In addition to releasing a finalized No-Action Letter (NAL) Policy, the Consumer Financial Protection Bureau (CFPB) also issued a revised Trial Disclosure Policy and Compliance Assistance Sandbox Policy on September 10.

Trial Disclosure Policy

Through its revised Trial Disclosure Policy, the CFPB has created the CFPB Disclosure Sandbox. Now, entities seeking to improve consumer disclosures may conduct in-market testing of alternative disclosures for a limited time upon permission by the CFPB. The Dodd-Frank Act gives the CFPB the authority to provide certain legal protections for entities to conduct trial disclosure programs. The new policy largely streamlines the application and review process, provides greater protection from liability (which also extends to agents of the waiver recipient), and allows for a time-limited extension for successful disclosure tests.

The Consumer Financial Protection Bureau (CFPB) finalized its revised No-Action Letter (NAL) Policy and issued its first NAL under the revised policy on September 10, in response to a request by the US Department of Housing and Urban Development (HUD) on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program.

The Consumer Financial Protection Bureau (CFPB), working in partnership with multiple state regulators, announced on September 10 that it has launched the American Consumer Financial Innovation Network (ACFIN) to strengthen coordination among federal and state regulators in order to facilitate financial innovation. ACFIN is a network of federal and state officials and regulators with authority over markets for consumer financial products and services. The CFPB invited all state regulators to join ACFIN, and the initial members of ACFIN are the attorneys general of Alabama, Arizona, Georgia, Indiana, South Carolina, Tennessee, and Utah. The network may include state attorneys general, state financial regulators, and federal financial regulators.

According to the CFPB’s press release, ACFIN “enhances shared objectives such as competition, consumer access, and financial inclusion. Additionally, ACFIN promotes regulatory certainty for innovators, benefiting the US economy and consumers alike. The network also seeks to keep pace with market innovations and help ensure they are free from fraud, discrimination, and deceptive practices.”

A working group composed of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the US Department of the Treasury’s Financial Crimes Enforcement Network issued a joint statement on July 22 that is intended to provide greater clarity regarding the risk-focused approach used by examiners for planning and performing Bank Secrecy Act (BSA)/anti-money laundering (AML) examinations.

On the theory that three’s a charm, our third and final blog on Hong Kong private equity activities will take a look at Asset Management (Type 9) activities, which are among the most relevant regulated activities for private equity firms in Hong Kong.

 Asset Management (Type 9) covers managing, on a discretionary basis, portfolio of securities for and on behalf of a third party. If a private equity firm is licensed by the SFC to carry out the regulated activity of asset management, then in addition to being able to exercise discretionary portfolio management, such firm is able to rely on what is commonly referred to as the “incidental exemption” and market funds under its management or sub-management, without the need to obtain a separate Type 1 license. The Type 9 license is therefore very flexible.

In our first blog on Hong Kong private equity licensing, we looked at Dealing in Securities (Type 1). This second blog deals with Advising on Securities (Type 4).

Advising on Securities (Type 4) includes not only giving advice on acquiring or disposing of securities, but also advising on the terms or conditions on which securities should be acquired or disposed of. There is an important "intra-group" exemption for the requirement for a Type 4 license, and many private equity firms have traditionally relied on this to conduct advisory activities in Hong Kong. This exemption is available if advice on securities is provided by the private equity firms in Hong Kong to (i) any of its wholly-owned subsidiaries; (ii) a holding company which wholly owns the private equity firms; or (iii) wholly-owned subsidiaries of its holding company. The recipient of the advice, recommendation, or research should assess the advice, recommendation or research (as the case may be) and has the discretion to reject it, before issuing the material to its own clients in its own name. In other words, the recipients must assess the advice, and not merely rubber-stamp it.

In keeping with our interest in global financial regulatory developments, in this and two blog posts to follow, we examine recent regulatory developments and responses in the active Hong Kong private equity markets.

Historically, the most popular setup of private equity firms in Hong Kong involve a Hong Kong onshore investment adviser providing advice to an offshore investment manager or a general partner in the Cayman Islands. The Hong Kong investment adviser will typically be a wholly owned subsidiary of the offshore entity. If structured in this manner and subject to certain additional parameters, the Hong Kong investment adviser will be able to operate without any licence in Hong Kong as the Hong Kong investment adviser will be able to rely on what is commonly referred to as the “intra-group” exemption.

The Financial Crimes Enforcement Network (FinCEN) recently issued guidance consolidating current FinCEN regulations, rulings, and guidance about cryptocurrencies and money services businesses (MSBs) under the Bank Secrecy Act (BSA). Along with the May 9 guidance, FinCEN issued an advisory to assist financial institutions in identifying and reporting suspicious activity or criminal use of cryptocurrencies.

In a recently published statement, the Basel Committee on Banking Supervision (BCBS) has raised concerns relating to the risks that crypto-assets pose to the global financial system. While it acknowledges that banks do not currently have significant exposure to crypto-assets, it warns that these assets are increasingly becoming a threat to financial stability.

These concerns are founded on the volatility, constant evolution, and lack of standardization of crypto-assets, which the BCBS believes exposes banks to liquidity, credit, operational, money laundering, legal, and reputational risks. It considers that crypto-assets should not be referred to as “cryptocurrencies,” given that they fall short of being currencies that are safe mediums of exchange.

In separate remarks delivered before the annual Washington meeting of the Institute for International Bankers on March 11, FDIC Chair Jelena McWilliams and Comptroller of the Currency Joseph Otting both said that the federal financial regulatory agencies are actively considering revisions to the Volcker Rule regulations, including a reconfiguration of the interagency Volcker Rule regulatory proposals published in June 2018. Ms. McWilliams, among other things, indicated that “all options are on the table," and stated that the federal agencies “need to right size the rule's extraterritorial scope while also minimizing competitive inequities between U.S. banking entities and their foreign counterparts…” with a particular focus on foreign funds.