The arrival of warmer weather and the baseball season didn’t translate to spring break for regulators − not with the daily drumbeat on digital assets and crypto drowning out the splish-splash of beach and poolside follies.  

This week’s Cabinet News and Views takes a look at more developments in the crypto space, and provides some commentary on an important financial stability speech from U.S. Acting Comptroller Hsu on how large regional banks would be resolved if they were to fail.

What do you think? We’d love to hear from you. Just write to us here.

Daniel Meade & Michael Sholem
Co-Editors, Cabinet News and Views

By Michael Ena

Counsel | Financial Services

On April 7, Secretary of the Treasury Janet Yellen delivered remarks on digital assets policy, innovation and regulation. Yellen started by noting that, a few weeks ago, President Biden signed an Executive Order on a comprehensive government approach to digital asset policy, which tasks experts across the federal government with conducting in-depth analysis to balance the responsible development of digital assets with the risks they present.

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By Daniel Meade

Partner | Financial Regulation

Last week, the FDIC issued a Financial Institution Letter related to crypto activities, following in some ways in the footsteps of the OCC in requiring notice to the regulator before engaging in crypto-related activities. The FDIC stated that “[a]n FDIC-supervised institution that engages, or intends to engage in, any crypto-related activities should notify the FDIC and provide any information requested by the FDIC that will allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities.”

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By Kendra Wharton

Associate | White Collar Defense and Investigations

By Sara Skutch

Associate | White Collar Defense and Investigations

For months, Director Rohit Chopra warned that the Consumer Financial Protection Bureau (the “Bureau”) would sharpen its focus on repeat offenders. Earlier this week, the Bureau demonstrated its resolve, announcing charges against national credit reporting agency TransUnion, two of its subsidiaries, and a long-time executive for violating a 2017 consent order that prohibited TransUnion from deceptively marketing credit scores and credit-related products.

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By Michael Sholem

Partner | Financial Services

On April 12, the European Banking Authority issued a press release announcing the publication of its final draft Regulatory Technical Standards (“RTS”), setting out the requirements for originators, sponsors and original lenders related to risk retention. Publication of these final draft RTS follows a consultation launched in June 2021. The RTS, which have been long awaited following publication of a first version back in 2018, are mandated by Article 6(7) of the EU Securitisation Regulation, and are intended to provide clarity on the risk retention requirements, ensure a better alignment of interests, and further develop a secure and healthy securitisation market in the EU.

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By Jason M. Halper

Partner | Global Litigation

By Ellen V. Holloman

Partner | Global Litigation

By Jonathan Watkins

Partner | Global Litigation

By Adam K. Magid

Special Counsel | Global Litigation

In the first quarter of 2022, federal appellate courts issued a number of thought-provoking (albeit not monumental) decisions addressing the reach of the federal securities laws and, in some cases, highlighting potentially powerful defenses for litigants. Here we discuss the following developments:

The Exchange Act’s exclusive-jurisdiction and non-waiver provisions. In Seafarers Pension Plan v. Bradway, the Seventh Circuit reinstated a derivative claim brought in federal court under Section 14(a) of the Securities Exchange Act, based on allegedly false and misleading statements in proxy solicitation materials. The Court declined to enforce a bylaw that, on its face, would have restricted all derivative claims to the Delaware Court of Chancery. 

Limits on issuers’ disclosure obligations under Section 10(b). The Ninth and Second Circuits affirmed dismissal of securities fraud claims in two decisions, Weston Family Partnership LLLP v. Twitter, Inc. and Arkansas Public Employees Retirement System v. Bristol-Myers Squibb Co., invoking the principle that, under Section 10(b), issuers do not have a generalized duty to disclose any and all information concerning their business or prospects, even if the information could be deemed material to investors. 

Pleading a “strong inference” of scienter. The Second Circuit also issued two decisions, Malik v. Network 1 Financial Services, Inc. and KBC Asset Management NV v. Metlife, Inc., affirming the dismissal of securities fraud claims based on plaintiffs’ failure to plead a “strong inference” of “scienter” (an intent to deceive or defraud). 

Read our Clients & Friends Memo here.

By Daniel Meade

Partner | Financial Regulation

In remarks made at the Wharton Financial Regulation Conference, Acting Comptroller Hsu hit on a familiar theme of financial stability but raised a new variation by discussing the financial stability impacts that the failure of a large regional bank could cause and large regional banks’ resolvability. He noted that the country has made good strides in the resolvability of the eight U.S. Global Systemically Important Banks (“GSIBs”), but commented that a gap may exist for larger regional banks. He noted also that four large regional, non-GSIB banks each hold more than $500 billion in assets currently.

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