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Financial Services Law Insights and Observations


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  • FHFA seeks comments on PACE loans

    Agency Rule-Making & Guidance

    On January 16, the FHFA issued a notice requesting public comment on prospective policy changes to its residential energy retrofitting programs, or Property Assessed Clean Energy (PACE) programs. According to the request for comment, PACE programs are “financed through special state legislation enabling a ‘super-priority lien’ over existing and subsequent first mortgages.” Because the loans are only recorded in tax rolls and not in land records, they do not show up in title searches. This may potentially cause problems for prospective buyers and mortgage lenders. Additionally, the programs are not uniform across states and the GSEs cannot buy properties encumbered by PACE loans.

    Comments must be received by March 16.

    Agency Rule-Making & Guidance FHFA PACE Programs GSE Consumer Finance State Legislations

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  • Fed provides FAQs for tailoring rules

    Agency Rule-Making & Guidance

    On January 13, the Federal Reserve Board (Fed) issued SR 20-2, “Frequently Asked Questions on the Tailoring Rules” (FAQs) applicable to bank holding companies, savings and loan companies, U.S. intermediate holding companies with $100 billion or more in total assets, and certain depository institutions. In October, as previously covered by InfoBytes, the Fed and the OCC released a jointly developed framework that set out four categories to be used to classify these banking entities for the purposes of determining regulatory capital and liquidity requirements based on risk. The FAQs provide guidance on the tailoring rules, including answers to questions about Liquidity Coverage Ratio (LCR) requirements, recognition of Accumulated Other Comprehensive Income, compliance requirements for foreign banking organizations with less than $100 billion in U.S. assets, and the interpretation of “quarterly” in relation to stress testing frequency.

    Agency Rule-Making & Guidance Federal Reserve Bank Holding Companies SIFIs Liquidity Standards Stress Test OCC Of Interest to Non-US Persons LCR Bank Compliance

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  • FDIC extends deadline for comments on innovation pilot programs

    Agency Rule-Making & Guidance

    On January 14, the FDIC again published a notice and request for comments in the Federal Register on innovation pilot programs. The FDIC first solicited comments on innovation pilot programs in November, with comments due by January 6. As no comments were submitted, the agency is once again requesting comments on the programs, which, as previously covered by InfoBytes, it hopes will spur collaboration “with innovators in the financial, non-financial, and technology sectors to, among other things, identify, develop, and promote technology-driven innovations among community and other banks in a manner that ensures the safety and soundness of FDIC-supervised and insured institutions.”

    Comments must be received by February 13.

    Agency Rule-Making & Guidance Fintech Community Banks Supervision FDIC

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  • SEC announces 2020 OCIE exam priorities


    On January 7, the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced the release of its 2020 Examination Priorities. The annual release of exam priorities provides transparency into the risk-based examination process and lists areas that pose current and potential risks to investors. OCIE’s 2020 examination priorities include: 

    • Retail investors, including seniors and those saving for retirement. OCIE places particular emphasis on disclosures and recommendations provided to investors.
    • Information security. In addition to cybersecurity, top areas of focus include: risk management, vendor management, online and mobile account access controls, data loss prevention, appropriate training, and incident response.
    • Fintech and innovation, digital assets and electronic investment advice. OCIE notes that the rapid pace of technology development, as well as new uses of alternative data, presents new risks and will focus attention on the effectiveness of compliance programs.
    • Investment advisers, investment companies, broker-dealers, and municipal advisers. Risk-based exams will continue for each of these types of entities, with an emphasis on new registered investment advisers (RIA) and RIAs that have not been examined. Other themes in exams of these entities include board oversight, trading practices, advice to investors, RIA activities, disclosures of conflicts of interest, and fiduciary obligations.
    • Anti-money laundering. Importance will be placed on beneficial ownership, customer identification and due diligence, and policies and procedures to identify suspicious activity.
    • Market infrastructure. Particular attention will be directed to clearing agencies, national securities exchanges and alternative trading systems, and transfer agents.
    • FINRA and MSRB. OCIE exams will emphasize regulatory programs, exams of broker-dealers and municipal advisers, as well as policies, procedures and controls.

    Securities Federal Issues Agency Rule-Making & Guidance Fintech Anti-Money Laundering Bank Secrecy Act SEC Risk Management Vendor Management Privacy/Cyber Risk & Data Security FINRA Customer Due Diligence

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  • OCC seeks bank-specific data to inform CRA modernization

    Agency Rule-Making & Guidance

    On January 10, the OCC issued a request for public input (RFI) to aid the OCC and the FDIC in determining how their joint notice of proposed rulemaking might be revised to ensure the final rule achieves the purpose of the Community Reinvestment Act (CRA). A previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The RFI “seeks bank-specific data and information to supplement currently-available data and to inform potential revisions to modernize and strengthen the CRA regulatory framework,” and specifically requests four types of bank data covering the past three years: (i) retail domestic deposit activities; (ii) total qualifying activity data; (iii) data on qualifying retail loans originated and sold within 90 days; and (iv) other retail loan data by census tract. Comments on the RFI are due March 10.

    Agency Rule-Making & Guidance OCC CRA FDIC

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  • Federal Reserve governor proposes alternative approach to CRA modernization

    Agency Rule-Making & Guidance

    On January 8, Federal Reserve Governor Lael Brainard discussed the Fed’s approach to the Community Reinvestment Act (CRA) modernization process, explaining why the agency chose not to join the notice of proposed rulemaking (NPR) issued in December by the OCC and the FDIC. As previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The NPR was published in the Federal Register on January 9, with comments due March 9.

