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Financial Services Law Insights and Observations


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  • Biden signs $1.5 trillion omnibus package

    Federal Issues

    On March 15, President Biden signed H.R. 2471 the “Consolidated Appropriations Act, 2022” (Act) into law. According to House Appropriations Committee Chair Rosa DeLauro’s press release, the Act is an omnibus spending measure that provides $1.5 trillion in discretionary resources across the 12 fiscal year 2022 appropriations bills. Among other things, the Act includes the “Cyber Incident Reporting for Critical Infrastructure Act of 2022,” which establishes requirements for reporting ransomware incidents on critical infrastructure to the DHS Cybersecurity and Infrastructure Security Agency (CISA). Specifically, Division Y Section 2242, establishes that companies must report incidents to CISA 72 hours after the covered entity reasonably believes that a cyber incident has occurred, or within 24 hours if a ransomware payment has occurred. If a company fails to meet the reporting requirements, the Act permits the cyber security director to “obtain information about the cyber incident or ransom payment by engaging the covered entity directly to request information about the cyber incident or ransom payment, and if the Director is unable to obtain information through such engagement, by issuing a subpoena to the covered entity, pursuant to subsection (c), to gather information sufficient to determine whether a covered cyber incident or ransom payment has occurred.” The Act also establishes that if CISA determines that the incident requires regulatory enforcement action or criminal prosecution, such information may be provided to the Attorney General or the appropriate regulator, who may utilize such information for a regulatory enforcement action or criminal prosecution. Within 24 months, CISA is directed to publish a notice of proposed rulemaking (NPRM) in the Federal Register to implement the Act, followed by the issuance of a final rule within 18 months of the NPRM. The final rule will outline the criteria of reporting and provide the effective dates for the reporting requirements. The Act also directs CISA to carry out an outreach and education campaign to inform covered entities about the rule’s requirements. Though the bill establishes that a court shall dismiss a cause of action against a person or entity for submitting a report, the liability protections “shall only apply to or affect litigation that is solely based on the submission of a covered cyber incident report or ransom payment report to the [Sector Risk Management] Agency.”

    The Act also includes the “Adjustable Interest Rate (LIBOR) Act,” which establishes “a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts,” among other things. Additionally, the Act includes rental assistance programs and climate restoration grants, which, according to a statement by HUD Secretary Marcia L. Fudge, “provides funding to improve the energy efficiency of housing and increase resilience to climate impacts.”

    Federal Issues Federal Legislation Biden Privacy/Cyber Risk & Data Security Data Breach LIBOR HUD

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  • U.S.-EU release statement on Joint Financial Regulatory Forum

    Financial Crimes

    On March 1 and 2, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six themes: “(1) market developments and current assessment of financial stability risks, (2) operational resilience and digital finance, (3) sustainable finance and climate-related financial risks, (4) regulatory and supervisory cooperation in capital markets, (5) multilateral and bilateral engagement in banking and insurance, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”

    While acknowledging that both the U.S. and EU are “experiencing robust economic recoveries,” participants warned that significant uncertainty and risks are created by the current geopolitical situation, as well as challenges stemming from the ongoing Covid-19 pandemic, high energy prices, and supply-chain bottlenecks. “[C]ooperative international engagement to mitigate financial stability risks remains essential,” participants stressed. During the meeting, participants also discussed recent developments related to crypto-assets, digital finance, and so-called stablecoins, as well as the potential for a central bank digital currency, and “acknowledged the importance of ongoing international work on digital finance and recognized the benefits of greater international supervisory cooperation with a view to promote responsible innovation globally.”

    In addition, participants discussed various topics, including those related to third-party providers; climate-related financial risks and challenges, including sustainability reporting standards; the transition from LIBOR; and progress made in strengthening their respective AML/CFT frameworks.

