Edward Eisert

Senior Counsel

New York


Read full biography at www.orrick.com
Edward G. Eisert, a senior counsel in the New York office, is a member of the Corporate Group. He focuses his practice on investment management, financial products, joint ventures and regulatory compliance.

Ed represents U.S. and non-U.S. domiciled global financial institutions in a wide array of matters spanning his practice specialties. 

Ed’s investment management experience includes the structuring and restructuring of U.S. and non-U.S. private investment funds (e.g., private equity and venture capital funds, hedge funds, and funds of funds) with respect to a broad range of asset classes; the representation of institutional investors in private funds; and separately managed account mandates.  His experience within financial products also includes the structuring of cross-border securities offerings, structured note programs and liability driven investment programs.

Ed’s regulatory experience includes the structuring and operations of investment advisers and broker-dealers; the asset management and custody activities of trust companies; the side-by-side management of registered funds, private funds and separately managed accounts; advice regarding the regulation, asset management and custody activities of dually registered broker-dealers and investment advisers; and cross-border broker-dealer, investment adviser and bank regulatory issues.

Within joint ventures and M&A, Ed’s experience includes the structuring and operations of cross-border and U.S. joint ventures in investment management, management “lift-outs,” and acquisitions and mergers of investment management firms. 

Ed has a "Preeminent" peer review ranking by Martindale-Hubbell® in the following practice areas: Private Investment Funds, Dodd-Frank Act Analysis, Financial Institutions & Market Regulation, Mergers & Acquisitions and Private Equity.

Before joining Orrick, Ed was a partner of Schulte Roth & Zabel LLP; a Senior Vice President, the General Corporate Counsel, Corporate Secretary and AML Compliance Officer of Fiduciary Trust Company International (an FDIC insured bank and subsidiary of Franklin Resources, Inc.); and a partner of K&L Gates LLP.

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Posts by: Edward Eisert

NY DFS Charges the NY Branch of Habib Bank and Habib Bank Limited for Compliance Failures

 

On August 24, 2017, the New York State Department of Financial Services (“NY DFS“) issued a Notice of Hearing and Statement of Charges to the New York Branch of Habib Bank Limited and Habib Bank Limited, the largest bank in Pakistan, based upon its determination that “compliance failures at the New York Branch are serious, persistent and apparently affect the entire Habib banking enterprise.” The NY DFS asserted that the Bank’s compliance function is dangerously weak and indicates “a fundamental lack of understanding of the need for a vigorous compliance infrastructure, and the dangerous absence of attention by Habib Bank’s senior management for the state of compliance at the New York Branch.” The deficiencies cited include the New York Branch’s failure to comply with New York and Federal laws and regulations concerning anti-money laundering (“AML“) compliance, including the Bank Secrecy Act.

The Superintendent is seeking to impose a civil monetary penalty upon the Respondents in an amount of up to approximately $620 million.

A hearing is scheduled for September 27, 2017, before the NY DFS’s Deputy Superintendent for Compliance. The Bank is contesting the NY DFS’s allegations and has indicated that it plans to challenge the penalty and surrender its DFS banking license, thus eliminating its only U.S. branch.

On August 24, 2017, the NY DFS also issued two companion orders. One expands the scope of a review of prior transactions for AML and sanctions issues that was already underway under the terms of an earlier consent order; the other outlines the conditions under which the Bank could surrender its NY DFS banking license, including the retention of a consultant selected by NY DFS to ensure the orderly wind down of the Bank’s New York Branch. Read more here.

Federal Reserve and FDIC Extend Deadline for Nineteen Foreign Banks and Two Domestic Bank Holding Companies to File Living Wills

 

On August 8, 2017, the Federal Reserve Board and Federal Deposit Insurance Corp. extended the deadline for 19 foreign banks and two domestic bank holding companies to file their next round of “living wills” detailing how they can be speedily and safely wound down in the event of a crisis. The new deadline for these firms to file their updated resolution plans is December 31, 2018, giving them an additional year “to address any supervisory guidance in their next plan submissions,” the regulators said in a statement. HSBC Holdings plc, the Toronto-Dominion Bank and Banco Santander SA are among the foreign banks receiving the extension, while the domestic group comprises CIT Group Inc. and Citizens Financial Group Inc. The resolution plans, also known as living wills, outline how the banks could be taken apart safely through the bankruptcy process if they are hit with a financial shock. The public portions of the plans provide an overview; more details about the banks’ structure and funding, as well as plans for failure, are kept confidential at the Fed and the FDIC. The other foreign banks covered by the extension are Banco Bilbao Vizcaya Argentaria SA, Bank of China Ltd., Bank of Montreal, BNP Paribas, BPCE, Coöperatieve Rabobank UA, Crédit Agricole SA, Industrial and Commercial Bank of China Ltd., Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc., Royal Bank of Canada, Société Générale, Standard Chartered PLC, Sumitomo Mitsui Financial Group Inc., the Bank of Nova Scotia and the Norinchukin Bank. The Fed and FDIC also said that two additional smaller foreign firms, Canara Bank and Mercantil Servicios Financieros CA, will be allowed to file reduced-content resolution plans going forward. These firms already submitted previous plans that have filled in regulators on the essentials of their limited U.S. operations, regulators said. Tuesday’s extension comes after the Fed and FDIC granted a living will extension last month to American International Group Inc. and Prudential Financial Inc., two nonbank companies that have been designated systemically important financial institutions by the Financial Stability Oversight Council and are subject to extra oversight. They were originally required to submit their plans by the end of December 2017, but now have until December 31, 2018, the Fed and the FDIC said.

