Keynote Address: FDIC Director McKernan

Please join Mayer Brown and the New York State Bar Association for two panels discussing Basel Endgame and Long-Term Debt Proposals. Director of the FDIC Board of Directors, Jonathan McKernan will give a keynote address.
These events will take place at Mayer Brown’s New York office with an option to join remotely.

Impact of Basel Endgame and Long-Term Debt Proposals on the US Banking System

The US federal banking regulators recently proposed extensive revisions to the regulatory capital requirements. The sweeping late July and August proposals – targeted at banks with $100 billion (or more) in assets – are of critical importance, as the amount of capital a bank must maintain with respect to any particular loan, investment, or activity is often the most significant factor in determining whether the relationship is profitable – or even feasible. Please join this panel to understand how these proposals may impact larger banks and their customers, as well as the overall banking sector.
Wednesday, October 4, 2023
9:00 a.m. – 10:00 a.m. EDT
Register Here
For complimentary registration, please use the code MBCOMP10423.

Keynote Address, followed by a Q&A session
Director of the FDIC Board of Directors, Jonathan McKernan
Wednesday, October 4, 2023
10:00 a.m. – 10:45 a.m. EDT

How Banks May Respond to the Basel Endgame and Long-Term Debt Proposals

The Basel Endgame and long-term debt rulemakings will not be the end of the discussion on regulatory capital requirements. Larger banks, their counterparties, and their competitors, all are expected to respond by making changes to their product offerings, operations, and capital structure. Some of these changes are obvious or easy, but others will require sustained commitment and attention to detail. Importantly, many participants will begin planning or implementing changes during the rulemakings because of the long-term nature of balance sheet activities. Therefore, please join this panel to understand some of the ways that the industry may respond.
Wednesday, October 4, 2023
11:00 a.m. – 12:00 p.m. EDT
Register here.
For complimentary registration, please use the code MBCOMP10423.

The Securities and Exchange Commission’s Investor Advisory Committee will meet on September 21, 2023 and has announced its agenda for the meeting, which includes consideration of certain matters that are included on the SEC’s rulemaking agenda for this fall.

For example, the Committee will host a panel discussion regarding Rule 506 offerings.  The agenda notes that Rule 506 offerings have become the primary way private companies and funds raise capital, dwarfing the amount and size of registered public offerings.  Panelists will examine the consequences to investors flowing from this expansion of the Rule 506 exempt markets, explore any potential changes that could “improve information asymmetry and supervision in this vast landscape of exempt offerings, and provide better investor protection for retail investors while still allowing small issuers to raise capital responsibly and efficiently.”  Unclear what information asymmetry is referred to in the agenda, but, presumably this harkens back to public remarks made by certain SEC representatives regarding Form D and Regulation D offerings.

That panel will be followed by another panel discussion on the “accredited investor” definition.  The agenda notes that session will review the origins and intent of the “accredited investor” definition and consider whether the “accredited investor” qualifications remain fit-for-purpose. The panel will explore whether updates to the rule may be necessary to ensure that the SEC can balance the needs of investors through its tripartite mission of investor protection, ensuring fair, orderly, and efficient markets, and facilitating capital formation.  The accredited investor definition was recently amended and the SEC recently conducted a study on the definition.  Hard to see that much would have changed in the short period of time that has elapsed since the amendments.

Finally, and not related to private placements, the Committee will discuss a recommendation to the SEC regarding Human Capital Management Disclosure, which was put forth at an earlier meeting and can be found here.

The full agenda with the speakers and materials can be accessed here.

The Securities and Exchange Commission recently an announced an upcoming meeting to be held on September 19, 2023.  The agenda includes a discussion with the SEC’s Division of Corporation Finance relating to its role in capital formation.  There have not been any recent SEC proposed rulemakings related to this area recently.  However, the agenda does note that the discussion will highlight certain rulemaking initiatives “relevant to small businesses and their investors.”  Another panel will focus on smaller VC funds and emerging fund managers and actions that can be taken to encourage investment in early stage companies.  Finally, the last panel will discuss alternative funding options for small business, other than traditional equity investments and bank lending. 