    Financial Crimes Digital Assets Of Interest to Non-US Persons Department of Treasury EU Central Bank Digital Currency Stablecoins Anti-Money Laundering Combating the Financing of Terrorism Fintech Covid-19 Climate-Related Financial Risks LIBOR

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  • CFPB releases regulatory agenda

    Federal Issues

    On January 31, the CFPB released its semiannual regulatory agenda in the Federal Register, as part of the Fall 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions. According to the CFPB, it “reasonably anticipates having the regulatory matters identified below under consideration during the period from November 1, 2021 to October 31, 2022.” The next agenda will be published in Spring 2022, which will update the recently released agenda through Spring 2023. Among other things, the agenda noted that the Bureau made “significant progress” on the implementation of Section 1071 of the Dodd-Frank Act, which covers banks’ collection, reporting, and disclosure of information on credit applications made by women-owned, minority-owned, and small businesses. Other highlights of the agenda include the Bureau’s: (i) continued collaboration with other federal agencies on regulations for automated valuation models under the FIRREA amendments to Dodd-Frank; (ii) expectation to issue a final rule on the transition away from the LIBOR index, which aims to ensure that loans tied to LIBOR are transitioned “in an orderly, transparent, and fair manner”; (iii) assessment of a rule implementing HMDA; (iv) work on regulations for PACE financing and its “continu[ed] engagement with stakeholders and collect information” from a Advance Notice of Proposed Rulemaking, issued in March 2019 (covered by InfoBytes here); and (v) continued monitoring of consumer financial product markets and creation of working groups to focus on specific markets for potential future rulemakings.

    Federal Issues Agency Rule-Making & Guidance CFPB Dodd-Frank FIRREA HMDA AVMs Section 1071 Federal Register LIBOR

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  • OFAC published FAQs on Belarus, Ukraine-/Russia-related, and Venezuela-related sanctions programs

    Financial Crimes

    On January 7, the U.S. Treasury Department’s Office of Foreign Assets Control published a new FAQ 956 regarding Belarus, Ukraine-/Russia-related, and Venezuela-related sanctions programs, which prohibit U.S. persons from dealing in certain new debts (such as bonds, loans, drafts, loan guarantees, or letters of credit) of certain identified persons in these countries. The FAQ provides additional guidance on how OFAC views modifications to pre-existing loans, contracts, or other agreements to replace LIBOR as the reference rate. According to the FAQ, “[l]oans, contracts, or other agreements that use LIBOR as a reference rate that are modified to replace such benchmark reference rate will not be treated as new debt for OFAC sanctions purposes, so long as no other material terms of the loan, contract, or agreement are modified.”

    Financial Crimes OFAC LIBOR Department of Treasury OFAC Sanctions Belarus Ukraine Russia Of Interest to Non-US Persons

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  • CFTC revises LIBOR transition no-action letters

    Federal Issues

    On December 22, the CFTC announced that the Division of Clearing and Risk (DCR), Division of Market Oversight (DMO), and Market Participants Division each issued revised no-action letters (see 21-2621-27, and 21-28) to swap dealers and other market participants associated with the transition from swaps that reference LIBOR and other interbank rates to swaps that reference alternative benchmarks. As previously covered by InfoBytes, the United Kingdom’s Financial Conduct Authority announced the dates that all LIBOR settings will cease to be provided by any administrator and will no longer be representative. All sterling, euro, Swiss franc and Japanese yen settings, and one-week and two-month U.S. dollar settings ceased immediately after December 31, 2021, while all remaining U.S. dollar settings will cease immediately after June 30, 2023. Therefore, according to the recent CFTC announcement, the DMO and the DCR letters are effective until June 30, 2023 “for swaps otherwise covered by such letters to the extent such swaps reference one of the 2023 USD LIBOR Settings.”

    Federal Issues CFTC LIBOR UK Of Interest to Non-US Persons Financial Conduct Authority Swaps

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  • U.S.-UK financial regulators discuss bilateral issues

    Financial Crimes

    On December 17, the U.S. Treasury Department issued a joint statement covering the recently held fifth meeting of the U.S.-UK Financial Regulatory Working Group (Working Group). Participants included officials and senior staff from both countries’ treasury departments, as well as regulatory agencies including the Federal Reserve Board, CFTC, FDIC, OCC, SEC, the Bank of England, and the Financial Conduct Authority. The Working Group discussed, among other things, (i) international and bilateral cooperation; (ii) “emerging regulatory approaches and the need to promote multilateral cooperation and alignment given that a number of third-party providers operate cross-border to provide services to the financial sector and there are potential risks of regulatory fragmentation”; (iii) “risks associated with regulatory driven fragmentation in derivatives clearing and banking markets”; (iv) “efforts in relation to the LIBOR transition, market developments, the risks associated with newly created credit-sensitive rates, and transition implications for other jurisdictions;” and (v) the management of climate-related financial risks and other sustainable finance issues. According to the statement, Working Group participants will continue to engage bilaterally on these issues and others ahead of the next meeting planned for this spring.

