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    Financial Services Regulation


    Joseph T. Lynyak, III
    Los Angeles   
    Rodney R. Peck
    San Francisco   
    CFPB's Arbitration Study—A Warning to Consumer Financial Service Companies
    This alert was originally published in Law360 on January 17, 2014.
    Authors: Christine A. Scheuneman, Joseph T. Lynyak, III, Amy L. Pierce
    On December 12, 2013, the Consumer Financial Protection Bureau published its “Arbitration Study Preliminary Results,” mandated by Section 1028(a) of the Dodd-Frank Act (the “Study”). Unfortunately (and despite its statements to the contrary), the Study could be read as evidence that the CFPB intends to either ban or to severely limit arbitration provisions in consumer financial service contracts. Lenders and other financial service providers should consider the Study’s approach, possible actions by the CFPB, and steps that can be taken in anticipation of those actions.
    Meeting New OTC Swap Reconciliation Rules May Require Better Technology and Processes
    Authors: Mike Pierides, Alistair J. Charleton
    Although reconciliation of the key terms has been a best practice for over-the-counter derivative trades for some time (particularly with collateralised trades), the scale of the reconciliation exercise imposed by forthcoming regulations in the EU and U.S. has caused many market participants to undertake a fundamental review of the systems and processes in place. For many, compliance can only be achieved by utilising a third party for provision of an appropriate technology platform or an end-to-end service. With imminent compliance deadlines and the late development of the requirements themselves, functionality has understandably been the focus of any sourcing process. However, from a supply chain and outsourcing perspective, a key challenge remains the manner in which the financial services-specific regulations are applied to this type of third-party arrangement.
    Banks Face New Obligations in Underwriting, Risk Analysis, and Management of Leveraged Lending
    Author: Joseph T. Lynyak, III
    This Alert describes the recently issued guidance (the “Guidance”) from the U.S. banking agencies instructing regulated domestic and foreign banks, subsidiaries and affiliates on implementing an acceptable infrastructure to comply with their safety and soundness responsibilities when engaging in leveraged lending. The effective date for the Guidance is May 21, 2013.
    D.C. Circuit Court Decision Calls Into Question the Constitutionality of the Appointment of the Director of the CFPB
    Authors: Joseph T. Lynyak, III, Rodney R. Peck, Michael J. Halloran
    This Alert analyzes the possible implications of the January 25,2013 decision of the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) that limits the ability of the President of the United States to utilize the recess authority to circumvent the authority of the U.S. Senate to “advice and consent” to proposed nominations. Specifically, this analysis discusses whether the appointment of the Director of the Consumer Financial Protection Bureau (the “CFPB”) was flawed, and thereby nullifies or otherwise limits actions taken by the CFPB since the Director was appointed by the President, purportedly using the recess appointment authority.
    How Officers and Directors of Financial Intermediaries Can Avoid Personal Liability in the Post-Dodd-Frank Market
    Authors: Joseph T. Lynyak, III, Rodney R. Peck, Michael J. Halloran
    This Alert analyzes steps that officers and directors of bank and non-bank financial companies and their holding companies and affiliates can take to address personal liability for alleged breaches of duty to manage and supervise a financial company’s operations, allegations which are being made in an increasing number by federal and state regulatory agencies, including the federal banking agencies and the U.S. Consumer Financial Protection Bureau (CFPB).
    Option ARM With Teaser Rate Disclosures Potentially Fraudulent Under State Law
    Authors: Christine A. Scheuneman, Brian D. Martin, Amy L. Pierce, Nathaniel R. Smith
    A California state court addressed for the first time whether a borrower can state claims under California law based on allegedly fraudulent Option ARM loan disclosures. While noting possible proof problems with plaintiffs’ case, the Fourth District Court of Appeal held that plaintiffs sufficiently alleged that loan documents inadequately disclosed negative amortization of Option ARM loans featuring “teaser” rates.
    June 2010
    Protecting an Innovative Success Story in Banking

    “I have never before seen such a surgically complete dissection of a complaint as achieved by you and your team.”

