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US Regulatory Update


Capital Formation Legislative Proposals

On 9 March, the House Financial Services Committee approved six bills intended to enhance capital formation:

o   H.R. 910, the Fair Access to Investment Research Act of 2017, introduced by Rep. French Hill (R-AR), would require the SEC: (i) to provide a safe harbor related to certain investment fund research reports that are published or distributed by a broker-dealer so that they are not deemed to constitute an offer to sell a security; and (ii) to exempt broker-dealers distributing research regarding SEC-registered investment companies from certain applicable rules.

o   H.R. 1219, the Supporting America’s Innovators Act of 2017, introduced by Rep. Patrick McHenry (R-NC), would expand the investor limitation for qualifying venture capital funds under a limited exemption from the definition of an investment company. 

o   H.R. 1257, the Securities and Exchange Commission Overpayment Credit Act, introduced by Rep. Gregory Meeks (D-NY), would require the SEC to refund or credit excess payments made by exchanges to the SEC.

o   H.R. 1366, the U.S. Territories Investor Protection Act of 2017, introduced by Rep. Nydia Velazquez (D-NY), would terminate an Investment Company Act exemption from registration for companies located in Puerto Rico, the Virgin Islands, and other U.S. territories and would require the funds to come into compliance with the Investment Company Act within three years of the enactment of the bill.

o   H.R. 1343, the Encouraging Employee Ownership Act of 2017, introduced by Rep. Randy Hultgren (R-IL), would require the SEC to increase the threshold amount of securities that may be sold before requiring issuers to provide certain disclosures related to the compensation benefit plans.


OIRA Insight, Reform, and Accountability Act

On 1 March, the House of Representatives passed, by a vote of 241-184, H.R. 1009, the OIRA Insight, Reform, and Accountability Act, a legislative proposalintroduced by Rep. Paul Mitchell (R-MI). The bill would codify certain practices of the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) required under Executive Order 12866 and direct OIRA to conduct a government-wide review of significant regulatory actions to ensure that regulatory actions are consistent both with applicable law and among agencies. Specifically, the bill would expand OIRA’s review to include independent agencies (such as the SEC and CFTC), which are currently exempted under Executive Order 12866. It would also require all agencies to submit significant regulatory actions to OIRA for review before issuance, including a detailed description of the regulatory action and an assessment of potential costs and benefits. Following the review of each regulatory action, OIRA would be required to publish all documents and information submitted by the agency and exchanged between OIRA and the agency for the review online. The bill would also require OIRA to publish the results of its review online. Furthermore, the bill would require each agency to: (i) submit a regulatory plan describing each significant regulatory action that the agency reasonably expects to propose or adopt in the following fiscal year to OIRA; (ii) determine whether such regulatory action is expected to be “economically significant”; and (iii) submit a retrospective review of regulatory actions that should be modified and eliminated.

Regulatory Integrity Act of 2017

On 2 March, the House of Representatives passed, by a vote of 246-176, H.R. 1004, the Regulatory Integrity Act of 2017, a legislative proposal introduced by Rep. Tim Walberg (R-MI). The bill would require executive agencies to make publicly available, for each pending “regulatory action”: (i) the date the agency began to develop or consider the action; (ii) the status of the action; (iii) an estimate of the date when the action will be final and in effect; and (iv) a description of the action. The bill would define “regulatory action” broadly to include guidance, policy statements, directives, rulemakings, and adjudication issued by an executive agency.

Reorganizing the Executive Branch

On 13 March, President Trump signed an Executive Order that directs the OMB to propose a plan to reorganize the executive branch in order to improve the efficiency, effectiveness, and accountability of governmental agencies. Among other things, the Executive Order mandates that the proposed plan should include recommendations to: (i) eliminate unnecessary agencies, components of agencies, and agency programs; (ii) merge functions of different agencies where appropriate; and (iii) consider any legislation or administrative measures necessary to achieve the proposed reorganization.


On 1 March, the House of Representatives passed, by a vote of 240-185, H.R. 998, the Searching for and Cutting Regulations that are Unnecessarily Burdensome Act (SCRUB Act), a legislative proposal introduced by Rep. Jason Smith (R-MO). The bill would: (i) establish a commission to review and determine if rules should be repealed to eliminate or reduce the costs of regulation to the economy; (ii) require agencies to offset the costs of new rules by repealing existing rules; and (iii) require agencies to include a plan for the review of a final rule within 10 years of the rule’s adoption.

