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Legal Entity Identifiers Require More Invasive Information

– Robin Powers, Partner &  James Ballard, Paralegal

The Global Market Entity Identifier Utility issues Legal Entity Identifiers (LEI) which are unique 20-digit alpha-numeric identification codes, based on standards developed by the International Organization for Standardization.  Many regulatory authorities require financial market participants that engage in certain transactions to obtain an LEI. Read more about the LEI.

In the past, an entity could simply provide self-identifying information (i.e., “Level 1 Data”), but now GMEI Utility is requiring Level 2 Data – information relating to the parent companies of its registered entities, based on the accounting relationship of the entities.

This reporting requirement will permanently link data collected in relation to an entity’s LEI to all of its daughter entities. If the parent does not have its own LEI, other identifying information (parent’s legal name, address and registration authority information) is now being required. There are some exceptions or allowable reasons for opting out of providing certain information, but it is clear that LEI issuers are seeking additional scrutiny of parent companies.

Could an enterprise reorganize in order to avoid reporting by qualifying for an exclusion? Perhaps. Could contractual restrictions on disclosure allow for an opt-out?  It’s possible. Could accounting and financial restructuring dis aggregate the basis for the connection? Maybe. Whatever the consequences and reactions, legal counsel should be consulted to assess the risks of providing such additional information in this context.

You should contact Robin Powers and James Ballard directly if you have questions and they have prepared a more detailed client alert you can read:  Maintaining Your Legal Entity Identifier Just Got More Invasive.

Of course, if you need assistance or more information, you can always contact me, Joe Rosenbaum or any of the attorneys are Rimon Law with whom you regularly work.

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CFPB Proposes Nonbank Risk Supervision

This post was written by Robert M. Jaworski and Joseph I. Rosenbaum.

The Dodd-Frank Act granted to the newly created Consumer Financial Protection Bureau (“CFPB”) supervisory authority over a wide array of financial entities, including large depository institutions and their affiliates, as well as various nonbank “covered persons,” such as residential mortgage originators and servicers, private education lenders, payday lenders, and “larger participants” in other markets and their respective service providers. To prevent “bad actors” from escaping through cracks in the CFPB’s supervisory reach, Dodd-Frank gave the CFPB broad authority to supervise other nonbank covered persons if CFPB has “reasonable cause to determine, by order … and after a reasonable opportunity to respond” that such nonbank covered person “… is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services” (“Additional Authority”). The CFPB has now taken its first step toward fleshing out this Additional Authority and providing a framework for this type of supervisory authority.

On May 20, 2012, the CFPB suggested rule was published in the Federal Register, proposing to establish procedures by which it will supervise any nonbank covered person that is not already subject to CFPB supervision. The most significant of these procedures would:

  • Require the CFPB to provide such unsupervised person with a Notice of Reasonable Cause, informing them that the CFPB believes it has a reasonable basis upon which to assert supervisory authority and providing facts that support that belief
  • Give the unsupervised person an opportunity to respond to the Notice, in writing within 20 days, either contesting the assertions or voluntarily consenting to supervision
  • Allow an unsupervised person to contest the assertion of such supervisory authority, in writing, but also through informal arguments in a supplemental oral response (typically by telephone), which would not constitute a hearing on the record, and neither discovery nor testimony of witnesses would be permitted. Following any contest and submissions, the Assistant Director for Nonbank Supervision would be required to make a recommendation, with the Director authorized to issue the final decision and Order as to whether or not the unsupervised person shall be subject to CFPB supervision.
  • Allow the unsupervised person, once becoming subject to CFPB supervision, to petition the Director after two years (and no more than annually thereafter) for termination of the Order. FYI, an unsupervised person that voluntarily consents to CFPB supervision would not have a right to file such a petition.

Issuance of a Notice does not mean charges have been filed against the unsupervised person, it simply triggers the procedures outlined in the CFPB rules. However, if the CFPB issues a notice of charges, it can choose, in its sole discretion, to utilize more formal adjudicatory procedures (including some variations) that are described in 12 C.F.R. 1081.200. Comments on the proposed rules are due by July 24, 2012, and you can read the entire proposed CFPB rule directly at Procedural Rules To Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination.

If you need more information about these proposed rules, or want help determining if you should submit comments and the best way to approach the substance and form of those comments, please contact Robert M. Jaworski (rjaworski@rimonlaw.com). Of course, you can always find out more or get the assistance you need by contacting me, Joe Rosenbaum, or the Rimon attorney with whom you regularly work.