Tenth Circuit Upholds District Court Decision Finding No Breach of Fiduciary Duty in Section 36 (b) Case | Goodwin

0

REGULATORY DEVELOPMENTS

LIBOR TRANSITION: REGULATORY RULE OF CAPITAL FREQUENTLY ASKED QUESTIONS

On July 29, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve System (Federal Reserve) Board of Governors published a Frequently Asked Questions (FAQ) regarding processing. regulatory capital. capital instruments the terms of which refer to the London Interbank Offered Rate (LIBOR). The three sets of FAQs clarify that, for the purposes of capital rules, the replacement or modification of a capital instrument that replaces only a reference rate linked to LIBOR with another reference rate or another rate structure does not constitute not an issue of a new capital instrument or create a redemption incentive, as long as the replacement or modified instrument is not materially different from the original instrument from an economic point of view. Branches expect a bank that does so to support its decision with an appropriate analysis demonstrating that the replacement or modified instrument is not substantially economically different from the original instrument.

The Federal Reserve FAQ further clarifies that, for the purposes of the Loss Absorbing Capacity Rule, a Global Systemically Important BHC (GSIB) or Covered IHC may swap or modify its Eligible Debt Securities to replace the LIBOR without being deemed to issue a new debt instrument. , if the replacement or modified warranty is not substantially different from the original warranty from an economic point of view. GSIBs and Covered IHCs may also make an offer to exchange or purchase securities issued by the Senior GSIB or the Senior IHC, as the case may be, directly with third party holders to facilitate their transition. LIBOR in US dollars. , provided certain conditions are met.

CFPB CONFIRMS THE DATE OF ENTRY INTO FORCE OF THE FINAL CLAIMS COLLECTION RULES

On July 30, the CFPB confirmed that two final rules published under the Fair Debt Collection Practices Act (FDCPA) will come into force on November 30, 2021. Although a proposal in April 2021 could have pushed back the date of entry into force. effective January 29, 2022 to allow stakeholders affected by the COVID-19 pandemic additional time to review and implement the rules, the CFPB has determined that such an extension is not necessary based on public comments on proposal. The first rule clarifies the FDCPA’s prohibitions on harassment and abuse, false or misleading representations and unfair debt collection practices when collecting consumer debts, while the second rule clarifies disclosures that debt collectors must provide consumers with early collection communications, prohibits debt collectors from suing or threatening to sue consumers for prescribed debt, and requires debt collectors to take specific steps to disclose the existence of a debt to consumers before providing debt information to a consumer news agency.

FEDERAL RESERVE COUNCIL GOVERNOR PROVIDES ECONOMIC UPDATE

On July 30, Federal Reserve Governor Lael Brainard presented an economic update at the Aspen Economic Strategy Group annual meeting, commenting on consumer spending, employment and inflation.

On consumer spending, she highlighted pent-up consumer consumption due to the pandemic, which “fully offset” last year’s contraction. Sales of new and used cars as well as travel-related items make up the bulk of these expenses. She noted that she would get a better picture of spending growth once data for September is available, given widespread plans at the moment to return to offices and schools. In terms of jobs, Dr Brainard noted that unemployment remains high, and disproportionately high for black Americans and Hispanics. Employment is down 6.8 million from pre-COVID-19 levels. She predicted that if jobs continue to increase at the current rate, the job loss gap will be halved from pre-pandemic trends by the end of 2021. Dr Brainard commented that she paid particular attention to inflationary pressures, noting that the inflation target is currently set at 2%. Inflation is currently 2.3%. She said she currently sees no signs that high inflation readings will lead to higher inflation in the longer term, but said she remains vigilant in monitoring trends.

Overall, his message was cautiously optimistic. Dr Brainard noted that she remains aware of the possible impact of the Delta variant and that she remains optimistic about high levels of household savings, which could lead to increased consumer spending.

