullifies their votes on the Dodd-Frank Act, as well as votes they may cast in favor of creating other single-director agencies in the future. Furthermore, the Motion claims that the CFPB may not be adequately represented in this case, since there are indications that the Trump Administration will seek to remove the current CFPB Director, obtain control over the CFPB’s litigation strategy, and cease defending the constitutionality of the CFPB’s independent status. In addition, the Motion continues, the Trump Administration’s Justice Department may refuse to allow the CFPB to seek Supreme Court review of the D.C. Circuit’s decision.

Sen. Brown and Rep. Waters join 17 state attorneys general and consumer advocates who also filed motions in support of the CFPB.

Feature: U.K. Supreme Court’s Ruling Introduces Wrinkle into Government’s Brexit Plans 

On January 24th, the U.K. Supreme Court placed a potential stumbling block in the U.K.’s path toward an exit from the European Union when it ruled that Prime Minister Theresa May must seek parliamentary approval before initiating the country’s withdrawal from the EU. The court held that the 1972 European Communities Act, which brought the U.K. under EU law, “constitute[d] EU law” as a “new, independent, and overriding source of domestic law” in the U.K., making the decision to withdraw a significant constitutional change that must be legislated by Parliament.

The court’s ruling complicates the U.K. prime minister’s plans for a clean break from the EU, which she outlined in a speech on January 17th. In the speech, Prime Minister May made clear that Britain would not remain in the EU single market by insisting that the U.K. would not accept a deal that required the U.K. to relinquish its ability to limit immigration or remain subject to the European Court of Justice, a plan known as a “hard Brexit.” Following May’s remarks, European Commission President Jean-Claude Juncker remarked that Brexit negotiations would be “very, very, very” difficult and the EU’s chief negotiator, Guy Verhofstadt, criticized May for suggesting that she would use the threat of Britain becoming a tax haven as leverage in negotiating its access to the single market.

While the court’s decision is not likely to derail Brexit altogether — Labour Party leader Jeremy Corbyn indicated that his party would respect the vote of their constituents and not try to block Brexit — the ruling opens the door for Parliament to shape the terms of the deal. Bloomberg reported that members of several opposition parties plan to introduce amendments to any proposed legislation, which could require the government to provide Parliament with regular updates on negotiations, push for the U.K. to retain “full, tariff-free access to the single market,” or compel the government to subject the final deal to a second referendum vote. The Guardian indicated that the government planned to move swiftly by introducing a “straightforward” Brexit bill within days of the court’s ruling in hopes that the government could meet its proposed deadline of beginning negotiations by the end of March. Indeed, the New York Times reported that May submitted a brief bill consisting of 132 words to Parliament just two days after the court issued its ruling. Opposition leaders urged the government to publish its Brexit plan as a white paper so Parliament could review the details.

The financial markets reflected the uncertainty regarding Brexit’s path forward as the pound fell following the announcement of the court’s ruling. Some experts cited by the Independent speculated that the ruling may have a positive effect on financial markets in the long term, as it reduces the likelihood of a hard Brexit, while others predicted that the additional uncertainty and conflicts surrounding the eventual Brexit negotiations could put a damper on any rally. The U.K. financial services sector, which is experiencing declining optimism about the trading environment in a post-Brexit landscape, faces additional uncertainty as the fate of the U.K.’s access to the EU single market is negotiated. Industry officials interviewed by Reuters predict that Brexit could result in the loss of tens of thousands of financial services jobs if the U.K. loses access to the single market. The CEO of HSBC appeared to anticipate in an interview that the bank would need to move approximately 20 percent of its London revenue to Europe following Brexit, since the U.K. would likely lose its financial services passport. A report by the International Regulatory Strategy Group concluded that the U.K. must negotiate a customized deal with the EU for its financial services sector since the current provisions for financial services regimes outside the EU are not sustainable for the industry. Anthony Belchambers, writing for The Financial Times, maintained that regulatory equivalence, while “less certain than access gained through” a passport, is the U.K.’s most realistic and less costly option.

