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Financial Services Law Insights and Observations


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  • OCC revises civil money penalty manual

    On November 29, the OCC announced revisions to its civil money penalty (CMP) manual. Specifically, the OCC revised the CMP matrix, which is a tool used to guide the OCC’s decision making in assessing CMPs. The revised CMP matrix, applicable to OCC-regulated institutions, allows for sufficient differentiation among varying levels of misconduct or by institution size, and includes updated mitigating factors to provide a stronger incentive for banks to fully address underlying deficiencies. The OCC also announced a revised Policies and Procedures Manual (PPM) for assessing CMPs. This version replaces the November 13, 2018, version conveyed by OCC Bulletin 2018-41, “OCC Enforcement Actions: OCC Enforcement Action Policies and Procedures Manuals.” Highlights of the PPM include, among other things; (i) revised mitigating factors of self-identification, remediation or corrective action, and restitution: (ii) increased scoring weight of mitigating factors; and (iii) a revised table titled “Suggested Action Based on Total Matrix Score and Total Assets of Bank.” The OCC further noted that the CMP matrix is not a substitute for sound supervisory judgment, and said the OCC may depart from the matrix suggestions when appropriate and when based on the specific facts and circumstances of each matter. The OCC will begin using the revisions on January 1, 2023.

    Bank Regulatory Federal Issues OCC Civil Money Penalties Enforcement

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  • Senators demand answers on collapsed cryptocurrency exchange; NYDFS seeks tougher crypto approach

    Federal Issues

    On November 16, Senator Elizabeth Warren (MA-D) and Senator Richard Durbin (IL-D) sent a letter to the ex-CEO and his successor of a cryptocurrency exchange that filed for bankruptcy. In the letter, the senators requested a series of files from the cryptocurrency exchange, including copies of internal policies and procedures regarding the relationship between the firm and its affiliated crypto hedge fund. The senators stated that the cryptocurrency exchange’s customers and Americans “fear that they will never get back the assets they trusted to [the cryptocurrency exchange] and its subsidiaries.” Additionally, the senators argued that “the apparent lack of due diligence by venture capital and other big investment funds eager to get rich off crypto, and the risk of broader contagion across the crypto market that could multiply retail investors’ losses, ‘call into question the promise of the industry.’” The senators emphasized that “the public is owed a complete and transparent accounting of the business practices and financial activities leading up to and following the cryptocurrency lending firm's collapse and the loss of billions of dollars of customer funds.” Among other things, the senators asked the cryptocurrency exchange to provide requested information by November 28, including: (i) complete copies of all the firm’s and its subsidiaries’ balance sheets, from 2019 to the present; (ii) an explanation of how “a poor internal labeling of bank-related accounts” resulted in the firm’s liquidity crisis; (iii) a list of all the firm’s transfers to its affiliated crypto hedge fund; (iv) copies of all written policies and procedures regarding the relationship between the firm and its affiliated crypto hedge fund; and (v) an explanation of the $1.7 billion in the firm’s customer funds that were allegedly reported missing.

    The same day, NYDFS Superintendent Adrienne Harris participated in a “fireside chat” before the Brooking Institute’s event, Digital asset regulation: The state perspective - Effective regulatory design and implementation for virtual currency. During the chat, Harris expressed her support for a national framework similar to what New York has because she believes that “it is proving itself to be a very robust and sustainable regime.” Harris also discussed NYDFS priorities regarding digital assets for the future, stating that crypto companies can expect more guidance on a number of key regulatory issues. Specifically, Harris disclosed that NYDFS will “have more to say on capitalization,” and “on consumer protection, disclosures, advertising … [and] complaints, making sure these companies have an easy way for consumers to complain.” She also warned that NYDFS will “bolster and broaden” its authority, adding that there is “lots of work for us to do to make clear the expectations that we have already, and to make sure that the things we have on the books equip us well to keep up with this marketplace.”

    Senators Warren and Sheldon Whitehouse (D-RI) also sent a letter to the DOJ asking that the former CEO and any complicit company executives be held personally accountability for wrongdoing following the cryptocurrency exchange’s collapse. 

    On December 13, the House Financial Services Committee will hold a hearing to discuss the cryptocurrency exchange’s collapse and the possible implications for other digital asset companies.

    Federal Issues Digital Assets State Issues Fintech Cryptocurrency NYDFS Bank Regulatory U.S. Senate DOJ House Financial Services Committee

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  • FDIC releases October enforcement actions

    On November 25, the FDIC released a list of administrative enforcement actions taken against banks and individuals in October. During the month, the FDIC made public ten orders consisting of “one consent order; one amended and restated consent order; one personal cease and desist order; three orders to pay civil money penalties; two Section 19 orders; and two orders terminating consent orders.” Among the orders is an order to pay a civil money penalty imposed against a Mississippi-based bank related to 128 alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank failed to obtain the required flood insurance or obtain an adequate amount of insurance coverage, at or before loan origination, for all structures in a flood zone. The order requires the payment of a $320,500 civil money penalty.