Guidelines for Identifying Regulations for Repeal, Replacement, or Modification

On 24 February, President Trump signed an Executive Order setting out the guidelines under which the Administration will implement and enforce its regulatory reform initiatives and identify regulation for repeal, replacement, or modification. The Executive Order mandates that each regulatory agency: (i) appoint an official as the Regulatory Reform Officer who will oversee the agency’s implementation of various regulatory reform initiatives and policies; and (ii) establish a Regulatory Reform Task Force (RRTF) that will evaluate and make recommendations regarding the repeal, replacement, or modification of existing regulations. Specifically, the Executive Order requires each RRTF to identify regulations that: (i) eliminate jobs or inhibit job creation; (ii) are outdated, unnecessary, or ineffective; (iii) impose costs that exceed benefits; (iv) create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies; (v) rely on data or information that are not publicly available or that are insufficiently transparent; and (vi) derive from or implement Executive Orders that have been rescinded or substantially modified. Each RRTF must also submit a report to the respective agency head within 90 days of the Executive Order detailing the agency’s progress towards identifying regulations for repeal, replacement, or modification.

Reducing the Regulatory Reporting Burden

On 16 March, OFR Director Berner delivered a speech on reducing the regulatory reporting burden imposed by the U.S. regulatory system. Director Berner noted that a significant source of the regulatory reporting burden originates from the fragmented financial regulatory structure in the U.S. and cited filing requirements for private funds and pools, leveraged lending, and data collecting for stress tests as examples of inconsistent and duplicative reporting. To address this, he indicated that the OFR: (i) plans to launch in the near future a comprehensive data collection initiative focusing on bilateral repurchase agreements and the securities lending markets; (ii) is currently working with the FSOC to develop a set of common memoranda of understanding provisions, which are agreements signed between agencies for the sharing of data; (iii) plans to develop a metadata repository based on the Interagency Data Inventory created by the FSOC; and (iv) urges U.S. federal financial regulators to adopt the Legal Entity Identifier in regulatory reporting.

Regulatory Transition

On 23 February, House Financial Services Committee Chair Hensarling sent aletter to Federal Reserve Chair Yellen recommending that the Federal Reserve neither propose nor adopt any new rules until the Senate confirms a Federal Reserve Vice Chairman for Supervision. Hensarling indicated that he would work with Congress to scrutinize any actions taken by the Federal Reserve prior to the confirmation of a Vice Chair for Supervision, and, if appropriate, overturn any adopted rules pursuant to the Congressional Review Act.

o   On 10 March, 22 Democratic House Financial Service Committee members sent a letter to Federal Reserve Chair Yellen urging the Federal Reserve to “continue to carry out [its] regulatory responsibilities without fear or favor.” Noting that the Dodd-Frank Act does not transfer any rulemaking authority to the Vice Chair for Supervision, the lawmakers stressed that the Federal Reserve “must not wait to exercise its proper regulatory authority to impose the strictest standards” that it is required to set. 


FSOC SIFI Designations

On 28 February, the House Financial Services Committee published a staff reportcriticizing the FSOC for acting inconsistently and arbitrarily in its designation of non-bank SIFIs. Based on the analysis of non-public FSOC documents and the sworn testimony of Treasury Department officials received by the Committee, the report stated that the FSOC did not adhere to the rules and guidance the Council has set for itself in performing its functions, including: (i) considering “non-systemic risks” when determining whether to make a SIFI designation; (ii) assuming that financial distress at a company will impair financial market function and cause damage to the broader economy without formally making such a determination; (iii) failing to follow requirements that the evaluation of the systemic risk posed by individual firms must be done “in the context of a period of overall stress in the financial services industry and in a weak macroeconomic environment”; (iv) inconsistently applying vulnerability analyses to different companies; and (v) inconsistently considering the use of collateral as a mitigating factor in designation decisions.

Financial Stability Oversight Council Reform Act

On 9 March, Rep. Tom Emmer (R-MN) introduced H.R. 1459, the Financial Stability Oversight Council Reform Act. Among other things, the bill would: (i) give Congress the authority to review and approve the budget for the FSOC and Office of Financial Research (OFR); (ii) establish quarterly reporting requirements for the OFR; (iii) require the OFR to provide at least a 90-day public notice and comment period before issuing any report, rule, or regulation; and (iv) require the OFR to publish annually a detailed work plan concerning the priorities of the Office for the upcoming fiscal year.