OCC Solicits Public Comments on Revising the Volcker Rule

 

On August 2, 2017, the Office of the Comptroller of the Currency (“OCC“) issued a public notice that it is seeking public input on revising the final regulation implementing section 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (commonly known as the Volcker Rule).

The Notice, to be published in the Federal Register, solicits public input on whether certain aspects of the implementing regulation should be revised to better accomplish the purposes of section 619 while decreasing the compliance burden on banking entities and fostering economic growth. In particular, the OCC invites input on ways to tailor the rule’s requirements and clarify key provisions that define prohibited and permissible activities. The agency also seeks input on how the federal regulatory agencies could implement the existing rule more effectively without revising the regulation.  The OCC noted that:  “This is one piece of a larger interagency effort to improve the rule.”

The OCC requests that respondents provide any comments within 45 days of publication in the Federal Register. Release.

OCC Addresses Questions Related to Bank Collaboration with Fintech Companies and Others

 

Recently, with increasing frequency, questions have been posed regarding the responsibilities of bank regulated entities (“Bank Entities”) with respect to their “third-party relationships,” particularly with financial technology companies.

On June 7, 2017, the Office of the Comptroller of the Currency (the “OCC”) issued a supplement (the “Supplement”) to its Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” issued October 30, 2013.

As an overview, the OCC stated:

OCC Bulletin 2013-29 defines a third-party relationship as any business arrangement between the bank and another entity, by contract or otherwise. Third-party relationships include activities that involve outsourced products and services; use of outside consultants, networking arrangements, merchant payment processing services, and services provided by affiliates and subsidiaries; joint ventures; and other business arrangements in which a bank has an ongoing third-party relationship or may have responsibility for the associated records. Recently, many banks have developed relationships with financial technology (fintech) companies that involve some of these activities, including performing services or delivering products to a bank’s customer base. If a fintech company performs services or delivers products on behalf of a bank or banks, the relationship meets the definition of a third-party relationship and the OCC would expect bank management to include the fintech company in the bank’s third-party risk management process. (Emphasis added.)

The OCC expects banks to perform due diligence and ongoing monitoring for all third-party relationships. The level of due diligence and ongoing monitoring, however, may differ for, and should be specific to, each third-party relationship. The level of due diligence and ongoing monitoring should be consistent with the level of risk and complexity posed by each third-party relationship. For critical activities, the OCC expects that due diligence and ongoing monitoring will be robust, comprehensive, and appropriately documented. Additionally, for activities that bank management determines to be low risk, management should follow the bank’s board-established policies and procedures for due diligence and ongoing monitoring.

The Supplement then addresses a series of FAQs that should be considered by Banking Entities. Conversely, these FAQs also provide guidance to fintech companies seeking relationships with Bank Entities and in addressing due diligence inquires. FAQs.

 

Public Comments Solicited From Retail Investors and Other Interested Parties on Standards of Conduct for Investment Advisers and Broker-Dealers

 

On June 1, 2017, Securities and Exchange Commission (“SEC“) Chairman Jay Clayton issued a statement (the “Statement“) soliciting public comments from retail investors and other interested parties on standards of conduct for investment advisers and broker-dealers. The Statement was, in part, in response to the announcement by the Department of Labor that it intends to issue a Request for Information regarding various aspects of its fiduciary rule and its desire to engage with the SEC as each agency pursues its own ongoing analysis of these standards.

The Statement sets forth an extensive, detailed list of questions and issues on which comments are requested. To facilitate the SEC’s assessment of the issues, the Statement announced that a webform and email box are now available for members of the public to make their views on these issues known in advance of any future SEC action.

CFTC Launches LabCFTC as Major Fintech Initiative

 

On May 17, 2017, the Commodity Futures Trading Commission (“CFTC“) approved the creation of LabCFTC, which it describes as “a new initiative aimed at promoting responsible fintech innovation to improve the quality, resiliency and competitiveness of the markets the CFTC oversees.” LabCFTC will also “look to accelerate CFTC engagement with fintech and RegTech solutions that may enable the CFTC to carry out its mission responsibilities more effectively and efficiently.”

