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OCC updates commercial real estate lending booklet of Comptroller’s Handbook
On March 29, the OCC issued Bulletin 2022-7 version 2.0 of the “Commercial Real Estate Lending” booklet of the Comptroller's Handbook. The booklet rescinds version 1.1 of the booklet of the same title issued in January 2017 and Bulletin 2013-19, “Commercial Real Estate Lending: Comptroller's Handbook Revisions and Rescissions.” Among other things, the revised booklet: (i) indicates changes to laws and regulations since the booklet was last updated; (ii) reflects the agency’s issuances published and rescinded since the booklet was last updated; (iii) provides clarifying edits regarding supervisory guidance, sound risk management practices, and legal language; and (vi) resends certain content for clarifying purposes.
FDIC issues RFI on bank mergers
On March 25, the FDIC issued a request for information (RFI) seeking public comments on bank mergers, including mergers between an insured depository institution and a noninsured institution, to aid the agency’s understanding of and any potential policymaking in this area. Specifically, the RFI seeks input related to the effectiveness of the existing framework in meeting the requirements of Section 18(c) of the Federal Deposit Insurance Act (known as the Bank Merger Act). According to the FDIC, “[s]ignificant changes over the past several decades in the banking industry and financial system warrant a review of the regulatory framework.”
Among the questions posed by the RFI are topics concerning (i) whether additional requirements or criteria (including quantitative measures) should be added to the existing regulatory framework to address financial stability risks that may arise from bank mergers (e.g. “[s]hould the FDIC presume that any merger transaction that results in a financial institution that exceeds a predetermined asset size threshold, for example $100 billion in total consolidated assets, poses a systemic risk concern?”); (ii) the extent to which prudential factors should be considered when acting on a merger application, and whether bright line minimum standards for these factors should be established; (iii) whether agencies should rethink the way they consider whether a merger might affect the convenience and needs factor of a community, and to “what extent should the CFPB be consulted by the FDIC when considering the convenience and needs factor and should that consultation be formalized”; (iv) whether the existing merger review framework creates “an implicit presumption of approval” or requires “an appropriate burden of proof” on bank applicants to prove they have met the criteria of the Bank Merger Act; (v) to what extent has the Bank Merger Act exception “proven beneficial or detrimental to the bank resolution process and to financial stability”; and (vi) to what extent would responses to the questions differ if the merger transaction involves a small insured depository institution.
Comments on the RFI are due 60 days after publication in the Federal Register.
Agencies seek to update administrative enforcement proceedings
On March 22, the Federal Reserve Board, OCC, FDIC, and NCUA issued an interagency proposal to update policies and procedures governing administrative proceedings for supervised financial institutions. According to the proposal, the amendments are necessary to account for the routine use of electronic presentations in hearings and for use of technology in administrative proceedings, and to account for relevant legal developments since the rules were last updated, including the abolishment of the Office of Thrift Supervision, and the grant of new authorities to the agencies. Additionally, according to the proposal, the Fed “proposes to codify and clarify its long-standing practices concerning the conduct of formal administrative investigations and promulgate rules governing all formal investigations of organizations and individuals within the Board’s jurisdiction.” Finally, the FDIC proposes to amend its rules of administrative proceeding to permit greater use of depositions in the course of administrative proceedings.
SEC proposes climate risk disclosures
On March 21, the SEC announced a proposed rule to require registrants to disclose certain climate-related information in their registration statements and periodic reports. According to the proposed rule, a registrant must disclose, among other things, information regarding its direct and certain indirect emissions of greenhouse gas (GHG). The GHG emissions disclosure proposals “would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks.”
The proposed rule also establishes that accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering certain emissions disclosures, with a phase-in over time, to promote the reliability of GHG emissions disclosures for investors. The proposed rule further noted additional disclosure requirements for registrants that have made a so-called net-zero commitment or adopted a plan to reduce their GHG footprint or exposures.
The same day, the SEC released a Fact Sheet on the proposed rule, which summarized the content of the proposed disclosure and presentation and attestation requirements, among other things. According to a statement released by SEC Chair Gary Gensler, the proposed rule will “provide investors with consistent, comparable, and decision-useful information for making their investment decisions and would provide consistent and clear reporting obligations for issuers.” However, a statement released by SEC Commissioner Hester M. Peirce took a different view, stating that the proposed amendments would “turn[] the disclosure regime on its head” and noting that some elements are “missing,” such as “[a] credible rationale for such a prescriptive framework when our existing disclosure requirements already capture material risks relating to climate change;[a] materiality limitation; [and] [a] compelling explanation of how the proposal will generate comparable, consistent, and reliable disclosures.” Treasury Secretary Janet L. Yellen also released a statement commending the proposal and the SEC, calling the effort “an important step to protect investors and strengthen the overall resilience of the financial system.”
Comments on the proposal are due 30 days after publication in the Federal Register, or 60 days after the date of issuance and publication on sec.gov, whichever period is longer.
DOJ publishes web accessibility guidance under the ADA
On March 18, the DOJ released guidance on web accessibility and the Americans with Disabilities Act (ADA) explaining how businesses open to the public, including banks (entities covered by ADA Title III), and state and local governments can make sure their websites comply with ADA requirements. “Even though businesses and state and local governments have flexibility in how they comply with the ADA’s general requirements of nondiscrimination and effective communication, they still must ensure that the programs, services, and goods that they provide to the public—including those provided online—are accessible to people with disabilities,” the guidance stated. The DOJ addressed several topics within the guidance, including the importance of website accessibility, examples of barriers that inaccessible websites create for people with disabilities, when the ADA requires web content to be accessible, and advice on making web content accessible. Also provided are links to accessibility resources and existing technical standards offering helpful guidance concerning ways to ensure the accessibility of website features, such as the Web Content Accessibility Guidelines. The guidance also provides examples of the DOJ’s ongoing work to advance website accessibility for people with disabilities through statements of interest and enforcement matters.