System-wide Resilience of CCPs

On 22 February, the OFR published a brief proposing a framework for stress testing CCP resilience in relation to defaults of clearing members. The OFR recommends that regulators use: (i) a common set of underlying factors, such as interest rates or equity prices, to create stress scenarios; (ii) the existing results of individual stress tests against clearing member defaults submitted by CCPs to their respective supervisors to calculate the profit-and-loss impact on clearing members; and (iii) structural default models that are consistent with stress scenarios. The OFR indicated that the framework would not require additional information beyond what is already available to CCP supervisors, and would aggregate the results of existing CCP-specific stress tests into a system-wide stress test.

Public Disclosures and CCPs

On 1 March, the Office of Financial Research (OFR) published a paper on CCP data reporting and public disclosures. The paper analyzes the data reported by four major derivatives CCPs in the U.S., which are subject to the public quantitative disclosure standards set by IOSCO and FSB. It further describes measures that can be used to assess the financial condition and activities of CCPs. The paper found that: (i) CCPs currently hold sufficient resources to withstand losses from clearing member defaults; (ii) the resources exceed the standards set by international regulators; and (iii) the resources are largely held as high-quality, liquid assets. The paper concludes that, although the new public disclosures significantly improved the transparency of the CCPs, there continues to be data gaps and other shortcomings in their public disclosures.


Custody of Client Assets

On 21 February, the SEC’s Division of Investment Management issued a no-actionletter clarifying when an investment adviser has custody of client assets. The Division stated that an adviser has regulatory custody over client assets when a client grants even limited authority to transfer assets to a designated third party.  An example of this would be a standing letter of instruction or other similar asset transfer authorization arrangement established by a client with a qualified custodian. The Division stated, however, that it would extend no-action relief to investment advisers from having to obtain a surprise examination, which is normally required of advisers with custody of client assets where the client does not receive account statements directly from the qualified custodian.

o    The Division also published a guidance update on situations in which an investment adviser may inadvertently have custody over client assets. The Division noted that situations may arise where a custodial agreement between a client and custodian will grant an adviser broader access to a client’s assets than the adviser’s own agreement with the client, providing the adviser with imputed custody over client assets even though the adviser did not intend to have such custody. The Division recommended that advisers take steps to ensure that they do not have custody under these circumstances. These steps could include: (i) providing the custodian with a document that limits the adviser’s authority to issue instructions to transfer assets out of a client’s account; or (ii) reviewing clients’ arrangements with custodians to ensure that such arrangements do not result in the adviser inadvertently having custody over client assets.

o    The Division updated its FAQs relating to circumstances where an adviser has the authority to move client assets among the client’s own accounts maintained by the same or different qualified custodian(s) and whether the adviser has custody over client assets in such situations.

Automated Advisers

On 23 February, the SEC’s Division of Investment Management published updatedguidance on “robo-advisers” that provide services directly to clients over the internet. The updated guidance recommends that firms providing robo-advisory services comply with their obligation under the Investment Advisers Act by: (i) addressing the substance and presentation of disclosures to clients about the robo-adviser, such as adequately explaining their business model and the scope of advisory services they offer; (ii) fulfilling their fiduciary duties using comprehensive questionnaires to gather client information and providing commentary to clients explaining any changes in investment strategy; and (iii) having effective compliance programs with written policies and procedures to address any unique aspects of their business model, such as the use of algorithmic code, cybersecurity threats, and marketing through social media.


