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Financial Services Law Insights and Observations


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  • GAO Publishes Report Regarding the Impact of Dodd-Frank Regulations on Community Banks, Credit Unions, and Systemically Important Institutions


    On December 30, the United States Government Accountability Office (GAO) released its fifth report mandated by Section 1573(a) of the Department of Defense and Full-Year Continuing Appropriations Act of 2011 (Act), which amended  Dodd-Frank, and requires the GAO to annually review financial services regulations, including those of the CFPB. The report reviews 26 Dodd-Frank rules that became effective from July 23, 2014 through July 22, 2015 to examine whether the agencies conducted the required regulatory analyses and coordination. In addition, it examines nine Dodd-Frank rules that were effective as of October 2015 to determine their impact on community banks and credit unions. Finally, the report assesses Dodd-Frank’s impact on large bank holding companies. The GAO found that the agencies conducted the required regulatory analyses for rules issued under Dodd-Frank and reported required coordination. In addition, surveys of community banks and credit unions suggest that the Dodd-Frank rules under review have resulted in an increased compliance burden, a decline in certain business activities in some cases (e.g., loans that are not qualified mortgages), and moderate to minimal initial reductions in the availability of credit. Although “regulatory data to date have not confirmed a negative impact on mortgage lending,” “these results do not necessarily rule out significant effects or the possibility that effects may arise in the future.” Finally, the GAO concluded that the full impact of Dodd-Frank on large bank holding companies remains uncertain, but summarized the results of certain analyses in the report.

    CFPB Dodd-Frank Bank Compliance Community Banks GAO

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  • FASB Issues New Guidance on the Recognition and Measurement of Financial Instruments

    Consumer Finance

    On January 5, the Financial Accounting Standards Board (FASB) issued a new accounting standard which “‘is intended to provide users of financial statements with more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.’” The new Accounting Standards Update (ASU) impacts public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities. The new guidance is intended to make targeted improvements to existing GAAP by, among several other things, generally only requiring that changes in the fair value of equity investments be recorded in net income and requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The ASU will take effect for public companies for fiscal years beginning after December 15, 2017 (including interim periods within those fiscal years), and for private companies, not-for-profit organizations, and employee benefit plans for fiscal years beginning after December 15, 2018 (and for interim periods within fiscal years beginning after December 15, 2019). Early adoption of certain provisions is permitted.

    Bank Compliance Disclosures

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  • New York DFS Announces Enforcement Action Against Pakistan-Based Bank's New York Branch

    Federal Issues

    On December 17, the New York DFS announced an enforcement action against a New York branch of a Pakistan-based bank. The Federal Reserve Bank of New York (FRBNY) and the DFS recently conducted an examination of the branch and found significant risk management and compliance failures with regard to state and federal laws, rules, and regulations relating to anti-money laundering (AML) compliance. Under the terms of the DFS’s order, the branch agreed to reform its policies and procedures to ensure compliance with AML laws. Per the order, the bank must submit to the DFS, within 60 days of the order, a number of written programs regarding its (i) corporate governance and management oversight; (ii) BSA/AML compliance review; (iii) customer due diligence; and (iv) suspicious activity monitoring and reporting. The branch must also hire an independent third-party approved by the DFS and the FRBNY to review the effectiveness of the bank’s compliance program, and to prepare a written report of its findings, conclusions, and recommendations for the program. Because the branch’s compliance with OFAC regulations was insufficient, the order also mandates that the bank retain an independent third-party to examine its U.S. dollar-clearing transactions between October 2014 and March 2015. Significantly, the order does not require the branch to pay a civil money penalty.

