In this issue. The Office of the Comptroller of the Currency (OCC) approved a final rule and policy statement on bank mergers; the Federal Deposit Insurance Corporation (FDIC) approved a final statement of policy on bank merger transactions; the FDIC proposed a deposit insurance recordkeeping rule for banks' third-party accounts; the federal bank regulatory agencies extended the comment period on a request for information on bank-fintech arrangements; the Financial Crimes Enforcement Network (FinCEN) issued an in-depth analysis of check fraud related to mail theft; the Federal Financial Institutions Examination Council (FFIEC) issued a new booklet on examination of financial institution's risk management of development, acquisition, and maintenance of bank systems; and the Consumer Financial Protection Bureau (CFPB) will host a technical readiness event for nonbank registration. These and other developments are discussed in more detail below.
Regulatory Developments
OCC Approves Final Rule and Policy Statement on Bank Mergers
On September 17, the OCC approved a final rule updating its regulations for
business combinations involving national banks and federal savings
associations. The final rule includes a policy statement
summarizing the principles that the OCC uses during its review of
Bank Merger Act (BMA) applications, including indicators for
applications that are more likely to withstand scrutiny and be
approved expeditiously and for applications that would raise
supervisory or regulatory concerns. It also discusses the OCC's
consideration of the financial stability, managerial and financial
resources and future prospects, convenience and needs statutory
factors under the BMA, and the OCC's decision process for
extending the public comment period or holding a public meeting.
The final rule becomes effective on January 1, 2025.
FDIC Approves Final Statement of Policy on Bank Merger
Transactions
On September 17, the FDIC approved a new Statement of Policy on Bank Merger
Transactions (Final SOP). This Final SOP delineates the types
of transactions that require FDIC approval, the procedure that the
FDIC follows to review merger applications, and the principles
guiding the FDIC's evaluation of the pertinent statutory
factors under the BMA. Pertaining to these statutory factors, the
Final SOP notes that the FDIC may evaluate concentrations beyond
just deposits, such as small business or residential loan
originations. It clarifies that the proposed merger should reduce
the financial risk posed by the institutions on a standalone basis,
specifies the FDIC's expectation for the merger to better meet
community needs, imposes additional scrutiny for mergers that would
result in an entity with $100 billion or more in assets, and
indicates the FDIC's intent to hold public hearings for mergers
resulting in institutions holding more than $50 billion in assets.
The Final SOP supersedes the last Statement of Policy from
2008.
"The policy statement dramatically improves the rigor of the
agency's competition analysis. The FDIC will go beyond just a
quick look at local deposit market concentrations to understand the
deal rationale and market realities."
— Rohit Chopra, Director, CFPB
"I continue to believe the revised approach to the
competition factor will add considerable unpredictability, by
deemphasizing the use of HHI thresholds, long a predictable proxy
for concentrations, and by elevating consideration of
"concentrations in any specific products or customer
segments."
— Travis Hill, Vice Chairman, FDIC
FDIC Proposes Deposit Insurance Recordkeeping Rule for
Banks' Third-Party Accounts
On September 17, the FDIC issued a notice of proposed rulemaking that would
strengthen recordkeeping for bank deposits received from
third-party nonbank companies to preserve beneficial owners and
depositors right to deposit insurance. Third-party nonbank
companies often commingle consumers' funds into a single
custodial account at a bank. Under the proposed rule, FDIC-insured
banks holding certain custodial accounts would be required to
determine the individual owner of these funds and would be required
to reconcile the account for each individual owner on a daily
basis. Banks would also be responsible for maintaining constant
access to these records in the event of the nonbank's
bankruptcy or other disruption. Comments are due within 60 days of
the proposed rule's publication in the Federal
Register.
Agencies Extend Comment Period on Request for Information
on Bank-Fintech Arrangements
On September 13, the federal bank regulatory agencies announced
that they will extend the comment period on a request for information on bank-fintech
arrangements involving banking products and services from September
30 until October 30, 2024. The agencies are seeking feedback on the
nature and implications of bank-fintech arrangements and effective
risk management practices in this industry.