U.S.-EU Covered Agreement

On 16 February, the House Financial Services Subcommittee on Housing and Insurance held a hearing on the U.S.-EU covered agreement. Federal Insurance Association Former Director McRaith and American Insurance Association President and CEO Pusey supported the covered agreement as negotiated. National Association of Insurance Commissioners (NAIC) President Nickel and National Association of Mutual Insurance Companies President and CEO Chamness urged the Trump Administration to renegotiate the agreement. Nickel voiced his concern over the lack of transparency during the negotiating process and criticized the lack of a “clear and permanent mutual recognition for … [the] U.S. insurance regulatory system” under the covered agreement. Pusey, on the other hand, stated that the covered agreement “does not threaten the state-based system” of the U.S. insurance industry and would, in fact, “preserve it.” Subcommittee Chairman Duffy (R-WI) expressed his skepticism over the agreement and stated, “the President and his new Treasury Secretary should be afforded the chance to decide for themselves whether to negotiate or sign this agreement.” Subcommittee member Luetkemeyer (R-MO) highlighted the lack of cohesion between the U.S. insurance associations as an example of the issues faced by a “dysfunctional” U.S. insurance industry and called upon the associations to “get on the same page.”

On 24 February, Rep. Sean Duffy (R-WI), Chairman of the House Financial Service Housing and Insurance Subcommittee, and Rep. Dennis Ross (R-FL), Vice-Chairman of the Subcommittee, sent a letter to U.S. Treasury Secretary Mnuchin regarding the U.S.-EU covered agreement. Among other matters, the lawmakers sought “all documents used in the negotiating process with the EU” and asked Treasury Secretary Mnuchin to clarify whether the Trump Administration views the terms of the agreement sent to Congress as the final legal text or whether officials are open to modifications. They requested a response from Treasury Secretary Mnuchin by 10 March 2017.

On 15 March, NAIC sent a letter to U.S. Treasury Secretary Mnuchin seeking additional clarifications regarding the U.S.-EU Covered Agreements. NAIC indicated that its interpretation of the agreement differs from that of the Federal Insurance Association and requested at a minimum, formal clarification and confirmation of the Cover Agreement’s terms through the exchange of formal side letters with the EU. NAIC claims that the Covered Agreement: (i) completely eliminates collateral requirements without risk-based assessments of the financial strength of the re-insurers, which is the approach NAIC and the states currently take; (ii) suggests the states impose a capital requirement for U.S. insurers, which NAIC presently does not impose; and (iii) imposes group supervisory frameworks that differ from those of existing U.S. group supervisory authorities. NAIC also expressed its concern that the Joint Committee established by the Covered Agreement will invite “perpetual renegotiation of the Agreement’s terms” that could significantly impact the U.S. insurance sector.


Security-Based Swap Agreements

On 10 February, the SEC adopted amendments that extend the expiration date ofinterim final rules providing exemptions for “security-based swaps that prior to 16 July 2011 were security-based swap agreements and are defined as ‘securities’ under the Securities Act and Securities Exchange Act.” Noting that it is still analyzing the full implications of such expansion of the definition of “security,” the Commission extended the expiration date of the exemptions to 11 February 2018 while it continues to determine appropriate regulatory action.

Hyperlink of Exhibits in Registration Statements

On 1 March, the SEC unanimously voted to adopt a final rule that would require issuers to include a hyperlink to each exhibit in the issuer’s filing exhibit index. Currently, persons seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included. They must then manually search through the registrant’s filings to locate the relevant filing. The required hyperlinks would allow them to automatically access such exhibits with one click. The final rule will become effective on 1 September 2017.

Suspension of Dodd-Frank Act Rulemaking

On 2 March, SEC Acting Chairman Piwowar reportedly stated that he had suspended the SEC’s Dodd-Frank Act rulemaking activities to focus instead on “hyper-technical” matters concerning the asset management industry and other non-Dodd-Frank issues. Noting the SEC’s recent adoption of the hyperlink rule, Acting Chair Piwowar indicated that he intends to work on similar rules while the SEC awaits the confirmation of SEC Chairman nominee Jay Clayton.

Investor Advisory Committee Meeting

On 9 March, the SEC’s Investor Advisory Committee held a meeting to discuss new SEC investor research initiatives, such as the Policy Orientated Stakeholder and Investor Testing for Innovative and Effective Regulation (POSITIER) initiative, the FINRA 2016 Financial Capability Study, academic research on financial literacy, and the unequal voting rights of common stock. SEC Acting Chairman Piwowar outlined recent disclosure-based rules proposed or adopted on 1 March 2017 and emphasized the need for additional disclosure-based securities rules. SEC Commissioner Stein urged the SEC to use a “data-centric approach” to understand modern investors' interaction with an increasingly complex market. She also stated that the Commission must continuously conduct outreach and use technology to identify gaps in investor protection, which may include “gaps in investor financial literacy.”

