This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

  • FinCEN, bank regulators clarify tailored, risk-based approach to BSA/AML examinations. The Treasury Department's Financial Crimes Enforcement Network joined with the four main federal bank regulatory agencies in issuing a joint statement emphasizing their risk-focused approach to Bank Secrecy Act/anti-money laundering compliance programs. The July 22 joint statement explains how BSA/AML examinations consider a bank's unique risk profile in an effort to better tailor examination plans and procedures, more effectively devote supervisory resources to higher-risk areas, improve transparency, and allow banks to better allocate compliance resources based on their own risk. The statement, which does not establish new requirements, is the third in a series issued by a working group created by Treasury's Office of Terrorism and Financial Intelligence and including FinCEN, the Fed, FDIC, OCC and
  • OFAC expands reporting requirements on blocked and unblocked property, rejected transactions. The Treasury Department's Office of Foreign Assets Control issued amended regulations, effective June 21, governing reporting and recordkeeping requirements, and license application and other procedures for OFAC-administered economic sanctions programs. The interim final rule, published in the Federal Register on the effective date, provides updated instructions and incorporates new requirements for "all US persons," including financial institutions, filing reports on blocked property, unblocked property, and rejected transactions. OFAC is revising §501.603 of its regulations covering reports on blocked property to provide greater detail about the information required on blocking reports, and expanding this section to cover reports on the release of property from blocked status (ie, unblocked property). The agency said the more detailed information would "reduce the need for follow up requests from OFAC and ... lessen the overall reporting burden for submitters." The rule also revises §501.604 to clarify that it applies broadly to all rejected transactions, not only funds transfers, but also to wire transfers, trade finance, securities, checks, foreign exchange, and goods or services. The reports on blocked and unblocked properties and rejected transactions must be filed within 10 business days of the event or transaction. OFAC is also revising §501.801 of the regs to include information regarding electronic license application procedures and to make other technical and conforming changes.
  • G-SIBs' living wills released by Fed, FDIC. The Federal Reserve Board and the FDIC have released the public sections of the resolution plans for eight of the largest US-based global systemically important banks. The July 23 joint statement from the two bank regulatory agencies notes that the plans, commonly referred to as living wills, are required by Dodd-Frank and are divided into public and confidential sections. "Resolution plans describe the company's strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure," the agencies state. The eight G-SIBs were required to submit their plans by July 1. They have been required to submit living wills on an annual basis, but under a proposal issued in April, that schedule would change to every two years, alternating between a full plan – comparable to the comprehensive living wills currently filed by banks – and a targeted plan – including only core elements, such as capital and liquidity. Upon final approval of that rule, the next rounds of living wills would be in the form of targeted plans in 2021 and full plans in 2023.
  • Regulators extend Volcker Rule relief for certain foreign funds another two years. The Fed, FDIC and OCC announced on July 17 that they will not take action for an additional two years on restrictions under the Volcker Rule for qualifying foreign funds, the agencies' third deferral of action on the matter. After implementation in 2013 of Section 619 of Dodd-Frank – the general prohibition on banks engaging in proprietary trading, named for former the former Fed chairman – US bank regulators heard concerns from foreign banks and governments about extraterritorial impact and other unintended consequences. Relief was first granted in July 2017 for a year, and another one-year extension was granted last year, which would have expired July 21. The latest extension continues until July 21, 2021. Under the terms of the latest extension, which are the same as the two previous ones, no action will be taken "against a foreign banking entity based on attribution of the activities and investments of a qualifying foreign excluded fund ... to the foreign banking entity, or against a qualifying foreign excluded fund as a banking entity, in each case where the foreign banking entity's acquisition or retention of any ownership interest in, or sponsorship of, the qualifying foreign excluded fund would meet the requirements for permitted covered fund activities and investments solely outside the United States." The banking agencies indicated that they had consulted with the SEC and CFTC on the matter.
  • FDIC adopts rules changes for banks in receivership. The FDIC board of directors has approved amendments to two rules intended to simplify the process for making insurance determinations when a bank is placed into receivership. The final rule amending Part 370 of the FDIC's rules and regulations, titled Recordkeeping for Timely Deposit Insurance Determination, will make changes and clarifications to recordkeeping requirements to facilitate rapid payment of insured deposits to customers if one of the 32 FDIC-insured institutions with more than two million deposit accounts were to fail. The FDIC's final rule amending Part 330, titled Joint Ownership Deposit Accounts, expands the types of evidence it would consider when determining whether joint accounts qualify for increased deposit insurance coverage and will apply to all insured depository institutions regardless of size. "Timely access to insured deposits is critical to maintaining public confidence in the banking system and the FDIC's ability to resolve these institutions," FDIC Chair Jelena McWilliams said. "Under the final rule, the FDIC can provide depositors at large failed banks the same rapid access to their insured funds as it does in smaller resolutions." McWilliams explained in a July 16 statement that Rule 370 was first adopted in 2017, and in light of "substantial progress toward compliance" improvements to the rule were developed. Changes to the two rules were proposed concurrently in April of this year and McWilliams said the final rule reflects public comments received.