The detailed agenda may be accessed here.

The Securities and Exchange Commission has announced an open meeting for September 20, 2023 in order to consider adopting amendments to the rule under the Investment Company Act of 1940 that addresses investment company names that are likely to mislead investors about an investment company’s investments and risks. In part, the proposed amendments to the names rule addressed various ESG related topics.  The amendments the SEC will consider also include enhanced prospectus disclosure requirements for terminology used in investment company names, as well as public reporting regarding compliance with new names-related requirements.  We discuss the proposed amendments, including the ESG related aspects, in this article. 

See the SEC’s release regarding the open meeting here.

Webinar: September 14, 2023

12:30 p.m. – 1:30 p.m. ET

Register here.

The SEC recently adopted rules for private fund advisers that would impose new obligations and significantly restrict certain activities. Join us for a discussion on the key requirements, the impact of these new rules and considerations for advisers as they implement these new requirements.

See Mayer Brown’s related Legal Update.

On September 7, 2023, the Staff of the Division of Corporation Finance (“Division”) of the U.S. Securities and Exchange Commission (“SEC”) issued a sample comment letter (“Letter”), containing sample comments that the Division may issue to companies relating to the disclosure of financial and other information using the eXtensible Business Reporting Language (“XBRL”) format.  The SEC’s rules require companies to use XBRL and Inline XBRL formats to present or “tag” certain financial and other information in their registration statements and periodic and current reports.

The Division referred to the Financial Data Transparency Act, which requires, among other things, that the SEC establish a program to improve the quality of the corporate financial data filed or furnished by issuers under the Securities Act of 1933 Act (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange Act).  The Staff of the Division stated that it has provided comments relating to XBRL and Inline XBRL to companies through the Division’s selective reviews of filings.  The Letter identified the following XBRL and Inline XBRL issues that may be the subject of comments:

  1. Failure to include the required Inline XBRL presentation under Item 405 of Regulation S-T;
  2. Inconsistent XBRL tagging of materially different values between the number of common shares outstanding on the cover page of a company’s filing and on the company’s balance sheet;
  3. Pay versus Performance disclosure under Regulation S-K Item 402(v) must be in Inline XBRL for all required data points, in accordance with Item 405 of Regulation S-T and the EDGAR Filer Manual;
  4. Although it is permissible to combine sets of relationship disclosures into one graph, table or other format under Regulation S-K Item 402(v)(5), companies are still required to provide separate XBRL tags for each required Item 402(v) data point;
  5. Use of a custom tag rather than XBRL element consistent with current U.S. GAAP in an income statement, under Item 405(c)(1)(iii)(B) of Regulation S-T.

Companies should consider reviewing their use of XBRL and Inline XBRL with these comments in mind.  A copy of the Letter may be viewed here.

Recently, the Staff of the Securities and Exchange Commission’s Division of Corporation Finance provided additional guidance in the form of a new Compliance and Disclosure Interpretation (C&DI) as part of the Regulation AB and Related Rules C&DIs, which we have reprinted below in its entirety, and which relates to the timely filing requirement for Form SF-3 eligibility.

111.01 Form SF-3 Eligibility Requirements, Timely Transaction Documents

Question: In order to use Form SF-3 for an offering of asset-backed securities, a registrant must meet the eligibility requirements in General Instruction I. A. of the form. General Instruction I.A.1. requires, in part, that specified documents and transaction agreements must have been filed on a timely basis. When must the required documents and agreements be filed to be considered timely for purposes of Form SF-3 eligibility?

