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  • A Quick Guide to Depositions in Japan
    November 17, 2016
    Lauren R. Randell

    You have a case involving a witness in Japan. Maybe the witness is a corporate custodian, or a key executive of a party. For whatever reason — a witness’s inability to travel, discovery rules, or simple agreement of the parties — the witness is going to be deposed in Japan. Now what? Based on our own experience, our team offers the following practical observations and suggestions to make your own experience smoother, whether you are taking or defending a Japanese deposition.

    Unlike, for example, in China, it is at least possible to take a deposition in Japan for later use in U.S. litigation. But the process is nowhere near as simple as holding a deposition in the U.S., or even in many foreign locations. Which brings us to our first suggestion — if you can, secure agreement of the parties and witness to have the deposition in Hong Kong. This is not to say that depositions cannot be taken in Japan with successful results, and there are situations, including our own, where Japan really was the only option. But the savings in effort, time and money, and potentially additional deposition time on the record, warrant at least a closer look at an alternative venue.

    The primary reason depositions in Japan can be more complicated than elsewhere is that depositions for use in U.S. litigation can only be taken in three conference rooms in the entire country. That’s it. The depositions must occur in either (1) the U.S. Embassy in Tokyo, or (2) the U.S. Consulate in Osaka. Tokyo’s lone conference room can hold eight people. Osaka has one larger conference room — although even that will only hold 15 people — and another eight-person room. Depositions cannot be moved, even with agreement of the parties, to a hotel, or law firm, or anywhere other than these three rooms. There are no telephonic depositions, and while we did not try this, video-conference depositions are reported to be only available via special request to the Japanese government and rarely granted.

    Originally published in Law360; reprinted with permission.

  • Behavioral Science for Incentive Compensation Reviews
    November 3, 2016
    Valerie L. Hletko and Walter E. Zalenski

    Recent attention in Congress on retail incentive compensation, goal-setting and cross-selling of consumer financial products and services is remarkable for its ferocity and its direction at banks and regulators alike. During a Sept. 20, 2016, Senate Committee on Banking, Housing and Urban Affairs hearing, Senator Elizabeth Warren, D-Mass., called out for special attention to “the person in charge of compliance ... the person who is supposed to be responsible to make sure that the bank is following the law.”

    During a Sept. 29, 2016, House Financial Services Committee hearing Congressman Blaine Luetkemeyer, R-Mo., pilloried, “federal regulators who ... failed to stop the ripping off of consumers” and “sat idly by, either oblivious or uncaring,” and then “neglected to fulfill their enforcement obligations after the fact.” He suggested that regulators “ought to be fined, as well” for being “asleep at the switch.”

    Incentive compensation is not a new subject for financial services policymakers. According to a 2009 survey of banking organizations conducted by the Institute of International Finance, 98 percent of respondents cited compensation practices as a contributing cause of the financial crisis that began in 2007. Less than a month before the passage of the Dodd-Frank Act, federal bank regulators published “Guidance on Sound Incentive Compensation Policies.” Section 956 of the Dodd-Frank Act itself addresses incentive compensation and requires, among other things, that federal agencies promulgate rules limiting at certain financial institutions incentive-based compensation that, in the regulators’ view, encourages inappropriate risks.

    A 2011 proposed rule implementing this statutory requirement generated over 10,000 comments. Perhaps due to divergent views on the subject, there was no formal action on the rulemaking for five years, until the agencies issued a revised proposal in June 2016 — not long before the current incentive compensation controversy hit the headlines. It is safe to say that the subject has been quickly graduated to the regulators’ front burner.

    Originally published in Law360; reprinted with permission.

  • Small Banks and Marketplace Lenders: Unions in Waiting
    October 14, 2016
    David Baris

    The community banking model has worked for many years. For many, the model continues to work. But for others, it needs an overhaul given accelerating compliance costs and burdens and tech advancements.

    According to the Independent Community Bankers of America, community banks represent 14% of banking assets in the United States. And yet, they make about 46% of small loans to farms and businesses – a key component to creating jobs and a vibrant economy. Furthermore, community banks hold the majority of banking deposits outside of large cities. For residents of 600 rural or micropolitan counties, community banks are the only banks that serve them.

    But there are also hundreds of community banks – often located in small towns – that are unprofitable or barely profitable. These small banks cannot fully serve their communities because of their difficulty or inability to attract capital coupled with their increasing compliance burdens and limited resources.

