The Department of Banking News Bulletin
Bulletin # 2745
Week Ending September 30, 2016
This bulletin constitutes the only official notification you will receive from this office concerning any of the following applications. Any observations you may have are solicited. Any comments should be in writing to Jorge L. Perez, Banking Commissioner, Department of Banking, 260 Constitution Plaza, Hartford, CT 06103-1800. Written comments will be considered only if they are received within ten days from the date of this bulletin.
STATE CREDIT UNION ACTIVITY
Nutmeg State Financial
Credit Union, Rocky Hill
10 North Main Street
West Hartford, CT 06107
Filed - Full Service
SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY
Assessed $120 Million in Connection With Mortgage-backed Securities Activity
On September 30, 2016, the Banking Commissioner entered a Consent Order (Docket No. CO-16-8058-S) with respect to RBS Securities Inc.
, a Connecticut-registered broker-dealer located in Stamford, Connecticut. The Consent Order followed an investigation of the firm by the department and the Office of the Attorney General. RBS Securities Inc. had been a large lead underwriter of residential mortgage backed securities prior to the 2008 financial crisis and, as such, conducted due diligence on the pools of residential mortgage loans that collateralized the securities to ensure that statements made in public offering documents for the securities were materially complete and accurate. As of September 2015, the publicly offered securities supported by the collateral pools had suffered many billions in realized and projected losses due to loan defaults and inadequate proceeds from the liquidation of foreclosed real property.
The Consent Order alleged that, in contravention of Section 36b-31-6f of the Regulations under the Connecticut Uniform Securities Act, the firm failed to implement a supervisory system for its loan level due diligence process that was reasonably designed to achieve compliance with applicable securities laws and regulations. Among other things, there was an allegedly inadequate nexus between the loan level due diligence performed by the firm’s Credit Department and the material statements made to investors in the offering materials. In addition, the firm's trading desk purportedly entered into bid stipulations with originators that were not disclosed to investors or contemplated by firm procedures. The Consent Order also alleged that the firm's supervisory failures contributed to the inclusion of material misstatements and omissions in the offering materials and gave rise to violations of Sections 36b-4(b) and 36b-4(a)(2) of the Connecticut Uniform Securities Act.
The Consent Order directed the firm to cease and desist from regulatory violations and required that it pay $120 million to the State. Of that amount, $250,000 would be allocated to the department to fund and cover the costs associated with consumer, industry and staff financial education, training and financial literacy programs. The remaining $119,750,000 would be allocated to the State of Connecticut General Fund. The Consent Order also required that, for ten years, the firm annually certify its compliance with the Supervisory Plan approved by the National Adjudicatory Council of FINRA on June 17, 2016. Under the Supervisory Plan, the firm agreed that it would no longer engage in the business of securitizing newly original residential mortgage loans and issuing the resulting residential mortgage backed securities. The Consent Order also obligated the firm, with some exceptions, to notify the agency if it sought to reenter the business of issuing or underwriting publicly offered asset-backed securities during the ten year period.
Consent Order Entered in Companion Case
On September 30, 2016, the Banking Commissioner entered a Consent Order (Docket No. CO-16-8058A-S) with respect to RBS Securities Inc.
, a Connecticut-registered broker-dealer and an affiliate of The Royal Bank of Scotland, plc. The Consent Order alleged that The Royal Bank of Scotland, plc had pled guilty to one violation of the Sherman Antitrust Act (United State of America v. The Royal Bank of Scotland PLC, No. 3:15 CR-00080-SRV-1 (D. Conn.)), and that the plea, if accepted by the Connecticut District Court, would support the initiation of proceedings under Section 36b-15 of the Connecticut Uniform Securities Act to suspend, revoke or condition the broker-dealer registration of RBS Securities Inc. The criminal charge had concerned an alleged conspiracy to fix the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in the foreign currency exchange ("FX") spot market. The Consent Order also stated that, prior to the guilty plea, Royal Bank of Scotland Plc had consented to the entry of an order by the Commodity Futures Trading Commission on November 11, 2014 arising from the same conduct. In addition, on May 20, 2015, Royal Bank of Scotland plc and RBS Securities Inc. had consented to a transactionally-related Order to Cease and Desist and Order of Assessment of a Civil Money Penalty issued by the Board of Governors of the Federal Reserve System.
In resolution of the matter, the Consent Order required that RBS Securities Inc. certify compliance with the Commodity Futures Trading Commission Order, the terms of the Plea Agreement, if and when effective, and the Board of Governors of the Federal Reserve System Consent Order, and provide supporting documentation to the Commissioner.
Dated: Tuesday, October 4, 2016
Jorge L. Perez