Investor Protection and the Public

On 24 February, SEC Acting Chairman Piwowar delivered a speech focusing on special-interest disclosures, the “accredited investor” threshold, and civil monetary penalties. He stated that the Commission’s disclosure regime has “repeatedly been co-opted for purposes unrelated to investor protection” and that he has directed SEC staff to begin reconsideration of the conflict minerals rule and the pay ratio rule. He also stressed the need to move beyond the “artificial distinction between ‘accredited’ and ‘non-accredited’ investors.” He stated that the accredited status offered to certain investors disadvantages non-accredited investors by placing a blanket prohibition on non-accredited investors’ ability to earn the highest returns available, which generally decreases their portfolio diversity.

SEC and the Markets

On 24 February, SEC Commissioner Stein delivered a speech urging regulators to look forward rather than backwards to take advantage of opportunities created by evolving markets. Noting that the purpose of the markets is to connect capital to people, who will “put that capital to good use building companies and creating jobs,” Commissioner Stein urged regulators to adopt policies reflecting this purpose and to facilitate economic activity in a way that is fair and efficient. She urged regulators to consider the impact of several market developments, including increased growth and diversity in exchange-traded products (ETPs), electronic trading, and capital-raising. She recommends that SEC staff continue to monitor the development of technological innovations and the expansion of highly complex retail products.


Swap Dealer and Major Swap Participant Reporting Requirements

On 21 February, the National Futures Association (NFA) proposed to adopt a rule that would expand the reporting requirements of swap dealers and major swap participants to require periodic collection of market and credit risk data. The proposed rule would grant the NFA the authority to collect swap dealer and major swap participant information generally, but does not include the specific data elements that would be collected. The NFA indicated that its staff continue to work with swap dealer members and the Swap Participant Advisory Committee to finalize the specific credit and market risk metrics that will be used, and that the final data metrics would be announced in a Notice to the swap dealer members.


CFTC Nominations

On 14 March, President Trump announced his intent to nominate CFTC Acting Chairman Giancarlo as the next Chairman of the CFTC. President Trump withdrewformer President Obama’s nominations of Christopher Brummer and Brian Quintez to serve as CFTC Commissioners.

Acting Chairman Giancarlo Policy Agenda

On 15 March, CFTC Acting Chairman Giancarlo delivered a speech setting out his policy agenda for the CFTC:

o    Review of Regulations: Acting Chairman Giancarlo announced the launch of Project “Keep It Simple Stupid” (KISS), a Commission-wide review of CFTC rules, regulations, and practices to ensure that they are simpler, less burdensome, and less costly. He indicated that the Commission will soon issue a call for recommendations on ways to achieve these goals.

o    Market Surveillance: He also indicated that he will restructure the CFTC to develop a more holistic view of the overall transparency, competitiveness, and soundness of the markets. This restructuring will include: (i) transfer of elements of the market surveillance branch currently housed within the Division of Market Oversight to the Division of Enforcement; (ii) the establishment of a new market intelligence branch within the Division of Market Oversight; and (iii) the creation of the position of Chief Market Intelligence Officer and subsequent appointment of an individual to fill this role, who will report directly to the CFTC Chairman. These changes will assist the CFTC in sharpening its surveillance capabilities.

o    FinTech: He indicated that the CFTC staff will, in the coming months, complete a review of FinTech innovations that began in January 2017.

o    Swaps Regulatory Framework: Referencing his 2015 white paper, Giancarlo criticized the CFTC’s implementation of its swaps trading framework as highly over-engineered, disproportionately modeled on the U.S. futures markets, and biased against both human discretion and technological innovation. He indicated that the CFTC must establish a framework that allows market participants to choose the manner of trade execution best suited to their swaps trading and liquidity needs, and must better align regulatory oversight with inherent swaps market dynamics. He stated that the CFTC will work on the basis of “comity, not uniformity” with overseas regulators to ensure that the CFTC’s rules do not conflict and fragment the global marketplace. However, he stated that the CFTC will focus on advancing the interests of the U.S. in international regulatory negotiations.

o    Rulemaking: Acting Chairman Giancarlo highlighted the need for the CFTC to “resume normalized operations and practices.” This includes: (i) ensuring that the CFTC act with greater care and precision in rule drafting; (ii) conducting more thorough econometric analyses; (iii) allowing longer timeframes for public comments; and (iv) reducing the number of new rules for market participants. He indicated that the CFTC will review its operations with respect to its budget and that he intends to “run a tighter ship.”