Banking Agency Developments


OCC Issues Final Rule Adjusting Civil Money Penalties for Inflation

On January 27th, the Office of the Comptroller of the Currency (“OCC”) published a final rule amending its rules of practice and procedure for national banks and federal savings associations to adjust the maximum amount of each civil money penalty within its jurisdiction. The rule became effective on January 27, 2017, and the adjusted maximum amounts apply to penalties assessed after January 15, 2017, for violations that occurred on or after November 2, 2015. OCC Bulletin 2017-8.

Supplemental Examination Procedures

On January 24th, the OCC announced that it is issuing examination procedures to supplement OCC Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” issued October 30, 2013. The supplemental procedures promote consistency when examining national banks and federal savings associations’ risk management of third-party relationships.   

Federal Reserve

Federal Reserve Issues Progress Report on Efforts to Improve the U.S. Payment System

On January 26th, the Federal Reserve announced its release of a progress report outlining accomplishments and anticipated steps related to the ongoing initiatives to enhance the speed, efficiency and security of the U.S. payment system.

Securities and Exchange Commission

Final Rules

SEC Approves Changes to EDGAR Filer Manual

On January 26th, the SEC adopted revisions to the EDGAR Filer Manual and related rules to reflect updates to the EDGAR system, which include changes to support an upgrade to the passphrase authentication process and to update the recommended Internet browser language for all EDGAR websites. The revisions to the manual will be effective upon publication in the Federal Register.     

No Action Letters

Investment Management Clarifies Application of Rule 12d1-2 to Closed-End Funds

In response to a request for interpretive guidance, the SEC’s Division of Investment Management published a no-action letter on January 25th in which it concurred with the view that, for the purposes of Rule 12d1-2(a)(1) under the Investment Company Act, the term “group of investment companies” does not include closed-end investment companies. The Division also clarified that its interpretation would permit a registered open-end investment company or a registered unit investment trust to rely on Rule 12d1-2(a)(1) to invest in a closed-end investment company regardless of whether the two companies hold themselves out to investors as related companies for purposes of investment and investor services.     

Other Developments

Piwowar Designated Acting SEC Chair

MarketWatch reported on January 26th that Michael S. Piwowar has been named acting chair of the SEC, a move widely expected while nominee Jay Clayton awaits confirmation as SEC chair by the Senate.

SEC Announces Public Meeting of Small and Emerging Companies Advisory Committee

The SEC’s Advisory Committee on Small and Emerging Companies will meet on February 15, 2017, to discuss matters relating to rules and regulations affecting small and emerging companies under the federal securities laws. Written statements to the Committee should be submitted on or before February 13, 2017. SEC Meeting Notice.

Staff Announcements

On January 27th, the SEC announced that SEC Chief Operating Officer Jeffery Heslop is planning to leave the agency in February. On January 24th, the SEC announced the retirement of Timothy L. Warren, Associate Director of Enforcement in the Chicago Regional Office. Warren, who has worked for the SEC for more than 30 years, will retire at the end of January.

Three Whistleblowers Split $7 million Award

On January 23rd, the SEC announced that it has awarded $7 million to three whistleblowers who provided information that assisted the SEC in investigating and bringing an enforcement action related to an investment scheme. SEC Commission Notice.

Commodity Futures Trading Commission

Final Rules

Annual Adjustment of Civil Monetary Penalties for Inflation

On January 23rd, the Commodity Futures Trading Commission (“CFTC”) published an interim final rule amending its rule that governs the maximum amount of civil monetary penalties, to adjust for inflation. This interim final rule became effective on January 23, 2017.     

Proposed Rules

Proposed Amendments to Swap Data Access Provisions

On January 25th, the CFTC proposed amendments to its regulations relating to access to swap data held by Swap Data Repositories. The proposed amendments would implement relevant provisions of the FAST Act and make associated changes governing the granting of access to swap data to foreign and domestic authorities by Swap Data Repositories and to other regulations unrelated to such access. Comments on the proposal must be received by March 27, 2017.

