Regulatory Developments
SEC Proposes Short Sale Disclosure Rule and Reopens Comment Period for Reporting on Securities Loans
On February 25, the SEC proposed new Rule 13f-2 and amendments to Regulation SHO and CAT to increase market transparency regarding short selling. The proposed rule would require institutional money managers to file, on a monthly basis, certain short sale related data, some of which would be aggregated and made public. Certain data, including the identities of such managers and individual short positions, would remain confidential The proposed rule and amendments follow a Congressional mandate under Section 13(f) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Under the proposed rule, institutional money managers would be required to file confidential Proposed Form SHO with the SEC via EDGAR, within 14 calendar days after the end of each calendar month, if certain thresholds are met or exceeded:
- For any equity security of an reporting issuer in which the manager meets or exceeds either (1) a gross short position in the equity security with a US dollar value of $10 million or or (2) a monthly average gross short position as a percentage of shares outstanding in the equity security of 2.5 percent or more; or
- For any equity security of an issuer that is not a reporting company issuer in which the manager meets or exceeds a gross short position in the equity security with a US dollar value of $500,000 or more at the close of any settlement date during the calendar month.
Comments to the SEC’s proposed rule are due 30 days after publication in the Federal Register or April 26, 2022, whichever is later.
In light of proposed Rule 13f-2, on February 25, the SEC voted to reopen the comment period for proposed Exchange Act Rule 10c-1. Rule 10c-1 was proposed by the SEC on November 18, 2021 to increase the transparency and efficiency of the securities lending market by requiring any person that loans a security on behalf of itself or another person to report the material terms of those securities lending transactions and related information to a registered national securities association. The initial comment period for proposed Rule 10c-1 ended on January 7, 2022.The comment period is now extended to April 1, 2022.
“Proposed Rule 13f-2 would make aggregate data about large short positions available to the public for individual equity securities.”
— SEC Chair Gary Gensler
OCC Issues FAQ About Final Rule to Rescind OCC’s June 2020 CRA Rule
On February 22, the OCC issued responses to frequently asked questions (FAQs) about the December 2021 Community Reinvestment Act (CRA) final rule. The December 2021 CRA final rule is effective as of January 1, 2022 and addresses the OCC rescinding theCRA rule issued on June 5, 2020 (June 2020 CRA rule). The December Final CRA rule replaces the June 2020 CRA rule with provisions largely based on the rules adopted jointly by the OCC, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) in 1995, as revised. The FAQs provide general information on the implementation of the December 2021 CRA final rule and address questions related to:
- the impact of the final rule on CRA bank type;
- qualifying activities and the qualifying activity confirmation request system;
- the transition period;
- examination administration;
- assessment areas;
- targeted geographic areas;
- data reporting;
- changes to public notes and public files; and
- strategic plans.
FINRA Issues “Shields Up” Warning
On February 15, the Cyber and Analytics Unit (CAU) within FINRA’s National Cause and Financial Crimes Detection (NCFC) program alerted members to a “Shields Up” warning issued by the Cybersecurity & Infrastructure Security Agency (CISA) and the FBI regarding potential Russian cyberattacks to target U.S. organizations related to Russia’s actions against Ukraine. While there were not currently specific credible threats to the U.S., CISA recommend that all organizations, especially those critical to U.S. critical infrastructure, including the financial service industry, adopt a heightened posture related to cybersecurity. The FINRA alert urged members to take steps to enhance surveillance and preparation and mitigate potential damage.
Federal Reserve Board Proposes Supplemental Notice for Account Access Guidelines
On March 1, the Federal Reserve issued a supplemental notice (Updated Proposal) seeking public comment on a supplement to its May 2021 proposal(2021 Proposal). The Updated Proposal is expected to be used by the Federal Reserve Banks (Reserve Banks) in evaluating requests to Reserve Banks for accounts and financial services by institutions (Account Access Guidelines).
The 2021 Proposal, which contained six principles, was intended to ensure that Reserve Banks apply a transparent and consistent set of factors when reviewing access requests. It noted that the application of Account Access Guideline to requests by federally -insured institutions should be fairly straightforward, while requests from non-federally insured institutions may require more extensive due diligence. In the Updated Proposal, the Federal Reserve includes the Original Proposal substantially as proposed but includes a new Section 2 of the Account Access Guidelines that would incorporate a tiering framework based on an institution’s characteristics. The three tiers would provide additional clarity on how the Reserve Banks would apply the principles in Section 1 of the Account Access Guidelines to different types of institutions. For example, institutions with federal deposit insurance would be subject to a more streamlined level of review, those without insurance that are supervised by a federal banking agency would undergo an intermediate level of review, and those without insurance and not supervised by a federal bank regulatory agency would be subject to a stricter level review.
Under the new proposed framework, institutionsrequesting access to Reserve Bank accounts and financial services should expect to have more consistent and transparent evaluations by Reserve Banks.
CFPB Releases Bulletin for Student Loan Servicers Regarding Public Service Loan Forgiveness
On February 18, the CFPB released a bulletin for student loan servicers concerning their obligations with respect to the Public Service Loan Forgiveness (PSLF) Waiver announced by the Department of Education in October 2021, which extended benefits to borrowers who previously had been shut out of the program.
With PSLF Waiver eligibility ending on October 31, 2022, the CFPB recommends that student loan servicers of any federal loan type develop and implement policies and procedures to:
- Promote the benefits of the PSLF waiver;
- Ensure that borrowers are directed to appropriate resources, that representatives facilitate borrowers’ enrollment and that all borrowers receive complete, accurate and timely information about the PSLF waiver; and
- Avoid deceptive statements about the PSLF waiver or misrepresenting borrower eligibility.
The CFPB plans to prioritize oversight of student loan servicing in the coming year, with a specific focus on servicers’ handling of the PSLF Waiver and to hold servicers accountable for their role in helping borrowers access loan forgiveness under PSLF.
CFPB Outlines Options to Prevent Algorithmic Bias in Home Valuations
On February 23, the CFPB released its Small Business Advisory Review Panel for Automated Valuation Model (AVM) Rulemaking: Outline of Proposals and Alternatives Under Consideration, announcing its intentions to ensure that computer models used in determining home valuations are accurate and fair. Among the CFPB’s proposals are protections against data manipulation, conflicts of interest and requiring random sample testing and reviews. The CFPB is requesting written feedback from small entities likely to be directly affected by some of the proposals under consideration by April 8; other stakeholders will have until May 13.
CFPB Releases Compliance Aid on Calculating Prepaid Interest Under the General QM ARMs Special Rule
On February 23, the CFPB released a factsheet on the interest rate that is used for calculating prepaid interest under the price-based General QM APR calculation rule for certain adjustable rate mortgages and step-rate loans. When determining if a loan satisfies the price-based General QM definition, including for calculating any prepaid interest or negative prepaid interest as part of the APR calculation, a creditor must use the maximum interest rate that may apply in the first five years after the date on which the first regular periodic payment will be due.
Regulation Best Interest and Form CRS: Spotlight on FINRA’s 2022 Exam and Risk Monitoring Program Report
Goodwin has created a series of alerts discussing topics covered by FINRA in its 2022 Examination and Risk Monitoring Program Report.
Read the first client alert in the series, where we take a look at Regulation Best Interest (Reg. BI) and Form CRS, including some of the key considerations for firms’ compliance programs, noteworthy findings from FINRA’s recent examinations, and effective practices FINRA observed during its oversight.
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