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European Bank Resolution Proposal Released
On June 6, the European Commission released a proposal to establish common rules for EU member country banking regulators to follow when faced with failing banks. The rules are meant to provide a more standard regulatory structure and approach to help reduce the impact of bank failures, improve market stability, and limit taxpayer risk. To achieve these goals, the Commissions proposal would allow banks that do not pose a systemic risk to fail. Further, the proposal would shift the burden of restructuring costs for a systemically important troubled bank to its shareholders, creditors, and any employees responsible for mismanagement. Public authorities would be given new powers to (i) intervene earlier, (ii) establish in advance bank resolution plans, (iii) assume control of a failing bank if early intervention fails, and (iv) better coordinate cross-border issues raised by a failing bank. Banks, for their part, would be required to put in to place recovery plans and take certain actions if capital reserves fall below a set level, among other things. The proposals must first be considered and approved by the European Parliament and Council, and would take effect in 2018.
European Commission Proposes Electronic Identification Regulation
On June 4, the European Commission adopted a proposed regulation that would create a framework for secure cross-border electronic transactions in Europe. The regulation seeks to facilitate European electronic commerce by requiring mutual recognition of national electronic identification systems, which would allow individuals and businesses to use their national electronic identification schemes to access public services in other EU countries. For example, the regulation would remove technical and legal barriers in order to make it easier for a company in one country to bid on public sector contracts elsewhere within the EU. The regulation does not require action by member states to develop electronic identity cards and will not require an EU-wide electronic identification or database. Under the European Unions ordinary legislative procedure, the regulation now must be adopted by the European Parliament and Council.
UK Upper Tribunal Finds Bank Executive's Compliance Actions Reasonable, Overturns FSA Decision
Recently, the United Kingdoms Upper Tribunal overturned a decision of the Financial Services Authority (FSA) that held a top bank executive liable for failure to take reasonable steps to adequately address certain regulatory compliance problems. Specifically, the FSA charged that the executive failed to take reasonable steps to identify and remediate serious flaws in the design and operational effectiveness of the firms governance and risk management frameworks and was too slow to initiate a comprehensive review of systems and controls across the business, which should have been conducted when he was appointed to lead the firm. The executive challenged the FSA penalty, arguing that his actions to investigate every specific compliance issue that arose and remedy problems in accordance with a defined plan were sufficient and reasonable and that he had undertaken efforts to strengthen his companys compliance monitoring team. The Upper Tribunal agreed, holding that the FSAs expectation that the executive institute a broad overhaul at an earlier date was beyond the bounds of reasonableness. The Upper Tribunal also noted that the majority of the compliance failures originated in one division, that the firm was addressing those issues, and that no one within that or other departments of the firm, nor anyone from the FSA, had ever suggested to the executive a need for a more comprehensive review. The Upper Tribunal directed the FSA to take no action against the executive.
Financial Stability Board Enhances Compensation Practices Monitoring
On April 30, the Financial Stability Board established a new group of national experts from member jurisdictions to monitor and report to the FSB on implementation of the Principles and Standards on Sound Compensation Practices adopted by the FSB in 2009. The FSB also announced a new mechanism for member jurisdictions to bilaterally report, verify, and address specific compensation-related complaints by financial institutions.
Financial Stability Board Publishes Mortgage Underwriting Principles
On April 18, the Financial Stability Board (FSB), an international group comprised of representatives from all G-20 member countries and the European Commission, published principles for sound residential mortgage underwriting practices. The principles are intended to provide minimum acceptable standards to achieve: (i) effective verification of income and other financial information; (ii) reasonable debt service coverage; (iii) appropriate loan-to-value ratios; (iv) effective collateral management; and (v) prudent use of mortgage insurance. The FSB did not attempt to set detailed international standards, but rather established a framework to limit the risks posed by mortgage markets to global financial stability. The report also sets out an implementation framework and describes tools that can be used to monitor and supervise implementation.
UK Financial Regulator Issues Report on Bribery and Anti-Corruption Controls, Proposes New Guidance
On March 29, the United Kingdoms Financial Services Authority (FSA) published the findings of its thematic review into anti-bribery and corruption systems and controls in U.K.-based investment banks. The FSA review also looked at related topics including (i) gift-giving practices and controls, (ii) staff recruitment and vetting, (iii) training, and (iv) incident reporting. The FSA report concludes that the U.K. investment banking sector has been too slow and reactive in managing bribery and corruption risk, and that substantial work remains. In response, the FSA published proposed revisions to its regulatory guide, Financial crime: a guide for firms. The FSA proposes to update Chapters 2 and 6 of Part 1 of the guide, with new guidance and examples of good and poor practice drawn from the report findings. The FSA also proposes to include a new Chapter 13 in Part 2 of the guide, which will consolidate all examples of good and poor practice highlighted in the thematic review. Stakeholders can submit comments on the proposed revisions through April 29, 2012.