CFTC Proposes Technical Amendments to Rules on Registration and Review of Exchange Disciplinary, Access Denial or Other Adverse Actions

On January 23rd, the CFTC proposed technical amendments to its regulations that govern registration and review of exchange disciplinary, access denial or other adverse actions. The amendments would integrate existing advisory guidance, and the amendments to 17 CFR Part 9 would also incorporate swap execution facilities and update provisions currently applicable to designated contract markets. Comments must be received by March 24, 2017.   

Requests for Comment

CFTC Extends Comment Period for the Supplemental Proposal for Regulation Automated Trading

On January 23rd, the CFTC announced that it is extending the comment period for the supplemental proposal for Regulation Automated Trading to May 1, 2017.    

No-Action Relief

CFTC Grants No-Action Relief to FCMs from Prohibition on Withdrawals of Excess Residual Interest

On January 26th, the CFTC’s Division of Swap Dealer and Intermediary Oversight (“DISO”) extended no-action relief to futures commission merchants (“FCMs”) from Commission Regulation 22.17(b) with respect to withdrawals of FCM excess residual interest. The no-action position would permit FCMs to withdraw excess residual interest to the extent that margin payments have been deposited by Cleared Swaps Customers to reduce the undermargined amount in the Cleared Swaps Customer Accounts, as long as the amount of excess residual interest would only be reduced to the extent that the FCM can demonstrate that it corresponds to the amounts deposited by Cleared Swaps Customers to satisfy the undermargined amounts.     

Other Developments

CFTC General Counsel to Leave Agency

On January 26th, the CFTC announced that General Counsel Jonathan L. Marcus will depart the agency and that Robert A. Schwartz, currently the Deputy General Counsel for Litigation and Adjudication, will become the Acting General Counsel.

J. Christopher Giancarlo Named Acting Chairman

On January 20th, the CFTC announced that it has designated Commissioner J. Christopher Giancarlo as its Acting Chairman. Commissioner Giancarlo succeeds Timothy Massad, who served as Chairman since June 5, 2014.

Federal Rules Effective Dates

January 2017 – March 2017

Click here to view table. 

Exchanges and Self-Regulatory Organizations

BATS Global Markets

SEC Approves Changes to BZX’s Reopening Auction Process Following a Trading Halt

On January 26th, the SEC approved a proposed rule change filed by Bats BZX Exchange Inc. (“BZX”) that would revise BZX’s re-opening process following a trading halt by establishing a “Halt Auction Reference Price” and a “Halt Auction Collar” for Halt Auctions following a Trading Pause, among other changes. SEC Release No. 34-79884.

BATS Exchanges Withdraw Proposed Changes to Options Regulatory Fee

On January 23rd, the SEC announced that Bats EDGX Exchange Inc. (“EDGX”) and BZX have withdrawn their separately filed proposals to amend their respective rules to modify the Options Regulatory Fee.     

Financial Industry Regulatory Authority

FINRA Announces New Webpage for TRACE for Treasuries Project

On January 25th, the Financial Industry Regulatory Authority (“FINRA”) announced that it has created a dedicated webpage designed to help firms transition to the reporting of Treasuries transactions to the Trade Reporting and Compliance Engine (“TRACE”).      

Fixed Income Clearing Corporation

SEC Approves Changes to FICC’s Methodology Used in the MBSD VaR Model

On January 24th, the SEC issued an order approving a proposal filed by the Fixed Income Clearing Corporation (“FICC”) to change the methodology that it currently uses in the Mortgage-Backed Securities Division’s (“MBSD”) value-at-risk (“VaR”) model; amend the definition of VaR Charge to reference an alternative volatility calculation and to include a VaR floor; eliminate two components from the Required Fund Deposit calculation; and change the margining approach that FICC may use for certain securities with inadequate historical pricing data.  SEC Release No. 34-79868.    