FinCEN Issues In-Depth Analysis of Check Fraud Related to
Mail Theft
On September 9, FinCEN issued a Financial Trends Analysis (FTA) covering
trends in check fraud resulting from mail theft based on Bank
Secrecy Act data filed between March and September of 2023. The FTA
follows an Alert that FinCEN issued in February 2023 on
the same topic. In the FTA, FinCEN identified three common outcomes
it found during its review period in cases where it identified
check fraud resulting from mail theft:
1. In 44% of cases, such checks were altered and deposited;
2. In 26% of cases, such checks were used as templates for counterfeiting; and
3. In 20% of cases, such checks were fraudulently signed and deposited.
FinCEN noted that mail theft-related check fraud remains an
ongoing issue, with more than $688 million in reported suspicious
activity occurring in the six-month review period. FinCEN
recommends that when financial institutions suspect mail
theft-related check fraud, they file a Suspicious Activity Report
with the U.S. Postal Service and refer affected customers to the
U.S. Postal Inspection Service.
FFIEC Issues New Booklet on Examination of Financial
Institution's Risk Management of Development, Acquisition, and
Maintenance of Bank Systems
On September 5, the FFIEC issued the "Development, Acquisition, and
Maintenance" booklet, as a part of its Information
Technology Examination Handbook. This new booklet updates and
replaces the FFIEC's 2004 "Development and
Acquisition" booklet. The booklet outlines best practices for
financial institutions to manage risk across their IT project
management, system development, and ongoing system maintenance.
Furthermore, the booklet emphasizes strategies that financial
institutions may implement to help mitigate risk related to
third-party vendors, supply chain dependencies, and internal
technological updates. The updated booklet reflects federal
financial regulators increased focus on management for IT systems,
ensuring that financial institutions strengthen oversight,
resiliency, and operational effectiveness of their systems and
components throughout their life cycle.
CFPB to Host Technical Readiness Event for Nonbank
Registration
On Monday, September 30 and Wednesday, October 9, the CFPB will
host a webinar to introduce its Nonbank Registry. Both days will
cover the same information. The event is aimed at compliance staff
who will be registering covered orders with the CFPB's Nonbank
Registry. It will demonstrate the process for registering a company
for the first time and answer any technical questions participants
may have. The event will not take questions about the regulation
itself.
- September 30 Registration: https://cfpbgov.webex.com/weblink/register/ ra939a9b902db67173f5ad9e020e011e0.
- October 9 Registration: https://cfpbgov.webex.com/weblink/ register/r9ba12d2ba8e2248167db14d858dc33de.
Check Out Goodwin's Latest Industry Insights
New Client Alert: FinCEN Adopts Reporting Requirement for Non-Financed Residential Real Estate Transfers
FinCEN has issued a final rule (the Residential Real Estate Rule) requiring
certain persons involved in residential real estate closings and
settlements to submit reports and keep records on non-financed
transfers of residential real property to certain types of legal
entities and trusts. The Residential Real Estate Rule builds on,
and expands the scope of, the Geographic Targeting Orders (GTOs)
FinCEN has used since 2016 to obtain information concerning
transfers of residential real estate it considers to present a high
risk for money laundering. To read the full alert, click here.
New Client Alert: FinCEN and Banking Agencies Propose AML
Program Rule Updates for Banks and Other Financial
Institutions
Earlier this summer, FinCEN issued a Proposed Rule revising its regulations under
the Bank Secrecy Act requiring financial institutions to maintain
anti-money laundering (AML) programs to reflect the requirements of
the Anti-Money Laundering Act of 2020. The proposed revisions would
also introduce more consistent terminology across the various rules
in FinCEN's regulations applicable to different types of
financial institutions. While many of the proposed changes reflect
existing practices or regulatory guidance concerning financial
institutions' AML programs, the Proposed Rule would make these
expectations more explicit. Financial institutions that would be
affected by the Proposed Rule, if adopted, include banks,
broker-dealers, mutual funds, money services businesses, insurance
companies, and others. If the Proposed Rule is adopted, affected
financial institutions would need to review and update, as
appropriate, their existing AML programs and related policies,
procedures, and internal controls. To read more, click here.
New Client Alert: FinCEN Adopts Final AML Program Rule for
Investment Advisers
FinCEN adopted a final rule on August 28 that will treat certain investment advisers and exempt reporting advisers as financial institutions for purposes of the Bank Secrecy Act (the BSA). FinCEN first proposed subjecting investment advisers to anti-money laundering related requirements under the BSA in 2003, and the final rule is the culmination of more than two decades of rulemaking activity on this subject. To read more, click here.
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