    According to Brainard, “it is more important to get the reforms done right than to do them quickly.” This includes, Brainard emphasized, “giving external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulations.” Specifically, the Fed’s proposed approach for measuring banks’ CRA compliance uses “a set of tailored thresholds that are calibrated for local conditions” through the creation of two tests: (i) a retail test, applicable to all retail banks, that “would assess a bank’s record of providing retail loans and retail banking services in its assessment areas”; and (ii) a community development test, applicable to large banks, wholesale banks, and limited-purpose banks, “that would evaluate a bank’s record of providing community development loans, qualified investments, and services.” Banks would then be provided a dashboard related to its retail lending activity, as well as metrics concerning its community development performance.

    Brainard also commented that separating evaluations into two different tests is important because “an approach that combines all activity together runs the risk of encouraging some institutions to meet expectations primarily through a few large community development loans or investments rather than meeting local needs.” She explained that having separate tests would ensure that performance metrics are tailored for banks of different sizes and business models, and would “provide greater scope to calibrate the evaluation metrics to the opportunities available in the market, which can differ for retail lending and community development financing.” Further, Brainard stated that using metrics based on a bank’s retail output on the number of loans rather than the dollar volume would help to measure how well a bank is serving the needs of both low- to moderate-income communities and “avoid inadvertent biases in favor of fewer, higher-dollar value loans.”

    Agency Rule-Making & Guidance CRA Federal Reserve FDIC OCC

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  • HUD unveils new version of AFFH rule

    Agency Rule-Making & Guidance

    On January 7, HUD published its proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule. According to HUD, the proposed AFFH rule will provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.” 

    In August of 2018, HUD suspended requirements under the 2015 rule for HUD grant recipient communities to submit assessments of fair housing. Additionally, as previously covered in InfoBytes, HUD solicited comments on amendments to the 2015 AFFH regulations, which, according to the agency, “proved ineffective, highly prescriptive, and effectively discouraged the production of affordable housing.” The proposed rule suggests a change to the definition of AFFH to “advancing fair housing choice within the program participant’s control or influence,” and seeks to move the focus away from anti-segregation planning and toward creation of affordable housing options.

    According to the proposed rule, fair housing choice includes (i) “[p]rotected choice, meaning absence of discrimination”; (ii) “[a]ctual choice, meaning not only that affordable housing options exist,” but that state and local governments are encouraged to educate the public on their rights; and (iii) “[q]uality choice, meaning that the available and affordable housing is decent, safe, and sanitary, and, for persons with disabilities, accessible as required under civil rights laws.” The proposed rule will be available for public comment at an undetermined date.

    Agency Rule-Making & Guidance Federal Issues HUD Fair Lending Affordable Housing Fair Housing Act

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  • FTC notes data security order improvements

    Agency Rule-Making & Guidance

    On January 7, the Director of the FTC’s Bureau of Consumer Protection noted that the Commission has made “three major changes” in its data security orders to “improve data security practices and provide greater deterrence” by focusing on specificity, accountability, and responsibility. The first change increases the specificity of data security orders to “make the FTC’s expectations clearer” and “improve order enforceability.” The second change increases the accountability of the third-party assessors who review the comprehensive data security programs that the orders exact, by requiring assessors to include specific evidence for each determination and to accommodate requests from the FTC to review the assessments. The third change emphasizes executive responsibility. Yearly, companies will be required to present their data security programs to board and senior company executives who must certify the company’s compliance to the FTC. The announcement also pointed to a number of 2019 orders to demonstrate the “significant improvements” the agency has made with the three changes.

    Agency Rule-Making & Guidance FTC Consumer Protection Privacy/Cyber Risk & Data Security

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  • Agencies release annual CRA asset-size threshold adjustments

    Agency Rule-Making & Guidance

    On December 31, the Federal Reserve Board, the OCC, and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks and small and intermediate small savings associations. A “small” bank or savings association is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.305 billion in assets. An “intermediate small” bank or savings association is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $326 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.305 billion in assets. This joint final rule became effective on January 1.

    Agency Rule-Making & Guidance CRA OCC FDIC Supervision Federal Reserve

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  • Fed issues new fintech compliance bulletin


    On December 17, the Federal Reserve Board (Fed) released a new issue of the Consumer Compliance Supervision Bulletin focusing on supervisory insights into consumer compliance issues related to fintech to assist financial institutions with assessing and managing risk associated with technological innovation. Among the topics covered in the bulletin, are (i) managing risk with fintech collaborations—the Fed stresses the importance of creating strong policies and procedures, as well as board and senior management oversight, comprehensive and tailored training, and risk monitoring; (ii) managing UDAP risks with online and mobile banking platforms—the Fed recommends a focus on ensuring consistency and accuracy in disclosures on the platforms and the regular monitoring of complaints; and (iii) managing possible fair lending risks resulting from targeted online marketing—the Fed suggests careful monitoring over marketing activities and vendors, as well as close review of filters used with internet advertising to prevent excluding populations with legally protected characteristics. The bulletin will be featured on the agency’s new fintech page previously covered by InfoBytes here.

    Fintech Agency Rule-Making & Guidance UDAP Federal Reserve Bank Supervision Consumer Complaints

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