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  • NYDFS and Fed order bank to pay fines for BSA/AML non-compliance

    Financial Crimes

    On January 19, the Federal Reserve Board and NYDFS each issued separate enforcement actions against one of the largest banks in the world for alleged compliance deficiencies and violations under BSA/AML. The Fed issued its cease and desist order and ordered the bank to pay a civil money penalty of $2.4 million. The NYDFS also issued a similar consent order with a monetary penalty of $30 million.

    According to the Fed’s order, an investigation into the bank’s practices determined that the New York branch lacked any formal policies or training on confidential supervisory information (CSI). Additionally, the order required the bank to submit a written plan to enhance internal compliance controls to the Fed, including designation of a CSI officer, among other requirements. According to NYDFS’s order, the bank previously entered into a 2018 cease and desist order with the Fed to address “significant deficiencies” in its compliance with BSA/AML requirements and OFAC regulations. NYDFS conducted an examination in 2022 and found that deficiencies cited in the 2018 order persisted for several more years. A subsequent examination in 2023 found that the bank had made significant efforts toward enhancing its compliance programs and successfully remediated prior deficiencies. Per this most recent order, NYDFS found that the bank’s BSA/AML program was not in compliance for several years; the bank failed to maintain appropriate accounting records; and the bank failed to submit a report after discovering the occurrence of “embezzlement, misapplication, larceny, forgery, fraud, [or] dishonesty[.]” The consent order stipulated several remediation requirements, including a status report to NYDFS on the bank’s BSA/AML compliance.

    Financial Crimes New York NYDFS Bank Secrecy Act Federal Reserve Bank of New York Compliance

  • NY Fed highlights an increase in unsecured loans from fintech firms in report, primarily among subprime lenders

    Fintech

    On November 21, the Federal Reserve Bank of New York released a report on the rise and then contraction of unsecured personal loans from 2019 to 2023 for nonbank or fintech companies, and the role of alternative data and underwriting in that growth.

    The report looked at how the economic conditions from 2019 to 2022 “created an ideal environment for FinTech firms to increase their loan originations.” It specifically noted that the U.S. government-issued stimulus payments and student loan repayment moratorium enabled fintech companies to expand their services to low- and moderate-income borrowers, including those with subprime credit. The report also looked at fintech’s role in that growth, what consumer segments are utilizing unsecured personal loans, the overall growth of the products, and the subsequent tightening of credit. Finally, the NY Fed discussed various fintech models and analyzed which models service the needs of low- and moderate-income households. 

     

    Fintech Federal Reserve Federal Reserve Bank of New York Subprime Consumer Finance New York

  • NY Fed to participate in proof-of-concept shared ledger project

    Federal Issues

    On November 15, the Federal Reserve Bank of New York announced that the New York Innovation Center (NYIC) will participate in a proof-of-concept project to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger. As previously covered by InfoBytes, the NYIC was launched in 2021 to advance the partnership with the Bank for International Settlements (BIS) Innovation Hub. The NYIC is intended to, among other things: (i) identify and develop insights on financial technology trends associated to central banks; (ii) examine the development of public goods to increase the global financial system function; and (iii) “advance and support expertise in the area of central bank innovation.” According to the recent announcement, the U.S. proof-of-concept project is exploring the concept of a regulated liability network and will “test the technical feasibility, legal viability, and business applicability of distributed ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities.” The New York Fed noted that the NYIC will coordinate with private sector organizations to provide a public contribution to the body of knowledge on the application of new technology to the regulated financial system as part of the 12-week project. The New York Fed also noted that the project will be conducted in a test environment, and the results of the pilot project will be released to the public.

    Federal Issues Digital Assets Federal Reserve Bank of New York Fintech Distributed Ledger

  • CFPB examines relationship between high vehicle costs and loan performance

    Federal Issues

    On September 19, the CFPB published a blog post exploring the potential relationship between high vehicle costs and changes in auto loan characteristics and performance, particularly with respect to consumers with near-prime or subprime credit scores. The Bureau reported that the average vehicle price increased over the past two years, particularly throughout 2021, and that data from the Bureau’s Consumer Credit Panel showed that an increase in the size of newly originated auto loans coincided with a spike in vehicle price. The blog post also highlighted a recent Federal Reserve Bank of New York report, which found that higher vehicle prices are a significant factor driving larger loan amounts. “The dollar value of outstanding auto loans increased by $33 billion between the first and second quarters of 2022 to $1.5 trillion outstanding,” the report said, noting that the increase “is due in large part to larger loan originations rather than by an increase in the number of loans.” The Bureau also reported that recent data has shown that delinquency rates, especially for low-income borrowers, has increased over the past year. While the Bureau said it cannot fully infer that the end of pandemic-related stimulus policies or inflationary pressures are possible explanations for the rise in delinquency rates, the agency said it “cannot ignore the relationship between larger loan amounts and increasing interest rates to consumer’s monthly budgets and some consumers’ struggle to stay current on their loans.” The Bureau stressed, however, that while current data provides insight into broad indicators, it “lacks the granularity to isolate specific economic trends or to fully explore the impact on subsets of consumers.” The agency said it will continue to seek data that allows for better visibility in this market and will remain focused on ensuring that the auto lending market is fair, transparent, and competitive.

