This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.
Updated G-SIB list published. The Financial Stability Board has published its 2019 list of global systemically important banks (G-SIBs). The new list, announced on November 22, is based on 2018 year-end data and an assessment methodology designed by the Basel Committee on Banking Supervision. With the addition of Toronto Dominion to the list, the overall number of G-SIBs has increased to 30. FSB's methodology categorizes the banks into five "buckets" corresponding to levels of additional capital buffers required by national authorities in accordance with international standards, and only one institution, Deutsche Bank, has moved within the list, from bucket three to bucket two. Other requirements applied by FSB's member authorities to G-SIBs include: total loss-absorbing capacity, based on Basel III standards; resolvability, including group-wide resolution planning and regular resolvability assessments; and higher supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls. At the same time, the Basel Committee published updated denominators used to calculate banks’ scores, the values of the underlying twelve indicators for each bank in the assessment sample and the thresholds used to allocate the G-SIBs into buckets, as well as updated links to public disclosures of all banks in the sample. A new list of G-SIBs will next be published in November 2020. FSB is an international body that monitors and makes recommendations about the global financial system, established after the 2009 G20 London summit and including all G20 major economies and the European Commission. Randal Quarles, the US Federal Reserve’s Vice Chairman for Supervision, currently chairs the FSB. Hosted and funded by the Bank for International Settlements, the board is based in Basel, Switzerland.
Banks no longer required to file suspicious activity reports for hemp producers. Federal and state banking regulators have released new guidance clarifying the legal status of hemp cultivation and production for banks providing services to hemp-related businesses. Under the Joint Guidance on Providing Financial Services to Customers Engaged in Hemp-Related Businesses, announced on December 3, banks will no longer have to submit suspicious activity reports (SARs) for customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. Instead, the new Bank Secrecy Act (BSA) considerations stipulate that firms are expected to follow standard SAR procedures, and only will be required to file a report if they suspect their customers are not in compliance with state or federal regulations governing hemp production. The Agriculture Improvement Act of 2018, commonly known as the Farm Bill, removed hemp as a Schedule I controlled substance under the Controlled Substances Act. The law, enacted in December 2018, directs the Agriculture Department (USDA), in consultation with the US Attorney General, to regulate hemp production. Under an interim final rule issued by USDA in October to accommodate the 2020 growing season, state departments of agriculture and tribal governments may submit plans for monitoring and regulating the domestic production of hemp, with a federal licensing plan for regulating hemp producers in jurisdictions that do not have their own USDA-approved plans. Requirements include maintaining information on the land where hemp is produced, and testing hemp for tetrahydrocannabinol (THC) levels and disposing of plants with more than 0.3 percent THC. States or tribal governments may still prohibit the production of hemp in their jurisdictions. The USDA rule does not impact the status of marijuana, which is still a controlled substance under federal law. The new guidance was approved by the Fed, FDIC, OCC, Financial Crimes Enforcement Network (FinCEN) and the Conference of State Bank Supervisors.
OCC to reduce bank fees by another 10 percent. The OCC will be reducing the rates in all fee schedules by 10 percent for the 2020 calendar year, for the second year in a row. The agency announced the reduction in the General Assessment Fee Schedule rates in a bulletin issued on November 25. OCC said the reduction in rates reflects increased operating efficiencies that the agency has achieved over the last several years, but emphasized that the 2020 assessment level will still provide sufficient resources for the agency to perform its mission. "The OCC has made a concerted effort to operate more effectively and efficiently," said Comptroller of the Currency Joseph Otting. "We have looked to gain efficiency, while delivering the same high-quality supervision to national banks, federal savings associations and federal branches of foreign banks. Now that we have demonstrated the ability to operate successfully at a lower cost, we can reduce the assessments we charge, while ensuring the federal banking system operates in a safe, sound, and fair manner." The reduced assessments go into effect January 1 and will be reflected in assessments paid on March 31 and September 30, 2020.
OCC issues interpretive guidance letter approving automation of suspicious activity filings. The OCC has issued an interpretive letter addressing a proposal from an (unnamed) OCC-regulated bank to streamline the filing of suspicious activity reports (SARs) by automating the process for identifying and reporting potential "structuring" activity. The OCC letter, dated September 27, responds to the bank's February 22 inquiry as to whether the bank's request to automate the SAR, and auto-generate the narrative portion of the filing for suspected or actual instances of the structuring of transactions to evade Bank Secrecy Act (BSA) reporting requirements, is consistent with OCC's SAR regulation. OCC’s letter states that the agency has concluded that the bank’s proposal is consistent, noting that the bank would have risk-based "guardrails" to ensure that higher-risk transactions are performed by manual reviewers, and that OCC would review the effectiveness of those guardrails in the development and implementation of the automated approach. The letter also noted that the bank has requested that the Financial Crimes Enforcement Network (FinCEN) issue an administrative ruling or grant exemptive relief from its SAR reporting requirements for the proposed process, but OCC deferred to FinCEN’s interpretive authority on that question. Under the bank’s proposal, computer systems would generate automated alerts for defined types of structuring activity, using software to populate SAR form and narrative fields. The SAR would be filed based on the alert, with certain risk-based exceptions, and bank staff would conduct periodic manual testing to ensure accuracy. But OCC denied the bank's request for regulatory relief to conduct the initiative within a regulatory sandbox.