The CFTC intends for LabCFTC to be the agency’s focal point to promote fintech innovation and fair competition by making the CFTC more accessible to fintech innovators and serve as a platform to inform the CFTC’s understanding of new technologies. Moreover, the CFTC intends that LabCFTC will be an information source for the CFTC and its staff on responsible innovation that may influence policy development. For more information regarding LabCFTC click here.

The CFTC identified the following Core LabCFTC Components:

  • GuidePoint: GuidePoint is a new dedicated point of contact for fintech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework and obtain feedback and information on the implementation of innovative technology ideas for the market. The CFTC believes that such feedback may include information that, particularly at an early stage, could help innovators/entities save time and money by helping them understand relevant regulations and the CFTC’s oversight approach.
  • CFTC 2.0: A new initiative to foster and help promote the adoption of new technology within the CFTC’s own mission activities through collaboration with fintech industry and CFTC market participants.

The CFTC intends that LabCFTC will facilitate:

  • Through proactive engagement with the innovator community, a better understanding in the CFTC of how new innovations interact with the regulatory and supervisory framework and identification of areas where the framework could better support responsible innovation.
  • Collaboration among the fintech industry and CFTC market participants that facilitate responsible market innovation and promote the use of technology within the CFTC; CFTC participation in studies and research that facilitate responsible innovation in the markets and promote the use of technology within the agency.
  • Cooperation with financial regulators at home and overseas.
  • Monitoring of trends and developments to ensure that CFTC’s regulatory framework supports – and does not unduly impede – responsible technological innovation.
  • Information sharing about applications of fintech, including potential use cases, benefits, risks and solutions.

Engagement with academia, students and professionals on applications of FinTech relevant in the CFTC space.

SEC Adopts Jobs Act Amendments

 

On April 5, the Securities and Exchange Commission (“SEC“) announced that it has adopted amendments to increase the amount of money companies can raise through crowdfunding to adjust for inflation. It also approved amendments that adjust for inflation a threshold used to determine eligibility for benefits offered to “emerging growth companies” (“EGCs“) under the Jumpstart Our Business Startups (JOBS) Act.

The SEC is required to make inflation adjustments to certain JOBS Act rules at least once every five years after it was enacted on April 5, 2012. In addition to the inflation adjustments, the SEC adopted technical amendments to conform several rules and forms to amendments made to the Securities Act of 1933 (“Securities Act“) and the Securities Exchange Act of 1934 (“Exchange Act“) by Title I of the JOBS Act. The Commission approved the new thresholds on March 31. They will become effective when they are published in the Federal Register.

The Commission provided a helpful chart that sets out the inflation-adjusted amounts for the maximum amount of offerings and investment limits, specifically: (i) the maximum aggregate amount an issuer can sell in a 12-month period; (ii) the threshold for assessing an investor’s annual income or net worth to determine investment limits; (iii) the lower threshold of Regulation Crowdfunding securities permitted to be sold to an investor if annual income or net worth is less than the adjusted thresholds; (iv) the maximum amount that can be sold to an investor under Regulation Crowdfunding in a 12-month period; and (v) the inflation-adjusted amounts for determining financial statement requirements.

Also, pursuant to sections of the Securities Act and the Exchange Act added by the JOBS Act, which define the term “emerging growth company,” every five years the Commission is directed to index the annual gross revenue amount used to determine EGC status to inflation. To carry out this statutory directive, the SEC has adopted amendments to Securities Act Rule 405 and Exchange Act Rule 12b-2 to include a definition for EGC that reflects an inflation-adjusted annual gross revenue threshold. Press Release.

SEC Division of Investment Management Issues Guidance on Holding Companies and the Transient Investment Company Rule Under the Investment Company Act

 

Earlier this month, the SEC Division of Investment Management issued guidance with respect to situations in which an operating company may find that, upon the occurrence of an extraordinary event, it meets the definition of an “investment company” under the Investment Company Act of 1940 (“Company Act“), even though it intends to remain in such status only temporarily. Absent an exclusion or exemption from this definition, the operating company may be required to register under the Company Act. Rule 3a-2 under the Company Act, however, provides a one-year safe harbor for such transient investment companies if certain conditions are satisfied.

The Staff of the Division of Investment Management has received inquiries regarding the commencement of the one-year safe harbor as it applies to holding companies that are engaged in various businesses operating through wholly owned and majority-owned subsidiaries where neither the holding companies nor their subsidiaries are regulated as investment companies (“Holding Companies“).

In response, the Staff has clarified that the one-year safe harbor period does not begin until the occurrence of an extraordinary event causes a Holding Company to have certain characteristics of an investment company. It is the staff’s view that when adopting Rule 3a-2, the Commission did not intend to limit the circumstances under which an issuer could rely on the rule in such a way that Holding Companies are treated differently than other issuers because of the Holding Companies’ organizational structures.

