Financial Services Spotlight

"Low Risk, High Potential Rates of Return are Achievable"

Posted by Joel S. Telpner on Aug 16, 2018 12:23:04 PM

Really? According to the website created by Tomahawk Exploration LLC (Tomahawk), in connection with its Initial Coin Offering (ICO) for its Tomahawk tokens (TOM), the ICO represented “a substantial investment opportunity . . . capable of producing significant risk-adjusted rates of return.”

Once again, the U.S. Securities and Exchange Commission (SEC) had no choice but to remind the world that ICO issuers cannot act with impunity and that fraud is, well, fraud. On August 14, 2018, the SEC issued a Cease and Desist Order to Tomahawk (Order) in connection with its ICO that initially took place between July and September of 2017. Tomahawk sought to raise $5 million through the sale of TOM tokens to fund the cost of drilling oil wells. According to Tomahawk’s whitepaper, TOM tokens were “directly backed by oil production” and gave their holders an option to convert into Tomahawk equity at a later date. The SEC had no trouble concluding the tokens constituted “investment contracts” and were thus securities, but the Order gives us more than that.

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Topics: ICO, finance, Securities and Exchange Commission

What Does the Dodd-Frank Relief Bill mean for Enhanced Prudential Standards for Foreign Banks?

Posted by Roy Andersen on May 25, 2018 7:49:06 AM

On May 23, Congress passed a bill to revise Dodd-Frank to reduce regulatory burdens on banks. Just as with the original Dodd-Frank Act, the real work will have to be done by the banking agencies and thus months will have to elapse before we see real changes. Like most legislation, this bill is approximately 200 pages long and contains a host of changes, covering activities at banks from community organizations up to the largest banks. The major change affecting many foreign banks in the U.S. is with respect to enhanced prudential standards.

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FFIEC Examination Procedures for the Beneficial Ownership Rule

Posted by Roy Andersen on May 16, 2018 3:04:27 PM

The FFIEC has updated its BSA/AML manual effective May 5, 2018, to add a section on the new legal entity due diligence requirements and to update the section of the manual on customer due diligence generally. The Fed published an SR Letter containing these updates for the legal entity beneficial ownership rule that became effective last week on May 11. 

The Fed noted that the FFIEC examination procedures will be used by all federal and state examiners. This memorandum summarizes the requirements of the beneficial ownership rule and what the regulatory examinations will cover. All bank procedures should cover these items at a minimum.

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Topics: Federal Reserve, FFIEC, Bank Regulations

Customer Due Diligence and FinCEN’s Frequently Asked Questions

Posted by Roy Andersen on May 9, 2018 12:04:14 PM

As you are aware, FinCEN’s Customer Due Diligence rules are effective in two days. In a nutshell, these rules require banks to obtain and verify the identity of the beneficial owners of new business customers. The rules are not easy to understand when applied to complicated ownership structures and there has not been any help published by the banking agencies. FinCEN, however, did publish some FAQs about a month ago and these clarify certain aspects of the rules and should be incorporated into bank policies and procedures. 

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Topics: CDD, Financial Crimes Enforcement Network, Customer Due Diligence Rules

How Does the Fed Want to Regulate Foreign Banks?

Posted by Roy Andersen on Mar 12, 2018 10:50:11 AM

On March 5, 2018, the Fed’s new Vice Chairman for Supervision, Randal Quarles, spoke at the Institute of International Bankers annual conference. He wanted to express his thoughts on the appropriate regulatory environment for foreign banks in the U.S.

He suggested that large foreign banks with complex U.S. operations contributed to instability in the U.S. during the financial crisis and required extraordinary support from the regulators. These same banks expanded dramatically just before the crisis, but the regulators did not adjust to the risks created by these activities. He suggested that these banks needed greater “resiliency” to meet challenging times.

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Topics: Financial Regulation, Federal Reserve

Bank Corporate Governance—Fed lowers Boom on Wells’ Directors

Posted by Roy Andersen on Feb 6, 2018 10:52:00 AM

On February 2, 2018, the Fed announced that it issued a consent Cease and Desist order with Wells Fargo—the bank holding company. The Fed’s press release noted that Wells is replacing 4 directors within this year (out of 17 that signed the C&D), but this reconfiguration is not a formal requirement of the C&D. Press reports imply that the Fed was behind these changes. Of course, Wells is as closely supervised by the Fed as any bank could be; nonetheless, the Fed takes no responsibility for the errors at Wells and shows no humility in passing out blame. It is without precedent for the Fed to write personal letters to former directors (as summarized below), roundly rebuke them and then publish the letters.  

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Topics: Corporate governance, Regulation YY, Wells Fargo

Review of Regulatory Responses to the Resolution Plans from the Big Foreign Banks

Posted by Roy Andersen on Jan 30, 2018 12:00:00 PM

Yesterday, the Fed and FDIC released their letters to the bigger foreign banks, i.e. the banks just below the UBS-level. The Fed’s letters were in response to the resolution plans filed in December of 2015. In these letters, the Fed and FDIC expressed what they expected in the next round of resolution plans from these banks due at the end of this year. The Fed conceded that even though these banks are huge, their U.S. activities are of "limited complexity." Only HSBC was given a laundry list of new items that the regulators expected to see in the 2018 Plan

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Topics: FDIC, Regulatory Filings, foreign banks, Resolution Plans

How Many Times Does the SEC Have to Repeat Itself Before the World Listens?

Posted by Joel S. Telpner on Dec 19, 2017 3:51:22 PM

Remember in July of this year when the Securities and Exchange Commission (SEC) said in its Decentralized Autonomous Organization (DAO) Report that "U.S. federal securities laws may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale"?[1] No? Well, apparently no one else did either.

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Topics: blockchain, crypto currency, bitcoin, Munchee

October and November Developments

Posted by Roy Andersen on Dec 8, 2017 8:40:22 AM

Overview

For the first time in my memory, the Congress passed a joint resolution to disapprove a final regulation of a federal agency—in this case the CFPB and the rule was related to arbitration clauses in contracts for consumer financial products. In addition, the agencies amended certain definitions under CRA and these changes should be reflected in CRA policies and procedures at banks. Both the OCC and FDIC published final rules on requirements for Qualified Financial Contracts and introduced required language for larger banks.

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Topics: FDIC, Qualified Financial Contracts, CFPB, QVC, Mortgage Servicing

Object Lesson on How Not to Respond to Consent and Enforcement Actions

Posted by Roy Andersen on Aug 31, 2017 11:53:18 AM

Last week, the DFS announced an enforcement action and charges against the NY Branch of Habib Bank, a Pakistani bank that had been doing business in NY for almost 40 years.

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About the Spotlight


The Financial Services Spotlight examines the regulatory and technology developments impacting banks, asset managers and other financial services providers—where challenges meet opportunities.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

 

Meet the Authors


Roy C. Andersen, of counsel in Sullivan & Worcester's New York office, is a member of the Corporate Department. Mr. Andersen focuses on bank regulatory and compliance matters, including international banks and their branches and agencies in New York.

Joel Telpner, partner in the firm's New York office, is a seasoned advisor, strategist and problem solver. Mr. Telpner brings more than 30 years of legal experience in a career that includes time as an AmLaw 100 partner, the former U.S. general counsel of a global financial institution, and a venture capitalist. He is recognized for his ability to deftly manage complex financial transactions, especially those involving sophisticated structured finance and derivatives matters and has an extensive and unique combination of transactional and regulatory experience.

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