    The FDIC also issued a consent order to a New York-based bank, which alleged that the bank had unsafe or unsound banking practices relating to weaknesses in the Bank’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Program. The bank neither admitted nor denied the alleged violations but agreed to, among other things, increase its supervision, direction, and oversight of AML/CFT personnel and its AML/CFT program.

    Bank Regulatory Federal Issues Financial Crimes FDIC Enforcement Flood Disaster Protection Act Mortgages Anti-Money Laundering Combating the Financing of Terrorism Bank Secrecy Act

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  • OCC releases enforcement actions

    On November 17, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included is a cease and desist order against a New York-based bank for allegedly engaging in unsafe or unsound banking practices related to its board and management oversight and funds management practices, and for violating the bank’s October 2018 Formal Agreement with the OCC. According to the OCC, the bank’s board and management failed to address certain regulatory concerns outlined in the 2018 Formal Agreement. Among other things, the OCC asserted that the bank engaged “in unsafe or unsound practices, including those related to strategic planning and implementation, management and board oversight, audit, risk management, and mortgage banking activities.” The order requires the bank to, among other things, establish a compliance committee, develop a written strategic plan, and establish capital in accordance with 12 C.F.R. Part 3: (a) a total capital ratio at least equal to thirteen percent; and (b) a leverage ratio greater than nine percent.

    Bank Regulatory Federal Issues OCC Enforcement

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  • OCC, SEC comment on digital assets

    Federal Issues

    On November 17, acting Comptroller of the Currency Michael J. Hsu delivered remarks at the Financial Literacy and Education Commission’s public meeting, where he commended the “quiet trustworthiness of banks” amid the recent volatility in the cryptocurrency market. Hsu pointed to the OCC’s “careful and cautious” approach to crypto activities by national banks, and noted that this approach “helped mitigate the risk of contagion from crypto to the banking system.” Reforms stemming from the 2008 financial crisis have strengthened the banking system, Hsu added, which has made it “more resilient, more fair, and more trustworthy” and has “proven valuable with the rapid rise and fall of crypto this past year.”

    Earlier in the week, SEC Commissioner Jaime Lizárraga spoke before the Brooklyn Law School where he issued a reminder that it does not fall on the SEC to provide legal advice or analysis to digital asset market participants, but rather the responsibility lays with the issuer or the intermediary and their attorneys “to determine whether their products, business practices, or assets require compliance with the federal securities laws.” Lizárraga refuted arguments that the SEC engages in “regulation by enforcement,” stating that the “laws are well-established, and the cases brought to date have clear applications, as has been apparent in court rulings on these issues.” He also challenged assertions that the SEC has not provided guidance to the industry on whether digital assets qualify as securities. “The reality is that there’s an abundance of guidance, from the DAO Report, to the SEC FinHub Framework for ‘Investment Contract’ Analysis of Digital Assets, and multiple no-action letters issued by the staff of the Division of Corporation Finance,” Lizárraga said, explaining that it is not so much “a lack of guidance but more that the existing guidance may not be what many market participants want to hear.” He warned anyone considering purchasing or investing in digital assets to be as informed as possible about potential risks. 

    Federal Issues Digital Assets Bank Regulatory SEC OCC Cryptocurrency

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  • OCC senior deputy comptroller discusses fair lending

    On November 14, Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer delivered remarks on behalf of acting Comptroller Michael J. Hsu before the CRA & Fair Lending Colloquium to discuss the agency’s ongoing efforts to ensure its regulated institutions provide fair and equitable credit services. Among other topics, Gardineer mentioned the agency’s initiatives to identify and address discriminatory lending practices, including addressing fair lending in advanced analytics and reducing barriers to financial inclusion. Noting that the banking industry has evolved “rapidly,” Gardineer stated that the OCC has “remained focused on the solid foundation of our mission,” and identified “three strategic goals: (1) agility and learning; (2) credibility and trust; and (3) leadership in supervision.”

    She also said that the OCC is enhancing its risk-based supervisory approach by, among other things, “[r]ecognizing our strategic goal for ‘agility and learning,’” and by “conducting fair lending risk assessments during every supervisory cycle for each bank that engages in retail lending.” Regarding the agency’s efforts to reduce inequality in banking, Gardineer stated that the OCC has taken an active role on the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE, which is an initiative to evaluate the causes, extent, and consequences of appraisal bias. As previously covered by InfoBytes in March, the thirteen member agencies and offices of the PAVE Task Force came together in an extraordinary interagency effort to issue the Action Plan to Advance Property Appraisal and Valuation Equity, which represents “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.”