SEC Staff Issues Guidance Update and Investor Bulletin on Robo-Advisers

 

On February 23, 2017, the Securities and Exchange Commission (“SEC“) published information and guidance for investors and the financial services industry on the use of robo-advisers, described by the Staff as “registered investment advisers that use computer algorithms to provide investment advisory services online with often limited human interaction.” Press Release.

The guidance update (the “Update“) was issued by the SEC’s Division of Investment Management in order to address the unique issues raised by robo-advisers. It makes a number of specific suggestions on meeting disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940 (the “Advisers Act“). The Update, however, is less prescriptive than the “Report on Digital Investment Advice” issued by the Financial Industry Regulatory Authority (“FINRA“) in March 2016 (the “FINRA Report“).

The FINRA Report generally addressed the issues faced by “financial services firms” (including both broker‑dealers and investment advisers) in the use of “digital investment advice tools.” As stated by FINRA, the effective practices discussed in the FINRA Report are “specifically intended for FINRA-registered firms, but may be valuable to financial professionals generally.” Accordingly, it is suggested that the Update be read carefully in conjunction with the FINRA Report, particularly by dually registered broker-dealers and investment advisers.

The Update notes that there may be a variety of means for a robo-adviser to meet its obligations to clients under the Advisers Act and that not all of the issues addressed in the Update will be applicable to every robo-adviser.

Also on February 23, 2017, the SEC’s Office of Investor Education and Advocacy (OIEA) published an Investor Bulletin that “provides individual investors with information they may need to make informed decisions if they consider using robo-advisers.”

The Investor Bulletin describes a number of issues investors should consider, including:

  • The level of human interaction important to the investor,
  • The information the robo-adviser uses in formulating recommendations,
  • The robo-adviser’s approach to investing,

The fees and charges involved.

New York Department of Financial Services Promulgates First-in-the-Nation State Cybersecurity Regulation

 

On February 16, 2017, the New York Department of Financial Institutions (“DFS“) promulgated a regulation that requires “Covered Entities” to establish and maintain a cybersecurity program designed to protect consumers and the financial services industry itself (the “Regulation“). Report.

A “Covered Entity” means any individual or any nongovernment entity that operates under or is required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the New York State Banking Law, Insurance Law or Financial Services Law. Accordingly, Covered Entities include, among others, New York branches and representative offices of foreign banks, but do not include “investment advisers” and “broker-dealers.”

The Regulation is risk-based and includes regulatory minimum standards and encourages Covered Entities to keep pace with technological advances. The Regulation specifically provides protections to prevent and avoid cyber breaches, including:

  • Controls relating to the governance framework for a cybersecurity program, including requirements for a program that is adequately funded and staffed, overseen by qualified management and reported on periodically to the most senior governing body of the organization;
  • Risk-based minimum standards for technology systems, including access controls, data protection including encryption and penetration testing;
  • Required minimum standards to help address any cyber breaches, including an incident response plan, preservation of data to respond to such breaches and notice to DFS of material events; and
  • Accountability by requiring identification and documentation of material deficiencies, remediation plans and annual certifications of regulatory compliance to DFS.

Of particular relevance to global, diversified financial institutions, (i) a Covered Entity may meet the requirements of the Regulation by adopting the relevant and applicable provisions of a cybersecurity program maintained by an affiliate, provided that such provisions satisfy the requirements of the Regulation, applicable to the Covered Entity; and (ii) each Covered Entity must implement written policies and procedures designed to ensure the security of information systems and nonpublic information that are accessible to, or held by, third-party service providers.

The Regulation will be become effective on March 1, 2017. Covered Entities will be required to annually prepare and submit to the Superintendent of Financial Services a “Certification of Compliance with New York State Department of Financial Services Cybersecurity Regulations” commencing February 15, 2018.

The Regulation provides that, generally, Covered Entities shall have 180 days from March 1, 2017 to  comply with the Regulation. However, certain provisions include additional transitional periods: (i) one year from March 1 to comply with the requirements that, among others, (x) the Chief Information Security Officer report in writing at least annually to the Covered Entity’s board of directors or equivalent governing body, (y) the Covered Entity conduct a risk assessment of its information systems and (z) the Covered Entity provide regular cybersecurity awareness training for all personnel; (ii) 18 months from March 1 to implement risk-based policies, procedures and controls designed to monitor the activity of authorized users of the Covered Entity’s information systems and data and to detect unauthorized access or use of, or tampering with, nonpublic information by such authorized users; and (iii) two years to comply with the requirement to implement written policies and procedures designed to ensure the security of the information systems and nonpublic information of the Covered Entity that is accessible to, or held by, third‑party service providers.