CFPB Announces Oversight of Nonbank Institutions and Invites Comments on Risk Determination Procedures | Goodwin


Regulatory developments

CFPB announces supervision of non-bank institutions and invites comments on risk determination procedures

On April 25, the CFPB announcement its intention to supervise non-banks, including fintechs, whose activities the CFPB has on reasonable grounds to determine pose a risk to consumers. The CFPB will determine risk based on complaints collected by the CFPB, whistleblower complaints, court opinions, administrative rulings, news reports, information from state or federal partners, or other information sources. To supervise a non-bank on the basis of consumer risk, the CFPB must provide notice to the non-bank and a reasonable opportunity for the non-bank to respond. Accordingly, the CFPB has issued and is seeking comments on a rule of procedure allowing the Director to determine whether all or part of a risk determination decision or order should be made public for the purposes of transparency, market guidance and use in future precedents.

“Given the rapid growth of consumer offerings by non-banks, the CFPB is now using dormant authority to compel non-banks to meet the same standards that banks are held to.”
Director of CFPB Rohit Chopra

SEC issues risk alert related to MNPI and code of ethics

On April 26, the SEC’s Reviews (Reviews) Division issued a risk alert Regarding gaps regarding 1) use of alternative data and interaction with value-added investors/expert networks versus MNPI, and 2) codes of ethics:

  1. The reviews noted that investment advisers were using alternative data in their investment activities without adopting or implementing sufficient policies and procedures to address the potential risk of receiving or using MNPI through alternative data sources, including adequate testing and documenting those tests to detect and mitigate those risks. risk. Similarly, Exams noted inadequate policies and procedures with respect to identifying and controlling risks posed by value-added investors (e.g. clients or fund investors who are corporate executives or financial professional investors who may have MNPI). In addition, Exams observed that investment advisers did not have enough policies and procedures, or did not sufficiently implement these policies and procedures, with respect to expert networks (for example, a group of professionals who are paid for their specialized information and research services), including keeping records of correspondence between the investment adviser and such persons, or reviewing the trading activities of such persons.
  2. The reviews also identified common shortcomings among investment advisors related to the code of ethics. These shortcomings relate to the proper identification of access persons, the requirement of pre-approval for certain investments, such as IPOs or limited offerings, the retention of evidence of the review of holding reports and transactions (including the CCO reviewing its own reports), retention of required content with respect to holdings and transaction reports, such as investments in private placements, and retention of evidence of written certifications from supervised persons by the investment adviser attesting to receipt of the code of ethics.

Texas Securities Sheriff Wrangles Gamblers Metaverse

Securities law enforcement recently entered the metaverse as a emergency cease and desist order issued by the Texas State Securities Board against individuals and a company using NFTs to fund several metaverse casinos. Much like Wyatt Earp barging into the OK Corral, this one gets interesting.

The order alleges a high-tech fraudulent securities offering in which the respondents sought to raise capital through the offering of more than 12,000 non-fungible tokens or “NFTs” to fund the development of several virtual casinos on metaverse platforms . These casinos would be spaces that a person could enter virtually (in avatar form) to play the types of games often found in physical casinos. In many cases, the virtual land to build the casinos had already been purchased. Respondents are also said to have developed a Web 2.0 casino available online via the Internet.

Read it customer alert to learn more about the order and how the intersection of law, politics, and the metaverse is rapidly developing and will continue to evolve over time as we previously covered.

New York insurance regulator targets private equity investments

The Goodwin Insurtech team recently published a article highlighting the tendency of insurance regulators to focus on privately owned insurers and key regulatory considerations applicable to such investments. As noted, given the stringent disclosure requirements to vet insurance investors, any potential expansion of these requirements could cause some investors to shy away from investment opportunities. Nonetheless, the New York State Department of Financial Services has now released guidance that puts renewed pressure on the industry and could significantly alter the future of insurance transactions in New York.

Read it customer alert to learn more.


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