    Financial Crimes UK Of Interest to Non-US Persons Department of Treasury Federal Reserve OCC FDIC SEC CFTC Financial Conduct Authority LIBOR Climate-Related Financial Risks

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  • FSOC highlights potential risks in 2021 annual report

    Agency Rule-Making & Guidance

    On December 17, the Financial Stability Oversight Council (FSOC) released its annual report highlighting significant financial market and regulatory developments, potential financial risks, and recommendations for promoting U.S. financial stability. The report focused on several recommendations that FSOC member agencies should take to mitigate systemic risk and ensure financial stability.

    • Climate-related Financial Risk. FSOC advised financial regulators to “promote consistent, comparable, and decision-useful disclosures that allow investors and financial institutions to take climate-related financial risks into account in their investment and lending decisions.” Taking these steps, FSOC noted, will enable financial regulators to promote resilience within the financial-sector and help support an orderly, economy-wide transition to net-zero emissions. FSOC also recognized the importance of incorporating climate-related risks into risk management practices and supervisory expectations for regulated entities. The same day, acting Comptroller of the Currency Michael J. Hsu issued a statement supporting FSOC’s new Climate-Related Financial Risk Committee, which was announced in October (covered by InfoBytes here). “The CFRC will play an important role in identifying priority areas for assessing and mitigating climate-related risks to the financial system, coordinating information sharing, aiding in the development of common approaches and standards, and facilitating communication across FSOC members and interested parties. Addressing climate-related risks to the financial system requires the collaboration of multiple parties and partnerships, using many strategies and mechanisms.”
    • Digital Assets. FSOC recommended that federal and state regulators continue to examine financial risks posed by emerging uses of digital assets and coordinate efforts to address potential issues arising in this space. FSOC advised member agencies to consider the recommendations in the President’s Working Group on Financial Markets’ “Report on Stablecoins” (covered by InfoBytes here), which was published in coordination with the FDIC and the OCC.
    • LIBOR Transition. FSOC commended the Alternative Reference Rates Committee’s efforts to facilitate an orderly transition from LIBOR to alternative reference rates, and advised member agencies to “determine whether regulatory relief is necessary to encourage market participants to address legacy LIBOR portfolios.” Additionally, member agencies should “continue to use their supervisory authority to understand the status of regulated entities’ transition from LIBOR, including their legacy LIBOR exposure and plans to address that exposure.”
    • Cybersecurity. FSOC advised federal and state agencies to “continue to monitor cybersecurity risks and conduct cybersecurity examinations of financial institutions and financial infrastructures to ensure, among other things, robust and comprehensive cybersecurity monitoring, especially in light of new risks posed by the pandemic, ransomware incidents, and supply chain attacks.”

    While noting that financial conditions have normalized since spring 2020, FSOC noted that “risks to U.S. financial stability today are elevated compared to before the pandemic” and that “the outlook for global growth is characterized by elevated uncertainty, with the potential for continued volatility and unevenness of growth across countries and sectors.”

    Agency Rule-Making & Guidance Bank Regulatory Federal Issues FDIC OCC Climate-Related Financial Risks Fintech Digital Assets LIBOR Privacy/Cyber Risk & Data Security

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  • CFPB publishes fall 2021 rulemaking agenda

    Agency Rule-Making & Guidance

    On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.

    Key rulemaking initiatives include:

    • Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
    • Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
    • Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
    • Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
    • Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
    • Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”

    Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.

    Agency Rule-Making & Guidance CFPB Covid-19 Small Business Lending Section 1071 Consumer Finance PACE Programs AVMs Dodd-Frank Section 1033 Regulation Z LIBOR HMDA RESPA TILA CARES Act Debt Collection EGRRCPA Federal Reserve OCC FDIC NCUA FHFA Bank Regulatory FIRREA CARD Act

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  • CFPB finalizes LIBOR transition rule

    Agency Rule-Making & Guidance

    On December 7, the CFPB issued a final rule facilitating the transition from LIBOR for consumer financial products. (Corrected rule published February 16, 2022.) The final rule amends Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establishes requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans.