FDIC releases enforcement action manual. The FDIC on December 2 issued a Financial Institution Letter (FIL-76-2019) announcing the release of a new enforcement action manual designed to "provide greater transparency regarding the FDIC’s enforcement program." Available online, the 135-page Formal and Informal Enforcement Actions Manual provides industry participants with insight into the manner in which FDIC staff are instructed to process enforcement actions against insured depository institutions and institution-affiliated parties (IAPs). The manual is not intended to represent interpretations or application of substantive law or regulation, or establish supervisory guidance. Additionally, the FDIC notes that the manual is not industry guidance, though it seems likely to become a framework by which banks and IAPs analyze and process threatened and imposed enforcement actions from the FDIC.
Federal regulators cite benefits of alternative data in credit underwriting but urge "responsible use." Five federal banking regulators have recognized the benefits of using consumer information originating outside of traditional sources to expand the access and affordability of credit for certain borrowers. But the agencies encouraged the "responsible use of such data," saying that banks and other lenders need to have policies and practices in place to ensure these new approaches do not violate consumer protection and fair lending laws. In a joint statement issued December 3, the regulators noted the broad range of alternative data that banks and non-bank financial firms are using or considering, not only for credit underwriting, but also in fraud detection, marketing, pricing, servicing, and account management. Reflecting the continuing evolution of automated underwriting and credit score modeling, which offers the potential to lower the cost of and increase the access to credit on more favorable terms, the use of alternative data may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system. The interagency statement was issued by the Fed, FDIC, OCC, CFPB and NCUA.
CFPB proposes increase in safe harbor threshold in remittance rule and to make permanent temporary permission to use estimates instead of exact amounts. The CFPB has proposed a change to its remittance rule that would permanently allow depository institutions to estimate certain fees and exchange rates when making disclosures to their customers, rather than provide exact amounts. Institutions are currently allowed to provide estimates under a temporary provision of the rule, which is set to expire in July 2020. In addition, the bureau is proposing to increase a safe harbor threshold in the rule related to whether a person makes remittance transfers in the normal course of their business, which would have the effect of reducing compliance costs for entities that make a limited number of remittance transfers annually. Under CFPB's notice of proposed rulemaking, issued December 3, companies making 500 or fewer transfers annually in the current and prior calendar years would not be subject to the rule, which would reduce the burden on more than 400 banks and almost 250 credit unions that send a relatively small number of remittances – less than .06 percent of all remittances. The American Bankers Association had advocated for the changes. Comments on the proposal are due 45 days after publication in the Federal Register.
GAO finds regulators need to improve examiners' ability to assess BSA/AML compliance on money transmitter accounts. The US Government Accountability Office is recommending that federal banking regulators update examination procedures, provide examiner training and take other steps to improve evaluation of banks' compliance with Bank Secrecy Act/anti-money laundering regulations. In a report issued December 3, GAO offered recommendations to improve compliance as applied to money transmitter accounts, and the regulators – the Fed, FDIC, OCC and NCUA – have signaled their agreement with the recommendations. GAO, Congress's investigative and audit agency, looked at federal oversight of BSA requirements that banks verify customers' identities and report suspicious activities. The agency found that some examiners were unclear about how much due diligence they should expect from banks’ site visits and reviews of their money transmitter customers. In a GAO survey conducted from 2014 through 2016, 40 of the 86 banks with money transmitter customers that participated indicated that they terminated at least one money transmitter account for money-laundering-related reasons. Among the reasons cited for the terminations were customers not providing information to satisfy banks’ due diligence requirements, compliance costs that made these customers unprofitable, and concerns that these customers drew heightened regulatory oversight and perceptions of facilitating money laundering, a practice known as "de-risking." The World Bank and others have reported that some money transmitters, who transfer funds for their customers to recipients domestically or internationally and provide financial services to people less likely to use traditional banking services, have been losing access to banking services. Based on these concerns, GAO was asked to review the causes and potential effects of de-risking by banks.
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