Senate Confirms Multiple Nominees
On March 29, the U.S. Senate confirmed President Obama’s three nominees for the FDIC Board of Directors: Martin Gruenberg, Thomas Hoenig, and Jeremiah Norton. However, the Senate did not confirm Mr. Gruenberg as Chair of the FDIC or Mr. Hoenig as the Vice Chair. Instead, Mr. Gruenberg will continue to serve as Vice Chair and will lead the board in an acting capacity. Thomas Curry was confirmed to serve as Comptroller of the Currency. As such, he will also sit on the FDIC Board, as he has in an independent position since 2004. The Senate also confirmed (i) Maurice Jones to be the Deputy Secretary of the Department of Housing and Urban Development, (ii) Christy Romero as Special Inspector General for the Troubled Asset Relief Program, (iii) Mary John Miller to serve as the Under Secretary for Domestic Finance at the U.S. Treasury Department, and (iv) Jon Leibowitz to another seven year term as Federal Trade Commission Chairman. Two nominees to the Federal Reserve Board, Jerome Powell and Jeremy Stein, remain pending in the Senate.
DOJ Reaches FCPA Settlement With Medical Device Company
On March 26, the U.S. Department of Justice (DOJ) announced it had reached a settlement with a medical device company to resolve allegations that the company and its subsidiaries made improper payments in violation of the Foreign Corrupt Practices Act (FCPA). DOJ alleges that Biomet, its subsidiaries, employees, and agents made illegal payments to publicly-employed health care providers in Argentina, Brazil, and China in exchange for business with certain hospitals in those countries and then falsely recorded the payments on its books to conceal the true nature of the payments. The deferred prosecution agreement requires Biomet (i) to pay a $17.28 million criminal penalty, (ii) to implement a robust compliance program and internal controls, and (iii) to retain an outside compliance monitor for 18 months. Separately, Biomet agreed to disgorge $5.4 million of profits and interest to resolve parallel civil charges brought by the SEC.
FTC Finalizes Consumer Privacy Recommendations, Notes Mobile Issues
On March 26, the FTC released an anticipated report on consumer privacy, calling on all companies to adopt certain practices to protect consumers’ private information. The final report outlines three basic principles: (i) “privacy by design”, (ii) simplified choice, and (iii) increased transparency. Though the report and recommended practices do not carry the force of law, the FTC encourages adoption of the recommendations to support innovation and commerce while improving consumer protection. The report also serves as a blueprint for what the FTC is seeking in federal privacy legislation. Pending congressional action, the FTC will continue to employ its existing enforcement authority to address unfair or deceptive practices, including practices that violate self-regulatory programs. Further, the FTC intends to support implementation of the framework by focusing on several substantive topics and stakeholder groups, including (i) do not track, (ii) mobile services, (iii) data brokers, (iv) large platform providers, and (v) industry codes of conduct. For example, the FTC will focus on mobile services by updating guidance about online advertising disclosures, including holding a workshop on model mobile disclosures on May 30, 2012. It also calls on mobile service providers to establish industry standards that address data collection, transfer, use, and disposal, particularly for location data.
CFPB Proposes Rule Governing the Confidentiality of Privileged Information Provided to the Bureau
On March 12, the CFPB released a proposed rule to govern the confidential treatment of privileged information submitted to the Bureau by the financial institutions it regulates. The proposed rule, which would amend 12 C.F.R. part 1070, subpart D, would add a new section providing that a person’s submission of any information to the CFPB in the course of the CFPB’s supervisory or regulatory processes would not waive or otherwise affect any privilege that such person might claim under federal or state law with respect to the submitted information. In the preamble to the proposed rule, the CFPB notes that although the Dodd-Frank Act did not explicitly address whether the submission of confidential information to the CFPB affects any privilege a supervised entity might claim, the Dodd-Frank Act did grant the CFPB all the powers and duties of the prudential regulators regarding their transferred consumer financial protection functions. The CFPB concludes that this grant of powers and duties includes the ability to receive privileged information from supervised entities without resulting in a waiver of any privileges. The CFPB added that its proposed rule is promulgated pursuant to Congress’s delegation of authority to the CFPB to prescribe rules governing the confidential treatment of information obtained from persons during its exercise of its authority. In addition to providing for the non-waiver of privilege when submitting information to the CFPB, the proposed rule provides that the CFPB’s provision of privileged information to another federal or state agency would not waive any applicable privilege, whether the privilege belongs to the CFPB or any other person. Comments on the proposed rule must be submitted on or before April 16, 2012.