In short, this year’s growth is expected to fully offset last year’s sharp contraction – due to the strong policy response, effective vaccines, and the resilience and adaptability of households, workers and businesses. Americans. “
– Federal Reserve Governor Lael Brainar

SEC APPROVES FINRA’S RULE CHANGE ON COMPANIES WITH HISTORICAL MISCONDUCT

On July 30, the SEC approved the rule change proposed by FINRA to treat companies designated as “high-risk companies” by the SEC. The amended FINRA Rule 4111 would allow FINRA to impose additional obligations on brokerage firms with a significant history of misconduct, as well as firms that employ individual brokers with such a history. Under FINRA Rule 4111, brokerage firms identified as “restricted firms”, based on preliminary identification criteria, will be required to deposit cash or qualified securities into a separate account to pay their claims. ‘pending arbitration or their unpaid arbitration awards. The maximum restricted deposit amount will be determined at the sole discretion of FINRA, but will be based on the size, operations and financial condition of the company. A company’s ability to withdraw funds from the segregated account will be limited, subject only to FINRA approval.

The amended FINRA Rule 9559 would establish a process to give a restricted company the opportunity to challenge the designation and the obligations arising therefrom, as well as give the company a unique opportunity to avoid the imposition of obligations by reducing voluntarily its workforce. Each member firm will have the opportunity to demonstrate why it should not be designated as a restricted firm or subject to the maximum restricted deposit requirement. FINRA will engage in the valuation analysis each year and review each member firm (including capital acquisition brokers), although only a few firms will meet the criteria for further review. The effective date of the amended FINRA Rule 4111 and the amended FINRA Rule 9559 will be 180 days after the regulatory notice announcing the SEC approval.

THE FEDERAL RESERVE EXTENDS THE COMMENT PERIOD ON THE PROPOSED RULE TO GOVERN TRANSFERS OF FUNDS ON THE FEDNOW SERVICE

On August 3, the Federal Reserve announced that it was extending until September 10, 2021 the comment period on proposed regulations to govern remittances through the Federal Reserve Banks’ FedNow service. Originally, comments were due to be filed by August 10, 2021. FedNow is a new 24/7, 365-day service that will support instant payments in the United States and is expected to be available in 2023.

LITIGATION AND ENFORCEMENT

THE TENTH CIRCUIT AFFIRMS THE JUDGMENT FOR THE INVESTMENT ADVISOR IN THE MATTER § 36 (B)

On July 26, the United States Court of Appeals for the Tenth Circuit issued a notice upholding the district court’s ruling that an investment adviser and affiliate administrator had not breached their fiduciary duties under Section 36 (b) of the Investment Company Act of 1940 by collecting “excessive remuneration” on the assets of the fund. The earlier district court decision followed a full trial on the merits, after which the district court determined that the plaintiffs had failed to discharge their charge on one of the Gartenberg factors and had not proven damages. Unless requested by the Supreme Court for a certificate, this resolves the last of the Section 36 (b) cases, making it the first time since the Supreme Court ruled Jones vs. Harris in 2010 that the courts have not had at least one pending case under section 36 (b).

The appeal decision was widely expected as appellate courts rarely overturn a trial court’s judgment after a full trial on the merits. The decision upholds well-established principles regarding deference to advice, the appropriateness of fee comparisons with other mutual funds and the requirement for real evidence of economies of scale. In particular, several of the funds in question were index funds with higher fees than certain funds tracking the same index. Last year, the district court sanctioned the plaintiffs for bringing the case to court, but that decision is not yet final and therefore was not addressed in the Tenth Circuit decision.

THE INTERNAL MONEY CONTROLLER WITNESSES REGULATORY PRIORITIES

On August 3, Acting Comptroller of the Currency Michael J. Hsu testified at a hearing before the US Senate Committee on Banking, Housing and Urban Affairs. The Interim Controller identified four issues that require immediate attention: (1) guarding against complacency, (2) reducing inequalities, (3) adapting to digitization and (4) acting on climate change. Access the oral statement and written testimony of the Acting Monitor for more information.

Share.

Leave A Reply