    Examination Anti-Money Laundering Bank Secrecy Act Bank Compliance Enforcement OFAC Risk Management NYDFS

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  • State-Chartered Bank Settles with New York DFS for Alleged Violations of Banking Law

    State Issues

    On October 28, the New York DFS resolved an enforcement action with a New York State-charted bank for alleged violations of state banking law. The DFS alleged that the bank hired a former New York Federal Reserve Bank examiner and permitted him to work on matters for an entity that the employee had examined while at the New York Fed, in violation of a notice of post-employment restrictions from the New York Fed. The DFS also alleged that the employee obtained confidential regulatory or supervisory information from a now former New York Fed employee and distributed the information to a Managing Director at the bank for the purpose of advising the entity. In addition to the bank’s alleged failure to screen the employee from working on matters related to the entity he had examined, the DFS’s order alleges that the bank failed to “provide training to personnel regarding what constituted confidential supervisory information and how it should be safeguarded.” Under the settlement terms, the bank will (i) pay a civil money penalty of $50 million to the DFS; (ii) reform its policies and procedures to ensure the proper handling of confidential supervisory information and the monitoring of assignments of former government employees; and (iii) not re-hire the bank employee and Managing Director, who had been terminated as result of the matter.

    Bank Compliance Enforcement NYDFS

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  • Federal Banking Regulators Schedule EGRPRA Outreach Meeting in Chicago


    On September 28, the Federal Reserve, the FDIC, and the OCC announced that the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) will be held on October 10 in Chicago, Illinois. The meeting will feature panel presentations from industry insiders and consumer advocates. Senior officials from the Federal Reserve, OCC, and FDIC are also scheduled to attend. This meeting will be the fifth of six outreach meetings focused on identifying outdated or burdensome regulatory requirements imposed on financial institutions. The sixth and final meeting is expected to take place on December 2 in Washington, D.C. Previous InfoBytes coverage on EGRPRA can be found here.

    FDIC Federal Reserve OCC Bank Compliance Community Banks Bank Supervision Agency Rule-Making & Guidance

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  • Comptroller Talks Interest Rate, Compliance, and Cybersecurity Risks Facing Financial Institutions

    Privacy, Cyber Risk & Data Security

    On July 24, OCC Comptroller Curry delivered remarks before the New England Council in Boston, MA regarding the risks that financial institutions face today. Rising interest rates and regulatory compliance were two of the three risks discussed. Curry emphasized that the inevitable rise in interest rates could greatly affect loan quality, particularly loans that were not carefully underwritten to begin with, and that ”[l]oans that are typically refinanced, such as leveraged loans,” would be particularly severely affected. Recognizing the impact that Dodd-Frank continues to have on banks, Curry said that financial institutions face two categories of risk from new regulations: (i) “banks run afoul of the new regulations, possibly damaging their reputations and subjecting themselves to regulatory penalties”; and (ii) banks devote their time and money to regulatory compliance, rather than putting those resources toward serving their customers and communities. The final and “perhaps the foremost risk facing banks today,” according to Curry, is cyber threats. Curry outlined the agency’s efforts to curtail cyber intrusion in the banking industry, highlighting the June 30 release of its Semiannual Risk Assessment and the creation of a Cybersecurity and Critical Infrastructure Working Group, which was designed to (i) increase cybersecurity awareness; (ii) promote best practices; and (iii) strengthen regulatory oversight of cybersecurity readiness. Curry noted, however, that information-sharing is just as important as self-assessment and supervisory oversight: “We strongly recommend … that financial institutions of all sizes participate in the Financial Services Information Sharing and Analysis Center, a non-profit information-sharing forum established by financial services industry participants to facilitate the sharing of physical and cyber threat and vulnerability information.” Collaboration among banks of all sizes and non-bank providers, Curry stated, can be a “game-changer” in more ways than one: “By promoting the discovery of common interests and common responses to the risks that you face in your businesses and we all face together, you provide an invaluable service to New England and to the United States.”