    It's time for some small banks to consider merging with marketplace lenders in appropriate circumstances.

    Marketplace lending partnerships could expand a community bank's geographical reach to customers anywhere. The partnerships can also let banks offer customers new financial products and deliver those products in new ways, and potentially put them in a better position to attract capital and better afford escalating compliance costs.

    Click here to read the full article on www.americanbanker.com.

  • Validating the Validation Set
    October 1, 2016
    Elizabeth E McGinn, Adam Miller, & Nadav Ariel

    Predictive coding is becoming increasingly prevalent in fulfilling discovery obligations in litigation and in response to regulatory inquiries. As the process gains acceptance, parties, regulators and courts debate whether producing parties should be required to disclose documents and coding decisions used to “train” the predictive coding software.

    However, the focus on these training materials, known as the “seed set,” has shifted attention away from the more important subset of documents known as the “validation set.” The validation set, which essentially functions as an answer key, ultimately ensures the quality of the predictive coding results and should be the focus of parties, courts and regulators in determining whether a party utilizing predictive coding has satisfied its discovery obligations.

    THE IMPORTANCE OF PREDICTIVE CODING

    Predictive coding relies on an algorithm to code documents based on input received from human reviewers. While there are various ways to implement predictive coding, the process generally involves two separate subsets of the document collection. One is the seed set, which can be created randomly from judgmental sampling or from searches designed to capture the most relevant documents. The other, the validation set, should be a statistically significant random sample of the document collection.

    Reviewers manually determine whether the documents in both subsets are relevant. Based on information gleaned from the seed set documents, the software predicts whether each of the remaining documents in the overall population, including the validation set, is relevant. The accuracy of the software’s predictions is then assessed by comparing its results to the manual determinations for each document in the validation set.

    Originally published in Legal Tech News; reprinted with permission. 

  • Has the Game Changed? New Considerations for General Counsel Post-Yates
    September 30, 2016
    Benjamin B. Klubes, Veena Viswanatha, Kate Berlitz Shrout & Matthew Newman

    On Sept. 9, 2015, the Department of Justice (DOJ) issued a memorandum from Deputy Attorney General Sally Quillian Yates announcing that the DOJ would require a company to fully disclose all relevant facts about individuals responsible for the misconduct at issue in order to receive any cooperation credit in a criminal investigation or prosecution.

    Under the so-called ‘‘Yates Memo,’’ a company will lose eligibility for any cooperation credit if it appears to be shielding any information about individual wrongdoers. The DOJ is now reportedly asking some companies to certify that they have fully disclosed all information about individuals involved in wrongdoing as a precondition to securing cooperation credit, though the DOJ has denied that written certifications will be a formal requirement in every case.

    The Yates Memo is not exactly a sea change, given the DOJ’s focus in recent years on prosecuting individual executives for corporate misconduct. However, the new requirement that companies identify individual wrongdoers and turn over all evidence of their wrongdoing as a threshold condition for cooperation credit does change the calculus for general counsel overseeing internal investigations. Below, we describe two areas of concern for general counsel — planning for individuals with exposure and ensuring that no constitutional rights are violated — and describe the benefits of identifying separate counsel in addressing those concerns.

    Originally published in Bloomberg BNA White Collar Crime Report; reprinted with permission.

Knowledge + Insights

  • Election Results: Preliminary Thoughts and Reactions
    November 14, 2016

    As a result of last Tuesday’s election, Republicans will control the White House and both houses of Congress in 2017. It is likely there ultimately will be some significant changes affecting financial services regulation and enforcement, but they will take time to implement. The President-elect has articulated sympathy for less regulation and opposition to the Dodd-Frank Act but also an unconventional economic populism. The Congressional Republicans have already prepared, and in some cases passed, more specific changes to limit and cabin the CFPB. We anticipate efforts focused on changing the CFPB Director and CFPB structure, reduced regulation that may encourage product innovation (particularly in the FinTech space), and potentially less emphasis on certain Department of Justice (“DOJ”) enforcement initiatives such as fair lending and the Residential Mortgage-Backed Securities (“RMBS”) task force. Nonetheless, we expect continued enforcement and supervisory activity, including by states and by prudential regulators that are less directly tied to shifting political winds.

    While much remains uncertain, this special alert offers preliminary thoughts and reactions regarding the implications for the financial services industry.