    —Capitol Bancorp chairman Joseph D. Reid, a veteran litigator, in a letter congratulating Pillsbury attorneys on their victory
    California Financial Institutions Have a New Option for Foreign Translations of Contracts
    Authors: Amy L. Pierce, Greg Johnson
    A new law directs the California Department of Corporations and Department of Financial Institutions to create model forms for use by “supervised financial organizations” to summarize the terms of a mortgage loan in Spanish, Chinese, Tagalog, Vietnamese or Korean. These forms may be used to comply with California Civil Code Section 1632.
    Regulators and Market Participants Target Future Regulation of Credit Default Swaps
    Authors: Edward Flanders, William C. F. Kurz, David M. Lindley, Jeffrey R. Zuckerman, James Wheaton
    Over the past several weeks, U.S. and U.K. regulators and various market participants have made several potentially significant statements regarding the possible future regulation of credit default swaps (“CDS”). The Securities and Exchange Commission (“SEC”), the Commodities Futures Trading Commission (“CFTC”), the Board of Governors of the Federal Reserve (the “Federal Reserve”), the President’s Working Group on Financial Markets (“PWG”), and the New York Insurance Department (“NYID”) in the U.S., the U.K. Financial Services Authority (“FSA”) in the U.K., as well as a group of eight major CDS dealers (the “Dealers”), have all expressed concerns about CDS, their regulation and the availability of information about the CDS market.
    Senator Grassley Pushes for Use of False Claims Act With Regard to Bailout Funds
    Authors: Lindsay A. Lutz, Thomas C. Hill, Jacob R. Sorensen
    Concerned about the lack of oversight regarding the procurement and use of federal bailout funds, Senator Chuck Grassley of Iowa has urged the Treasury Department and Department of Justice to use the whistleblower provisions of the False Claims Act for the purpose of “preventing, deterring, and prosecuting fraud” related to securing such funds.
    IRS Liberalizes Use of Bad Loan Losses for Acquired Banks
    Authors: James T. Chudy, Lisa B. Procopio
    On September 30, 2008, the Internal Revenue Service issued Notice 2008-83 on the proper treatment of built-in loss deductions after a bank ownership change under Section 382 of the Internal Revenue Code. The new rules will reduce the after-tax cost of acquiring banks that hold bad loans.
    Paulson's Proposal: The House Responds
    Authors: Randi Lane Maidman, Ernest Patrikis, Rick B. Antonoff
    The Pendulum Swings Back on Money Laundering
    Authors: Randi Lane Maidman, Ernest Patrikis
    After a long period of the U.S. government seeking to expand the scope of the criminal money laundering statutes, the United States Supreme Court has slammed on the brakes. On June 2, 2008, the Supreme Court, in separate opinions, overturned two defendants’ convictions for money laundering. In doing so, the Court made it clear that certain provisions of the statutes should be read narrowly, thereby limiting their scope.
    Lawsuit Challenges Termination of Insured Credit Default Swaps
    Authors: William C. F. Kurz, David M. Lindley, Ernest Patrikis, Rick B. Antonoff
    In a lawsuit filed in New York federal court on March 19, 2008, Merrill Lynch International (“MLI”), an affiliate of the investment banking firm Merrill Lynch & Co. Inc., alleges that bond insurer XL Capital Assurance Inc. (“XL”) wrongfully terminated a series of insured credit default swap agreements based on XL’s claim that MLI repudiated the agreements by assigning voting rights with respect to the insured reference securities to a third party. MLI commenced the lawsuit to obtain a declaratory judgment that the swap agreements remain binding and enforceable against XL and that MLI did not repudiate them. In effect, MLI seeks a ruling that XL’s purported terminations are invalid.
    Markets Could Help the Fed End TBTF
    Source: American Banker
    Authors: Joseph T. Lynyak, III
    This article was originally published in the bankthink column of American Banker on December 3, 2013.
    July 2013
    Reconciliation + Regulation = Complication
    Source: Risk Magazine
    Authors: Mike Pierides, Alistair J. Charleton
    An updated version of this article was published in the July 2013 issue of Risk.
    July/August 2013
    Financial Crimes Enforcement Network Issues Guidance on Virtual Currency
    Source: The Banking Law Journal
    Authors: Deborah S. Thoren-Peden, JiJi Park, Amy L. Pierce, Elsa S. Broeker
    This article was originally published in the July/August 2013 issue of The Banking Law Journal.
    June/July 2008
    Here Come the Regulators
    The subprime and related credit crisis has resulted in a multitude of regulatory agencies joining the fray.
    Source: Directorship
    Author: Kirke M. Hasson
    The fallout from the subprime and credit crisis continues to highlight imperfections in our banking and finance system. A bright light is now being shined on the patchwork of regulatory bodies, often with overlapping jurisdictions and prerogatives, tasked with overseeing financial and banking entities.

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