CFTC Commissioner Bowen Overview

On 14 March, CFTC Commissioner Bowen delivered a speech reviewing the current status of market regulation initiatives regarding Regulation AT, cybersecurity, governance, and position limits.

o   Regulation AT: Commissioner Bowen urged the Commission to finalize Regulation AT this year. She emphasized further that Regulation AT would require: (i) registration only for firms that use Direct Electronic Access if they have an average of 20,000 or more trades each day over a six-month period; and (ii) all electronic trade to have two separate layers of pre-trade risk controls.

o   Cybersecurity: Commissioner Bowen noted that she is contemplating whether additional cybersecurity enhancements are necessary, especially with regards to the protection of end-users and small firms.

o   Governance: She expressed her disappointment that the CFTC has yet to complete a corporate governance rulemaking pursuant to Dodd-Frank Act requirements, but stated she was optimistic that “strong governance regulation” could be completed in the next year or two.

o   Position Limits: Commissioner Bowen indicated that she “remains steadfast” in her belief of the necessity for a rule on position limits, and she urged the CFTC, industry participants, and interested observers to reach a compromise that will allow the Commission to finalize a position limit rule in the near future. 


On 10 March, the DOL issued an enforcement memorandum intended to ease compliance concerns related to the fiduciary duty rule in light of the DOL’s proposal to extend its applicability date by 60 days. Noting that the DOL fiduciary rule could become effective sooner than anticipated, the DOL stated: (i) in the event the DOL issues a final rule after 10 April implementing a delay in the applicability date of the fiduciary duty rule, the DOL will not initiate an enforcement action because an adviser or financial institution did not satisfy conditions of the fiduciary duty rule during the period between the effective date of the rule and the implementation of the delay; and (ii) in the event the DOL decides not to issue a delay in the implementation of the fiduciary duty rule, the DOL will not initiate an enforcement action because an adviser or financial institution failed to satisfy conditions of the rule before April 10 (provided that the adviser or financial institution satisfies the applicable conditions of the fiduciary duty rule within a reasonable time after the publication of a decision not to delay the 10 April applicability date). The DOL indicated that it would consider taking additional steps as necessary should the need for other temporary relief arise. 

o    On 1 March, the DOL proposed to adopt a rule that would extend the applicability date of the DOL fiduciary duty rule by 60 days. The proposal follows an OMB announcement on 27 February 2017 that the OMB had concluded its review of the rule. The OMB elevated the designation of the rule from “not economically significant” to “economically significant,” requiring the DOL to provide an economic analysis of the impact of the delay. The comment period for the rule will close on 17 March 2017. The rule also requests comments regarding the DOL’s re-examination and updated economic and legal analysis of the fiduciary duty rule as mandated by President Trump’s 3 February 2017 memorandum. The comment period for the updated economic and legal analysis will close on 16 April 2017.

On 17 March, House Financial Services Committee Republicans, led by Committee Chairman Hensarling, sent a letter to Acting Secretary of Labor Hugler expressing support for the DOL’s proposal to delay, from 10 April to 9 June, the applicability date of its fiduciary duty rule. The committee members state that the delay is necessary to allow the Trump Administration to review the rule’s scope and assess potential harm to investors, disruptions within the retirement services industry, and increase in litigation, as required by the memorandum signed by President Trump on 3 February 2017. Raising concerns about the impact of the fiduciary duty rule for retail investors and U.S. capital markets, the committee members stressed that extending the delay beyond the 60 days contemplated in the DOL’s proposal would “provide the DOL with the needed flexibility to ensure compliance with the review directed by the Presidential Memorandum.”

o   40 House Democrats also sent a letter to Acting Secretary of Labor Hugler urging the DOL to “reconsider its proposed delay” of the applicability date of its fiduciary duty rule and to implement the rule “on schedule.”  The lawmakers stressed that the rule will “ensure workers and families get unbiased advice when investing their hard-earned retirement savings” and that the rule is “reasonable and workable for advisers as the DOL provided appropriate relief that mitigates industry concerns and compliance costs.”

