In this issue. The Acting Comptroller of the Currency discussed frameworks to identify systemic risk; the Securities and Exchange Commission (SEC) adopted a rule change for Covered Clearing Agency Standards (CCA Standards); and the Federal Deposit Insurance Corporation (FDIC) issued an update to its Risk Management Manual of Examination Policies. These and other developments are discussed in more detail below.
Regulatory Developments
Acting Comptroller Discusses Frameworks to Identify
Systemic Risk
On October 25, Acting Comptroller of the Currency Michael J. Hsu
delivered remarks at the CFA Institute Systemic Risk
Council, addressing the challenges that regulators face in
identifying and remedying systemic risks and how choices that must
be made with incomplete information can lead to unpredictable
consequences. Hsu categorized these risks into three categories:
known knowns (risks that regulators navigated previously –
such as interest rate risk and liquidity risk), known unknowns
(risks that regulators are aware of but with which regulators are
less familiar – such as cyber risk), and unknown unknowns
(risks that may not be on regulators' radar – such as the
risk that undersea cables that carry the vast majority of
international internet traffic are cut, or the risk that quantum
computing renders all pre-quantum encryption algorithms moot). In
each of these cases, Hsu noted that a balance of deliberation and
action will be critical for regulators seeking to navigate systemic
risks.
"Frameworks provide a way to think systematically about risk. A systematic approach is necessary, otherwise we are just chasing whims or making things up as we go."
— Michael J. Hsu, Acting Comptroller of the Currency
SEC Adopts Rule Changes for CCA Standards
On October 25, the SEC adopted amendments to certain rules in the CCA
Standards under the Securities Exchange Act of 1934 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
Policies and Procedures for Risk-Based Margin Systems: The rule amendments to the CCA Standards establish new requirements for the policies and procedures of covered clearing agencies (CCAs) that provide central counterparty services covering the establishment of risk-based margin systems. The amendments require CCAs to have policies and procedures that establish a risk-based margin system that has reliable sources of substantive inputs and procedures that address when those reliable sources are not available, including either an alternate source of substantive inputs or price data, or a different risk-based margin system that does not rely on substantive inputs that are unavailable or unreliable.
Requirements for Recovery and Winddown Plans: The SEC also added
a new rule to the CCA Standards that requires specific elements for
CCAs recovery and wind down plans, including that the plan have
elements related to planning, timing, implementation, testing, and
board approval. While existing rules already require CCAs to have a
recovery and wind-down plan, the new rule requires CCAs to have
those specific elements included.
FDIC Updates RMS Manual
On October 29, the FDIC issued an update to its Risk Management Manual
of Examination Policies. The update, based on FDIC staff feedback,
revises Section 21.1 of the manual to cover examination planning.
Examination planning is necessary to ensure that the FDIC is able
to tailor its examination procedures to an institution's
operations and activities.
Check Out Goodwin's Latest Industry Insights
New Client Alert: EU Commission Regulations on Digital
Operational Resilience: A Reminder That DORA is Less Than Three
Months Away and Will Apply to US and UK CTPPs
On October 23, the European Commission's adoption of two
regulations supplementing the regulation on digital operational
resilience for the financial sector Publications Office is a
further reminder that the need for DORA compliance is now less than
three months away. To read the full alert, click here.
New Client Alert: FINRA Publishes Metaverse Report and Requests
Industry Comments
On October 24, FINRA's Office of Financial Innovation published
its metaverse report as "an initial step in
beginning an important dialogue with market participants about
potential use of the metaverse within the securities
industry." FINRA regulates US broker-dealers and provides
various related services within the securities industry. The report
gives an overview of how developments related to the metaverse may
affect brokers' business models and processes and explores
various related issues. To read the full alert, click here.
New Client Alert: SEC Exams Division 2025 Priorities Signal
Continued Scrutiny of Broker-Dealers
On October 21, the SEC's Division of Examinations released its
2025 examination priorities letter. The 2025
priorities letter represents only a sliver of the topics firms can
expect the Division to cover over the next year. This alert focuses
on a few of the key areas in which broker-dealers will face
scrutiny. To read the full alert, click here.
Check Out Goodwin's Latest Industry Insights
Upcoming Event: Goodwin & Wells Fargo Host a Tea
Party During Boston Fintech Week
Please join Goodwin and Wells Fargo as they "spill the
tea" in a discussion about enterprise partnerships and
partnership readiness on October 16th from 2:30 - 4:30 PM during
Boston Fintech Week. For more information and to RSVP, click here.
Corporate Transparency Act (CTA) Resource
Center
Go-to resource and compliance toolkit.
Fintech Flash
The latest news and developments for the rapidly evolving fintech
industry – which often can change in a flash.
Bank Failure Knowledge Center
Visit our knowledge center for timely updates and analysis on
important developments related to bank failures.
Consumer Finance Insights (CFI)
Blog
The latest on consumer finance regulation, litigation, and
enforcement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