    • Closed-end provision amendments provide examples of indices that meet certain Regulation Z standards, which may be used to replace LIBOR indices. To assist creditors in determining a comparable index for closed-end loans, the final rule identifies certain Secured Overnight Financing Rate (SOFR)-based spread-adjusted indices recommended by the Alternative Reference Rates Committee (ARRC) for consumer products. The final rule also provides a non-exhaustive list of factors for creditors to use when determining whether a replacement index meets the Regulation Z “comparable” standard.
    • Updated post-consummation disclosure sample forms for certain adjustable-rate mortgage loan products replace LIBOR references with a SOFR index.
    • Amendments related to open-end loans add LIBOR-specific provisions, which allow creditors for home equity lines of credit (HELOCs) and credit card issuers to transition existing accounts using a LIBOR index to a replacement index on or after April 1, 2022, provided certain conditions are met. Creditors and card issuers are provided a non-exhaustive list of factors to consider when determining whether a replacement index meets Regulation Z’s “historical fluctuations are substantially similar” standard. In addition to identifying certain ARRC recommended SOFR-based spread-adjusted indices for consumer products, the final rule also lists the Prime rate as an example of an index that also meets this standard.
    • The final rule also addresses change-in-terms notice provisions for HELOCs and credit card accounts related to the disclosure of margin reductions once LIBOR ends. Additionally, the final rule discusses how the requirement for reevaluating rate increases on credit card accounts applies to the transition from using LIBOR indices to a replacement index.

    The final rule takes effect April 1, 2022, with the exception of certain provisions related to an amendment to appendix H which is effective October 1, 2023. Additionally, while the mandatory compliance date for change-in-terms notice requirement revisions is October 1, 2022, the mandatory compliance date for all other final rule provisions is April 1, 2022. Furthermore, the Bureau “is reserving judgment about whether to include references to a 1-year USD LIBOR index and its replacement index in various comments; the Bureau will consider whether to finalize comments proposed on that issue in a supplemental final rule once it obtains additional information.”

    CFPB Director Rohit Chopra warned that “[n]o new financial contracts may reference LIBOR as the relevant index after the end of 2021,” and that beginning June 2023, “LIBOR can no longer be used for existing financial contracts.” Chopra further emphasized that creditors and servicers must continue to prepare for LIBOR’s cessation and should take clear and orderly steps to reduce risk and mitigate compliance, legal, financial, and operational risks. 

    Agency Rule-Making & Guidance CFPB LIBOR SOFR ARRC Consumer Finance Regulation Z TILA

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  • ARRC recommends SOFR fallbacks for one-week, two-month LIBOR contracts

    Federal Issues

    On December 3, the Alternative Reference Rates Committee (ARRC) under the New York and Alabama LIBOR Relevant Recommending Body, released a statement recommending forms of the Secured Overnight Financing Rate (SOFR) and associated spread adjustments to replace references to 1-week and 2-month USD LIBOR in certain contracts affected by New York and Alabama state LIBOR legislation. The statement comes “with just one month until no new LIBOR and the cessation of these two USD LIBOR tenors,” noting that these recommendations are “important for the legacy contracts that rely on those tenors.”  Under the states’ LIBOR legislation, ARRC serves as the “Relevant Recommending Body,” while SOFR is the recommended rate and alternative to USD LIBOR.

    As previously covered by InfoBytes, ARRC announced its recommendation of CME Group’s forward-looking SOFR term rates, following the completion of key changes in trading conventions on July 26 under the SOFR First initiative. According to the recently released statement, ARRC recommends applying SOFR only to the narrow set of LIBOR-based contracts that are affected by the states’ LIBOR legislation, which are generally contracts with no fallbacks or fallbacks that reference LIBOR. For contracts with fallbacks that give a party discretion to decide on a replacement rate, the state laws also provide a safe harbor if that party chooses the SOFR-based rate and conforming changes recommended by ARRC. ARRC also published a set of frequently asked questions regarding the application of New York state law.

    Federal Issues LIBOR ARRC New York Alabama SOFR

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