    Federal Issues CFPB Consumer Finance Auto Finance Credit Scores Federal Reserve Bank of New York

  • NY Fed launches center to study fintech and central banking

    Federal Issues

    On November 29, the Federal Reserve Bank of New York announced the launch of the New York Innovation Center (NYIC), which is intended to advance the partnership with the Bank for International Settlements (BIS) Innovation Hub. According to the announcement, the NYIC will aim to, among other things: (i) identify and develop insights on financial technology trends associated to central banks; (ii) examine the development of public goods to increase the global financial system function; and (iii) “advance and support expertise in the area of central bank innovation.” According to the announcement, to inform the activities of the NYIC, the New York Fed will focus on five opportunity areas, which include “Supervisory and Regulatory Technology, Financial Market Infrastructures, Future of Money, Open Finance, and Climate Risk.” The announcement also noted that, “[t]his work will be based on the venture development process, drawing on principles from entrepreneurship, venture capital, and corporate innovation to produce high-impact solutions.”

    Federal Issues Federal Reserve Bank of New York Fintech Bank Regulatory

  • New York Fed discusses LIBOR transition

    Federal Issues

    On September 15, Michael Held, General Counsel and Executive Vice President of the Legal Group at the Federal Reserve Bank of New York, issued remarks at the ISDA Benchmark Strategies Forum regarding issues relating to the transition from U.S. LIBOR to other rates. As previously covered by InfoBytes, the Alternative Reference Rates Committee announced its recommendation of CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) term rates, following the completion of key changes in trading conventions on July 26 under the SOFR First initiative. Held noted that the U.S. Treasury Department and the Federal Reserve, among others, warned of the “considerable operational, technological, accounting, tax, and legal challenges” that may impact the LIBOR transition speed and that slow progress is also a concern for the derivates market. The second transition issue Held noted is the importance of comparing rates, stating that “alternative rates should be appropriate for the bank’s funding model and customer needs.” Lastly, Held discussed that fallbacks are essential for all alternative options, and it is important for firms that are using credit-sensitive rates to have a complete understanding of their chosen rates.

    Federal Issues Federal Reserve Bank of New York LIBOR Bank Regulatory

  • Federal Reserve Bank of New York updates FAQs and forms relating to loan facility program

    Federal Issues

    On June 8, the Federal Reserve Bank of New York updated its frequently asked questions (previously covered here and here) regarding the Term Asset-Backed Securities Loan Facility (TALF). Among other things, the changes clarify (i) who qualifies as a “material investor,” (ii) when asset-backed securities (ABS) are eligible to secure a TALF loan, (iii) the documentation required for ABS issued during a specific period in order for the ABS to be eligible collateral for a TALF loan, and (iv) for newly-issued ABS to be considered for a subscription date, when the issuer must price such ABS. The Federal Reserve Bank of New York also updated several TALF-related forms.

    Federal Issues Covid-19 Federal Reserve Bank of New York Securities

  • Federal Reserve Bank of New York updates FAQs regarding loan facility program

    Federal Issues

    On May 26, the Federal Reserve Bank of New York updated its frequently asked questions), previously covered here, regarding the Term Asset-Backed Securities Loan Facility (TALF). The changes clarify (i) requirements regarding certification of a TALF borrower’s inability to secure adequate credit accommodations, (ii) which nationally recognized statistical rating organizations are eligible rating agencies under the TALF, and (iii) how unsolicited credit ratings are treated.

    Federal Issues Covid-19 Federal Reserve Bank of New York Securities

  • Federal Reserve Bank of New York announces first subscription date of loan facility program

    Federal Issues

    On May 20, the Federal Reserve Bank of New York announced the first loan subscription date for the Term Asset-Based Securities Loan Facility (TALF) and released an expanded set of Frequently Asked Questions and other documents relating to the facility’s operations. The first subscription date will be June 17, 2020, and the first closing date will be June 25, 2020. The FAQs contain information on why the TALF was established, how the TALF will work, borrower eligibility, eligible collateral, eligible underlying assets, master trust requirements, credit ratings, collateral review, interest rates, and loan subscription and closing, among other things.

    Federal Issues Covid-19 Federal Reserve Bank of New York Securities

  • Fed establishes temporary repurchase agreement facility

    Federal Issues

    On March 31, the Federal Reserve announced the establishment of a temporary repurchase agreement facility (FIMA Repo Facility) to be available to foreign and international monetary authorities.  The FIMA Repo Facility will allow central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York to enter into repurchase agreements with the Federal Reserve to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. The facility is intended to provide an alternative temporary source of U.S. dollars other than sales of securities in the open market. The Federal Reserve also issued FAQs that answer question about, among other things, the purpose of the facility, eligibility to participate in the facility, and how the facility is structured. 

    Federal Issues Federal Reserve Federal Reserve Bank of New York Covid-19 Of Interest to Non-US Persons

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