FINRA: Supervisory obligations rest with a firm’s business management, not the chief compliance officer
On March 17, FINRA issued Regulatory Notice 22-10 reminding member firms that meeting their supervisory obligations under Rule 3110 “rests with a firm’s business management, not its compliance officials.” According to FINRA, a firm’s chief compliance officer’s (CCO) role generally is advisory and not supervisory, and as such, an action will not be brought against a CCO under Rule 3110 for failure to supervise unless a firm confers to the CCO supervisory responsibilities, and the CCO then fails “to discharge those responsibilities in a reasonable manner.” Specifically, FINRA stated that supervisory liability will not apply to a firm’s CCO unless the CCO is responsible for either establishing, maintaining, and updating the firm’s supervisory procedures, or has been “expressly or impliedly designated” to enforce the firm’s compliance with its supervisory procedures. With respect to determining a CCO’s liability when the CCO is exercising supervisory responsibilities, FINRA added that it would apply a reasonableness standard to a CCO’s actions. A CCO may be more likely to be held liable should it be discovered that (i) the CCO “was aware of multiple red flags or actual misconduct” and then failed to take steps to address the issues; (ii) the CCO “failed to establish, maintain, or enforce a firm’s written procedures”; (iii) “the CCO’s supervisory failure resulted in violative conduct”; or (iv) the “violative conduct caused or created a high likelihood of customer harm.”
FINRA also listed factors that would weigh against charging the CCO, including: (i) the CCO was given insufficient resources to undertake his supervisory responsibilities; (ii) the CCO was overburdened with other responsibilities; (iii) the CCO’s supervisory responsibilities were poorly defined; (iv) the firm changed in such a way such that it would be appropriate to allow the CCO time to update procedures; and (v) the CCO attempted to fulfill his duties, including by escalating concerns to senior leadership. FINRA added that it will also consider whether to take action against a firm or the firm’s president (or another individual with more director supervisory responsibility) rather than the CCO and explained that in some instances a Cautionary Action Letter may be more appropriate than formal disciplinary action.
Special Alert: CFPB revises UDAAP manual to include discriminatory practices
On March 16, the Consumer Financial Protection Bureau announced significant revisions to its Unfair, Deceptive, or Abusive Acts or Practices exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. Congress has enacted several statutes that outlaw discrimination on specified prohibited bases, including the Equal Credit Opportunity Act (ECOA), which generally makes it unlawful to discriminate on a prohibited basis when extending credit and which the CFPB is authorized to enforce. With this announcement, the Bureau made clear its view that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice — and therefore the CFPB can bring discrimination claims related to non-credit financial products (and other agencies that have UDAP authority may follow in the CFPB’s lead).
CFPB updates debt collection examination procedures to include Regulation F provisions
Recently, the CFPB updated its debt collection examination procedures to incorporate provisions of Regulation F (the FDCPA’s implementing regulation). As previously covered by InfoBytes, in October 2020, the Bureau issued its final rule (effective November 30, 2021) amending Regulation F to address debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. Following the publication of the final rule, the Bureau also released debt collection compliance guidance and frequently asked questions that address validation information generally and validation information related to residential mortgage debt (covered by InfoBytes here). The Bureau noted that depending on the scope of an examination, “and in conjunction with the compliance management system and consumer complaint response review procedures,” an examination will cover at least one of the following modules: (i) entity business model; (ii) communications in connection with debt collection; (iii) information sharing, privacy, and interactions with consumer reporting agencies; (iv) validation notice, consumer FDCPA disputes and complaints, and ceasing communication; (v) payment processing and account maintenance; (vi) ECOA; and (vii) litigation practices, administrative wage garnishment and repossession, and time-barred debt.
Fed reshaping “novel institutions” guidelines
On March 1, the Federal Reserve Board announced that it is soliciting comments on a supplement to a previous proposal intended to ensure that the Fed’s banks utilize a transparent and consistent set of factors when reviewing requests to access Federal Reserve Bank accounts and payment services. The framework, which builds on a proposal from May 2021 (covered by InfoBytes here), would establish a three tier system. Tier 1 would consist of eligible institutions that are federally-insured, and would be “subject to a less intensive and more streamlined review.” Tier 2 would consist of certain eligible institutions or holding companies that are not federally-insured but subject to prudential supervision, and would generally receive an “intermediate” level of review. Tier 3 would consist of eligible institutions that are “not federally insured and not subject to prudential supervision by a federal banking agency at the institution or holding company level,” and, given their potential higher risk, “would be subject to the strictest level of review.” Comments close 45 days after publication in the Federal Register.
FHFA finalizes enterprise regulatory capital framework
On February 25, FHFA announced a final rule, which amends the Enterprise Regulatory Capital Framework (ERCF) by refining the prescribed leverage buffer amount (leverage buffer) and risk-based capital treatment of retained credit risk transfer (CRT) exposures for Fannie Mae and Freddie Mac (collectively, GSEs). Among other things, the final rule: (i) replaces the fixed leverage buffer equal to 1.5 percent of a GSE's adjusted total assets with a dynamic leverage buffer equal to 50 percent of the GSE's stability capital buffer; (ii) replaces the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure; and (iii) removes the requirement that a GSE must apply an overall effectiveness adjustment to its retained CRT exposures in accordance with the ERCF’s securitization framework. Additionally, the final rule implements technical corrections to provisions of the ERCF that were published in December 2020. (Covered by InfoBytes here.) The ERCF amendments and technical corrections will be effective 60 days after publication in the Federal Register.