On 10 March, nine financial industry trade groups filed a preliminary injunction in the U.S. District Court of Northern Texas to postpone the applicability date of the fiduciary duty rule. Chief District Court Judge Barbara Lynn, who previously ruled against the industry groups in their lawsuit against the DOL, will hear arguments for a motion for preliminary injunction.

o   On 24 February, the industry trade groups appealed Chief District Court Judge Barbara Lynn’s decision to grant summary judgment in favor of the DOL in the trade group’s lawsuit challenging the fiduciary duty rule to the Fifth Circuit Court of Appeals. At the District Court level, Judge Lynn held that: (i) the DOL did not exceed its authority in promulgating the fiduciary duty rule; and (ii) the creation of the best interest contract exemption did not exceed the DOL’s statutory authority to grant conditional exemptions. The industry trade groups indicated that they “remain confident in the merits and strength of [their] case and stand by [their] assertion that the [DOL] exceeded its authority.” The date of the oral arguments has not been set.

On 17 February, Judge Daniel Crabtree of the U.S. District Court for the District of Kansas granted summary judgment in favor of the DOL in the lawsuit brought by Market Synergy Group Inc. challenging the fiduciary duty rule. Judge Crabtree held that: (i) the DOL was not arbitrary and capricious in its treatment of fixed index annuities; and (ii) the DOL “properly considered the economic impact that the final rule would impose on independent insurance agent distribution channels.”


NIST Cybersecurity Framework, Assessment and Auditing Act

On 27 February, Rep. Ralph Abraham (R-LA) introduced H.R. 1224, the National Institute of Standards and Technology (NIST) Cybersecurity Framework, Assessment and Auditing Act of 2017. Among other things, the bill would: (i) direct the NIST to prepare new metrics for evaluating governmental agencies’ cyber protections; (ii) require regular NIST audits of high-risk agencies; and (iii) urge agencies to adopt the NIST’s cybersecurity risk-management framework in establishing their cybersecurity systems.

National Cybersecurity Preparedness Consortium Act

On 9 March, Sen. John Cornyn (R-TX) introduced S. 594, the National Cybersecurity Preparedness Consortium Act of 2017, and Rep. Joaquin Castro (D-TX) introduced a companion bill, H.R. 1465, a bill to authorize the Secretary of Homeland Security to work with cybersecurity consortia for training, and for other purposes.

NYDFS Cybersecurity Regulation

On 16 February, the New York Department of Financial Services (NYDFS)published its final revisions to its new cybersecurity regulations which apply to a wide range of insurance, banking, and financial services companies under the Department’s supervision. The final version of the regulations requires covered entities to: (i) prevent and detect cyber events; (ii) develop a cybersecurity policy; (iii) appoint a “qualified” chief information security officer; (iv) test their programs; (v) establish audit trails; and (vi) oversee access controls. The regulations will take effect on 1 March 2017 and, starting in 2018, it will require a covered entity to prepare and submit a certification of cybersecurity compliance annually by 15 February to the NYDFS.

Cybersecurity and Financial Stability

On February 15, the OFR published a report identifying how cybersecurity incidents could threaten financial stability and how regulators and market participants can build on their approaches to cybersecurity to promote financial stability. The report identified three ways that cybersecurity incidents could threaten financial stability: (i) the lack of substitutability of firms or utilities that serve as hubs, such as central banks, custodian banks, and payment, clearing, and settlement systems; (ii) the loss of confidence between consumers and institutions as a result of a market-wide cyber theft; and (iii) the loss of data integrity through data corruption and the need to balance the ability of institutions to recover data quickly with ensuring that recovered data are safe, accurate, and do not spread cyber risks. The OFR recommends that regulators work with firms in standardizing data on cyber incidents and financial firms’ cybersecurity preparedness, as well as building additional capacity to help firms recover from cybersecurity incidents.


o    23 March: comments due on SEC pay ratio disclosure rule re-consideration.

o    23 March: confirmation hearing for SEC Chair nominee Jay Clayton.

o    27 March: comments due on CFTC proposal to remove indemnification requirements for the use of swap data from swap data repositories.

o    27 March: comments due on FINRA proposal to allow projections and predictions of performance of an asset allocation or other investment strategy

o    10 April: comments due on NIST draft update of cybersecurity framework.

Ianthe Zabel
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