Miami International Securities Exchange

MIAX Gains Approval of Changes to Price Improvement Mechanism

On January 18th, the SEC approved Miami International Securities Exchange LLC’s (“MIAX”) proposal to amend the eligibility requirements for the MIAX Price Improvement Mechanism (“PRIME”) and make permanent a pilot program for PRIME that permits orders of any size to initiate a PRIME Auction at a price that is at or better than the national best bid or offer. SEC Release No. 34-79837.  


SEC Approves Nasdaq’s Proposal to Modify Reopening Auction Process Following a Trading Halt

On January 25th, the SEC issued an order approving The Nasdaq Stock Market LLC’s (“Nasdaq”) proposed rule change to revise its re-opening process following a trading halt by establishing a “Halt Auction Reference Price” and a “Halt Auction Collar” for Halt Auctions following a Trading Pause, among other changes. SEC Release No. 34-79876.

Nasdaq Withdraws Retail Post-Only Order Proposal

On January 25th, the SEC provided notice that Nasdaq has withdrawn its proposal to amend its rules to adopt a new Retail Post-Only Order. SEC Release No. 34-79874.     

National Futures Association

NFA Encourages Members to Review Updates to AML/CFT Deficient Jurisdictions List

On January 20th, the National Futures Association (“NFA”) notified members of the Financial Crimes Enforcement Network’s (“FinCEN”) advisory that reports changes to the list of jurisdictions with strategic anti-money laundering (“AML”) and combating the financing of terrorism (“CFT”) deficiencies. The NFA advised future commission merchant and introducing broker members to review and revise their AML programs to ensure that they have the most current information on jurisdictions with AML/CFT deficiencies. 

Industry News

Confirmation Process of SEC Chair Is Moving Forward

On January 26th, Reuters reported that the confirmation process for Jay Clayton as chair of the SEC seems to be moving forward without any snags. Although Democrats are expected to question Clayton’s ties to Wall Street at his confirmation hearing, which could come as early as the week of February 6th, they will be unable to block him without some support from Republicans.     

NYSE to Introduce its Own ‘Speed Bump.’

On January 25th, Bloomberg reported that NYSE Group Inc., which aggressively opposed IEX Group Inc.’s proposal to run an exchange with a “speed bump,” will itself introduce a 350-microsecond delay on orders at NYSE American (previously known as “NYSE MKT exchange”). In addition, NYSE American will add a new order type called a discretionary peg, a so-called dark order because it is not publicly displayed. Both new features closely copy the way IEX’s Investors Exchange works. 

Republicans Plan to Kill SEC Rule on Oil, Gas and Mining Companies

On January 25th, The Wall Street Journal reported that Congressional Republicans are preparing to kill an SEC Dodd-Frank Act rule on oil, gas and mining companies that is said to foil corruption in the resource sectors. Pursuant to the rule, which is set to go into effect in 2018, oil, gas and mining companies must disclose the payments that they make to foreign governments for things that include licenses and permits necessary for development. Many have said that these sorts of payments can be used to hide bribes to secure business.   

Mnuchin’s Comments Suggest That the U.K. Could Be a Model for U.S. Banking Regulation

On January 25th, The Wall Street Journal reported that recent comments made by Treasury Secretary Steven Mnuchin suggest that he might be looking to the U.K. for inspiration on banking regulation under the Trump Administration. Without giving any specifics, Mnuchin in his Senate testimony last week and written responses to senators this week repeatedly raised the possibility of some sort of “21st Century Glass-Stegall.”     

Chamber of Commerce Comments on Bank Regulators’ Cybersecurity Approach

On January 18th, the U.S. Chamber of Commerce sent a comment letter to the Federal Reserve Board, the FDIC and the OCC, suggesting that they avoid imposing “prescriptive cybersecurity standards” on the financial sector and, as an alternative, support entities implementing a “risk-based” method to address their unique threats. The Chamber noted that imposing rigid cybersecurity standards on financial sector entities “would lead to standards that may become rapidly obsolete, an emphasis on compliance rather than security, and the potential undermining of existing public-private collaboration to mitigate cyber threats.” ThinkAdvisor.