    Gardineer also disclosed that the OCC is developing other internal measures to enhance credibility and trust, including measures to “improv[e] supervisory methods for identifying potential discrimination in property valuations.” In regard to addressing fair lending in advanced analytics, Gardineer warned that “the growing use of advanced analytics such as artificial intelligence or machine learning offers both the opportunity to help reduce inequality and to address safety, soundness, and fairness risks,” and emphasized that the agency “supports fair, ethical, responsible, and transparent adoption of advanced analytics, including artificial intelligence and machine learning, in the financial sector.”

    In terms of the future, she highlighted that “the OCC is focused on strengthening our supervision processes and resources devoted to compliance with fair lending laws, while enhancing our ability to remain agile and successfully execute our mission to ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations..”

    Bank Regulatory Federal Issues OCC Fair Lending Consumer Finance Appraisal

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  • Biden nominates Gruenberg for FDIC chair

    On November 14, President Biden announced his intention to nominate Martin Gruenberg to serve as chair and member of the FDIC Board of Directors. Following the resignation of the FDIC’s former chair, Jelena McWilliams (covered by InfoBytes here), Gruenberg has been acting chairman. Since joining the FDIC Board of Directors in 2005, Gruenberg has served as vice chairman, chairman, and acting chairman. Prior to joining the FDIC, Gruenberg served on the staff of the Senate Banking Housing and Urban Affairs Committee as Senior Counsel of the full Committee, and as staff director of the Subcommittee on International Finance and Monetary Policy.

    CSBS President and CEO James M. Cooper issued a statement following the announcement: “Today’s announcement from the White House means that none of the nominees to the FDIC Board will meet the requirement for state bank supervisory experience. This requirement is not only the law but also a great benefit for consumers and the banking sector when the dual-banking system is fully represented on the FDIC Board. We encourage Senators, in their role in the confirmation process, to ask nominees how they will work with state bank regulators to benefit from their experience sitting closer to citizens and local economies.” 

    Bank Regulatory Federal Issues CSBS State Issues FDIC Biden

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  • OCC announces Tropical Storm Nicole disaster relief

    On November 9, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Tropical Storm Nicole in Florida, Georgia, North Carolina, and South Carolina “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the OCC, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.

    Bank Regulatory Federal Issues OCC Disaster Relief Florida Georgia North Carolina South Carolina

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  • Fed releases Supervision and Regulation Report

    Recently, the Federal Reserve Board released its Supervision and Regulation Report, which summarizes banking system conditions and the Fed’s supervisory and regulatory activities. The current report noted that even though the “vast majority of firms maintained capital above regulatory minimums,” and loan delinquencies were historically low with liquidity levels generally remaining high, increasing economic uncertainty “may create new risks for firms to manage.” In response, firms increased credit loss provisions during the first half of 2022 and started taking measures to prepare for weaker economic conditions. The report also revealed that while the financial condition of large banks generally remains sound, firms should take steps to ensure their stress analyses, liquidity, and capital positions are able to adjust to developing market conditions. The report also highlighted recent regulatory actions, including supervisory guidance issued in August for banks seeking to engage in crypto-asset-related activities (covered by InfoBytes here). The Fed commented that it will continue to work with the OCC and FDIC on crypto-asset-related policy initiatives. The report also discussed operational risks related to the transition from LIBOR to an alternative interest rate benchmark and measures to address climate change implications for banks.

    Bank Regulatory Federal Issues Digital Assets Federal Reserve Supervision Climate-Related Financial Risks

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  • Chopra discusses SIFI risks

    Federal Issues

    On November 9, CFPB Director and FDIC Board Member Rohit Chopra delivered remarks before the FDIC Systemic Resolution Advisory Committee to discuss challenges facing systemically important financial institutions. Chopra began by raising concerns related to domestic systemically important banks (DSIBs) and the potentially disruptive impact facing consumers and small businesses should one of these bank fail. Chopra explained that, because DSIBs are heavily involved in retail banking with large consumer businesses and carry relatively high levels of uninsured deposits, “DSIB resolutions could pose serious technical challenges for the FDIC” that would necessitate serious consideration. Chopra also pointed out concerns raised by many experts that a large number of nonbank systemically important financial institutions (which have not yet been formally designated by the Financial Stability Oversight Council) pose systemic risk to the financial system. “Absent a designation, these institutions are not required to file a resolution plan,” Chopra said, noting that “[r]esolving these institutions without a plan would be an enormous challenge.” He also emphasized the importance of finding ways to eliminate bailout risks for global systemically important banks.

    Federal Issues Bank Regulatory CFPB FDIC DSIB Nonbank FSOC GSIBs

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