  • FASB votes for three-year delay of CECL implementation for most lenders. The Financial Accounting Standards Board voted on July 17 in favor of a proposal to extend the implementation deadline of the current expected credit losses accounting standard to January 2023 for all private lenders and nonprofits, such as credit unions. Smaller public companies, those with a market cap below $250 million and annual revenue of less than $100 million, would also be granted the extension. But for large publicly traded banks, defined by FASB as SEC filers, CECL would still take effect at the beginning of 2020. CECL, which requires banks to record expected future losses immediately upon issuance of a loan, has been controversial since its adoption in 2016. Opponents, including the ABA and the US Chamber of Commerce, contend that CECL would discourage lending and reduce earnings and regulatory capital. "The delay should apply to banks of all sizes, and should be used to conduct a rigorous quantitative impact study to properly assess the effect this new standard will have on their ability to serve their customers and the broader economy, particularly during an economic downturn," said Rob Nichols, ABA president and CEO, in a July 17 statement. Legislation delaying CECL implementation has been introduced in Congress with bipartisan support. The proposed extension will undergo a 30-day public comment period in August and is expected to be finalized in the fall. Click here for the handout distributed at FASB's July 17 meeting.
  • CFPB urges banks to report suspected financial abuse of senior citizens. The CFPB on July 17 issued an updated advisory to financial institutions urging them to report to the appropriate authorities suspected cases of older adults being the targets or victims of financial exploitation, and to file Suspicious Activity Reports with the federal government when they have suspicions of elder financial exploitation (EFE). The new advisory updates the bureau's 2016 recommendations, incorporating its recent research on the issue, and provides voluntary best practices to help financial institutions prevent and respond to such exploitation and abuse. A recent CFPB report found that "EFE is widespread and damaging with an average loss of $41,800 among adults over the age of 70" who have been victimized. More than half of the states mandate reporting of EFE by financial institutions and professionals. "The Bureau is renewing its efforts to alert banks and credit unions to elder financial exploitation as they are uniquely positioned to detect that an older account holder has been targeted or victimized, and to take action," said CFPB Director Kathleen Kraninger. "The Bureau stands ready to work with federal, state and local authorities and financial institutions to protect older adults from abusive financial practices that rob them of their financial security."
  • Prospect of Fed-built real-time payments system spurs competing Congressional proposals. The ongoing consideration by the Federal Reserve of a proposal to develop a real-time payments system that could compete with or possibly replace the existing network created by a group of the nation's largest banks has unleashed a flurry of activity on Capitol Hill, and among organizations representing the banking industry.
    • Senate and House Democrats have introduced legislation that "would clarify that the Federal Reserve has the existing authority to build a real-time payments system and requires the Fed to implement its own process." Senators Chris Van Hollen (D-MD) and Elizabeth Warren (D-MA), both members of the Banking Committee, joined with Representatives Ayanna Pressley (D-MA) and Jesús (Chuy) García (D-IL), both of whom serve on the Financial Services Committee, in announcing the introduction of the Payment Modernization Act of 2019 (S.2243, H.R. 3951). The lawmakers said in a July 24 press release that American taxpayers and small businesses are currently losing billions in overdraft fees and are being forced to "turn more to costly financial products because of our inefficient payments system." They said the "Fed's failure to act is creating a vacuum that could result in a de facto monopoly of our payments system by the big banks that fails to include necessary safeguards for working Americans." The bill would update the 1987 Expedited Funds Availability Act to require financial institutions to recognize funds in real time, according to a one-page fact sheet issued by the bill's sponsors
    • On the same day, two Republican members of the House Financial Services Committee introduced separate bills that would require the Fed to satisfy certain conditions before providing a new payment service or making changes to existing services. Representative Denver Riggleman (R-VA) is sponsoring the Federal Reserve Accountability and Justification Act (H.R. 3928), which requires the Fed to meet transparency requirements. "American consumers need a robust faster payments system and the private sector has delivered that through RTP [real time payments], a system that meets the Federal Reserve's own standards, from their own asking," Riggleman said in his press release announcing the legislation. Meanwhile, Representative Ted Budd (R-NC) introduced legislation (H.R.3939) requiring the Fed "to carry out a quantitative impact study of any proposed real-time payment system under the Faster Payments Initiative before implementing such system." Budd was quoted in a published report saying that the Fed's "intrusion into this industry would disrupt already successful RTP systems and harm consumers," and added that, "It's not asking too much to require the Fed to study the destructive impact such a plan would have on private sector consumers."
    • Introduction of those legislative initiatives came two days after a bipartisan group of senators sent a letter to Fed Chairman Jerome Powell "seeking additional information regarding how a potential Fed-operated RTGS [real-time gross settlements] system would impact the adoption, quality and eventual ubiquity of real-time payments in the US" Pronouncing themselves "open minded" about the prospect of a "government-run" competitor to the current private-sector-run system, the senators questioned how long it would take to set up the program, how it would interact with the current system and whether it would help foster innovation. The July 22 letter – signed by five Banking Committee members led by Senators Mark Warner (D-VA) and Thom Tillis (R-NC) – was in response to the Fed's October 2018 request for public comment "on potential actions to facilitate real-time interbank settlement of faster payments."
    • The Clearing House, a private organization including 24 of the largest banks operating in the US, launched the RTP network in November 2017 and since then has invested more than $1 billion in it. Representatives of the major banks have argued that a public-sector alternative is not necessary. "In 2015, the Federal Reserve called on the private sector to build a real-time payments system," Greg Baer, president and CEO of the Bank Policy Institute, was quoted as saying in a recent published report. "The Clearing House, and only The Clearing House, responded by building the most advanced payments system in the world." He expressed concern that the Fed "may pull a bait and switch and build its own system certainly delaying and perhaps completely undermining the goal of a ubiquitous system where any US consumer or business can pay any other." But smaller community banks, as well as some major retailers and tech companies, have expressed support for the idea of a Fed-built system.
    • The Fed has not announced when, or whether, it will move on its own to design a faster payments system following last year's request for comment.


Bank and Regulatory News and Trends

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