Answer: Item 1100(f) of Regulation AB specifies that final agreements must be filed and made part of the registration statement no later than the date the final prospectus is required to be filed under Rule 424. Instruction to Paragraph (b) of Rule 424, which applies only to asset-backed securities offerings, specifies that a prospectus filed pursuant to Rule 424(b)(2) or Rule 424(b)(5) must be filed no later than the second business day following the date it is first used. For purposes of this instruction only, “first use” of the final prospectus in asset-backed securities offerings would include its use at time of sale to satisfy an issuer’s obligations under Securities Act Section 5(b) to provide a Section 10(a) prospectus at or prior to the time of sale. Accordingly, the required documents and agreements would be considered timely if filed no later than the second business day following first use of the final prospectus.

For example, if the date of sale of a tranche of securities in an asset-backed securities offering under Rule 415(a)(vii) or (xii) is Tuesday, May 2, then the requirements of Rule 424(b)(2) or Rule 424(b)(5), and the conditions of Securities Act Rule 172, would be met if the registrant filed the final prospectus no later than Thursday, May 4. Therefore, the required documents and agreements must also be filed no later than Thursday, May 4, to be deemed timely under General Instruction I.A.1 of Form SF-3. [August 30, 2023]

On September 5, 2023, the Securities and Exchange Commission (the “SEC”) posted and declared effective a Nasdaq rule proposal modifying requirements related to a waiver of the code of conduct in Listing Rules 5610 and IM-5610.  The new rules allow committees of a company’s board of directors to approve waivers of the code of conduct for directors or executive officers. Additionally, the new rules set the public disclosure time for such waivers made by Nasdaq-listed foreign private issuers (“FPIs”) to four business days, like any other Nasdaq-listed company.  The rules become effective on September 20, 2023.

Listing Rules 5610 and IM-5610 require all Nasdaq-listed companies to adopt a code of conduct meeting the definition of a “code of ethics” set out in Section 406(c) of the Sarbanes-Oxley Act.  The code of conduct must be applicable to directors, officers and employees, publicly available and have an enforcement mechanism.

The changes will provide more flexibility for the approval process and will require Nasdaq-listed FPIs to promptly disclose waivers.  Following the changes (underlined below), the waiver of the code for directors or executive officers must be:

  1. approved by the listed company’s board or a board committee; and
  2. publicly disclosed, also by FPIs, within four business days, in the manner described above.

Providing companies with oversight flexibility aligns Nasdaq-listed companies with NYSE-listed companies, which have been allowed to place oversight of such waivers with a committee of the board, according to NYSE Rule 303A.10.  Nasdaq-listed companies should review their codes of conduct for any appropriate changes and consider whether it would be more efficient and prudent to transfer oversight of waivers to a board committee.

The EU Corporate Sustainability Reporting Directive (“CSRD“) entered into force on 5 January 2023 and the associated European Sustainability Reporting Standards (“ESRS“) were adopted by the European Commission on 31 July 2023. Together, the CSRD and ESRS create detailed sustainability reporting requirements that will apply to a significant number of EU and non-EU companies and substantially increase the scope of their sustainability reporting.

Application of the rules is now imminent and, for some, CSRD reporting periods will begin from 1 January 2024.

In this update, we take a look at the implications of the CSRD for non-EU companies and what companies can do to prepare.

The US federal banking regulators recently proposed extensive revisions to the regulatory capital requirements, referred to as the Basel Endgame.  The July and August proposals – targeted at banks with $100 billion (or more) in assets – are of critical importance, as the amount of capital a bank must maintain with respect to any particular loan, investment, or activity is often the most significant factor in determining whether the relationship is profitable – or even feasible.  Some of the proposed revisions were expected, but others have been motivated by the recent banking crisis.

The Basel Endgame and long-term debt rulemakings will not be the end of the discussion on regulatory capital requirements.  Larger banks, their counterparties, and their competitors, all are expected to respond by making changes to their product offerings, operations, and capital structure.  Some of these changes are obvious or easy, but others will require sustained commitment and attention to detail.

Access publications, podcasts, and seminars on our Basel Endgame Resource Center, and keep current on related developments.