    Click here to read the full special alert

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    Questions regarding the matters discussed in this alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: Summary of CFPB's Prepaid Rule
    October 25, 2016

    I. Overview of the CFPB’s Final Prepaid Rule
    On October 5, 2016, the Consumer Financial Protection Bureau (Bureau) issued a final rule (Prepaid Rule) amending Regulations E and Z to extend consumer protections to prepaid card accounts. The new protections include pre-acquisition disclosures, error resolution rights, and periodic statements. In addition, prepaid card accounts that include a separate credit feature are subject to some of Regulation Z’s credit card provisions, including an ability-to-repay requirement. Prepaid card issuers are also required to submit to the Bureau and to post to their websites any new and revised prepaid card account agreements. In this alert we summarize key provisions of the Prepaid Rule except those provisions that apply only to payroll and government benefits prepaid cards, which will be covered in a separate alert.

    Click here to read full Special Alert.

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    Questions regarding the matters discussed in this alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: D.C. Circuit Panel Rejects CFPB's RESPA Interpretation and Alters its Structure in PHH Corp. v. CFPB
    October 11, 2016

    On October 11, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion vacating a $109 million penalty imposed on PHH Corporation under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA), concluding that the CFPB misinterpreted the statute and violated due process by reversing the interpretation of the prior regulator and applying its own interpretation retroactively. Furthermore, the panel rejected the CFPB’s contention that no statute of limitations applied to its administrative actions and concluded that RESPA’s three-year statute of limitations applied to any actions brought under RESPA.

    In addition, a majority of the panel held that the CFPB’s status as an independent agency headed by a single Director violates the separation of powers under Article II of the U.S. Constitution. However, rather than shutting down the CFPB and voiding all of its regulations and prior actions, the majority chose to remedy the defect by making the CFPB’s Director subject to removal at will by the President. In effect, this makes the CFPB an executive agency (like the Department of the Treasury) rather than, as envisioned by the Dodd-Frank Act, an independent agency (like the Federal Trade Commission). (One member of the panel, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s interpretation of RESPA.)

    The panel remanded the case to the CFPB to determine whether the relevant mortgage insurers paid in excess of the fair market value of the services provided within the three year statute of limitations in violation of RESPA. The CFPB is expected to petition for en banc reconsideration by the full D.C. Circuit or to seek direct review by the United States Supreme Court. Therefore, final resolution of this matter may be delayed by a year or more.

    Click here to read the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: OCC to Issue Guidance on "De-Risking" in Foreign Correspondent Banking Relationships
    October 4, 2016

    OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance around “de-risking” in foreign correspondent banking relationships. Following the joint fact sheet published by the federal banking agencies and the Department of Treasury, Comptroller Curry said that it will issue “guidance that reiterates our risk management expectations for banks to establish and follow policies and procedures for regularly conducting risk evaluations of their foreign correspondent portfolios.” The guidance will describe “best practices” that the OCC has observed that banks can use when “re-evaluating their risks and making decisions about retaining or terminating foreign correspondent accounts.”

    Click here to read the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: NYDFS Stakes Claim on Cybersecurity Regulation
    September 16, 2016

    On September 13, the New York Department of Financial Services (DFS) issued a proposed rule establishing cybersecurity requirements for financial services companies, and has thus ventured into new territory for state regulators. In the words of Governor Cuomo, “New York, the financial capital of the world, is leading the nation in taking decisive action to protect consumers and our financial system from serious economic harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises."

    Given the concentrated position of financial service companies in New York and the regulation’s definition of a Covered Entity – which includes “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law” – it could create an almost de facto national standard for medium to large financial services companies, regardless of where they keep their servers or suffer a cyberattack. This type of state-level regulation is not unprecedented. In 2003, California passed a data breach notification law that requires companies doing business in California to notify California residents of the breach and more recently amended the law to require 12 months of identity protection and strengthen data security requirements. In 2009, Massachusetts enacted a regulation mandating businesses implement security controls to protect personal information relating to state residents.

    The DFS designed the regulation to protect both consumers and the financial industry by establishing minimum cybersecurity standards and processes, while allowing for innovative and flexible compliance strategies by each regulated entity. Yet the proposed regulation goes further than to just ask financial entities to conduct a risk assessment and to design measures to address the identified risks.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.