    Dodd-Frank OCC Bank Compliance Privacy/Cyber Risk & Data Security

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  • FinCEN's Associate Director for Enforcement Delivers Remarks at BSA Conference

    Consumer Finance

    On June 18, FinCEN’s Associate Director for Enforcement, Stephanie Brooker, delivered remarks at the Bank Secrecy Act Conference, focusing on three main areas: (i) BSA filing trends, the value of BSA data, and compliance development in the casino industry over the past year; (ii) FinCEN’s enforcement approach and recent enforcement developments; and (iii) the significance of establishing and maintaining a culture of compliance throughout the business and compliance sides of casinos and card clubs. In addition, Brooker noted certain principles at the core of FinCEN’s enforcement program: (i) transparency in the agency’s rationale behind its enforcement actions; (ii) accountability, ensuring that financial institutions, and any individual related to the financial institution, take responsibility for violations of the BSA; and (iii) giving credit where credit is due by considering an institution’s “documented improvements in AML compliance over time.” Finally, Brooker stressed that in order for a financial institution to successfully maintain a culture of compliance, its business side and business leaders must take AML controls and BSA compliance seriously, meaning that “every casino employee, from the top down, views AML compliance as part of his or her responsibility.”

    FinCEN Compliance Bank Compliance SARs

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  • Federal Reserve Orders Two Financial Institutions to Improve BSA/AML Compliance Programs

    Consumer Finance

    On June 1, a Boston-based international financial services holding company and its banking subsidiary agreed to address deficiencies in how they manage compliance risks with respect to their BSA/AML compliance program. The Agreement, entered into with the Federal Reserve Bank of Boston and the Massachusetts Division of Banks, requires both entities to submit a written plan outlining their efforts to improve their compliance with OFAC and internal controls, customer due-diligence procedures, and suspicious activity monitoring and reporting, among other things. In addition, the banking subsidiary must hire an independent third-party to review account and transaction activity during a specified period to ensure suspicious activity was properly identified and reported.

    In a separate enforcement action, the Federal Reserve Bank of Chicago entered into an agreement on May 26 with an Illinois-based financial services company, requiring the parent company and its banking subsidiary to, among other things, submit written plans to (i) strengthen its BSA/AML compliance risk management program; and (ii) “ensure the identification and timely, accurate, and complete reporting” of suspicious transactions to the appropriate law enforcement and supervisory [banking] authorities.” No civil money penalties were imposed in either enforcement action.

    Federal Reserve Anti-Money Laundering Bank Secrecy Act Bank Compliance Enforcement Bank Supervision

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  • FDIC Hosts Teleconference on CFPB Mortgage Rules

    Consumer Finance

    On May 21, the FDIC’s Division of Depositor and Consumer Protection is scheduled to host a teleconference that will focus on the implementation of the new mortgage rules issued by the CFPB in 2013. According to the FDIC, officials from the banking regulator will discuss findings and highlight best practices that its examiners have noted during initial examinations in the first year since the rules became effective in 2014. Registration is required, and will begin at 2:00 p.m. EST.

    FDIC CFPB Bank Compliance

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  • OCC Issues Updated RESPA Examination Guidance to Supervised Institutions


    On April 14, the OCC issued the “Real Estate Settlement Procedures Act” booklet as part of the Comptroller’s Handbook, which is prepared for use by OCC examiners in connection with their examination and supervision of national banks and federal savings associations (collectively, “banks”). The revised booklet, which replaces a similarly titled booklet issued in October 2011, reflects updated guidance relating to mortgage servicing and loss mitigation procedures resulting from the multiple amendments made to Regulation X over the past several years. Notable revisions reflected in the revised booklet include: (i) the transfer of rulemaking authority for Regulation X from HUD to the CFPB; (ii) new requirements relating to mortgage servicing; (iii) new loss mitigation procedures; (iv) prohibitions against certain acts and practices by servicers of federally related mortgage loans with regard to responding to borrower assertions of error and requests for information; and (v) updated examination procedures for determining compliance with the new servicing and loss mitigation rules. The OCC notified its applicable supervised financial institutions of the changes affecting all banks that engage in residential mortgage lending activities by distributing OCC Bulletin 2015-25.

    Mortgage Servicing RESPA OCC Bank Compliance Bank Supervision Loss Mitigation

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