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Financial Services Law Insights and Observations


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  • Senate Subcommittee Explores Money Laundering Vulnerabilities at Global Institutions

    Financial Crimes

    On July 17, the Senate Homeland Security and Government Affairs Committee, Permanent Subcommittee on Investigations, held a hearing to review money laundering and terrorist financing vulnerabilities that can emerge from certain international banking activities. In connection with the hearing, the Subcommittee released a report about its investigation into past money laundering and terrorist financing compliance failures at one multinational financial institution. The report notes that despite congressional efforts to strengthen anti-money laundering laws (AML), and financial institutions’ diligence in bolstering AML controls, money laundering risks associated with correspondent banking persist. Using the investigation and its findings as a case study, the report reiterates that effective AML compliance programs at U.S. banks should include written standards, sufficient and knowledgeable staff, effective training, and a positive compliance culture. With regard to specific issues that U.S. banks might face with regard to correspondent banking, the report recommends that U.S. banks implement programs that effectively (i) screen high-risk affiliates, (ii) prevent circumvention of OFAC prohibitions, (iii) avoid providing U.S. correspondent services to banks with links to terrorism, (iv) ensure traveler check controls restrict acceptance of suspicious bulk travelers checks, and (v) eliminate bearer share accounts. The report also identifies regulatory gaps and recommends that the OCC (i) treat AML deficiencies as a safety and soundness matter, (ii) develop a policy to coordinate internal divisions conducting AML examinations, (iii) consider the use of formal or informal enforcement actions to address mounting AML failures, and (iv) strengthen AML examinations by citing violations and focusing on specific business units and a bank’s AML program as a whole.

    Anti-Money Laundering Bank Secrecy Act Bank Compliance

  • CFPB Releases Semiannual Regulatory Agenda

    Consumer Finance

    On July 16, the CFPB announced the release of its spring 2012 rulemaking agenda. The agenda lists the regulatory matters that the CFPB anticipates pursuing during the period June 1, 2012 through May 31, 2013. It also updates the CFPB’s first-ever such agenda, published as part of the fall 2011 Unified Agenda. For example, the updated agenda indicates that the CFPB expects to issue by January 2013, an Advance Notice of Proposed Rulemaking regarding the registration of certain nonbank entities, whereas the fall 2011 agenda anticipated a Notice of Proposed Rulemaking on this topic by March 2012. Similarly, the new rulemaking agenda updates the date by which the CFPB expects to take further action on developing regulations concerning the expanded HMDA data collection required by the Dodd-Frank Act from October 2012 to April 2013.

    CFPB Dodd-Frank Nonbank Supervision Bank Compliance

  • Federal Reserve Board Initiates Acquisition Guidance Program

    Consumer Finance

    On July 12, the Federal Reserve Board issued supervisory guidance outlining a new optional process for a supervised institution to request feedback on a potential bank and nonbank acquisition or other transactional proposal prior to the submission of a formal application or notice. The supervision and regulation letter explains that under the new optional process, supervised institutions may submit “pre-filings” to the appropriate Reserve Bank. Pre-filings can include inquiries seeking (i) advice about a specific aspect of a proposal, business plans or pro forma financial information related to a potential filing, or presentations outlining specific potential proposals, (ii) feedback on draft transactional and structural documents, and (iii) guidance regarding the type of filing required or the individuals or entities that would need to join a filing. In most cases, pre-filing and submitted information will be reviewed within 60 days. The guidance cautions that Federal Reserve staff review will focus on the specific request, and a review is not intended to identify or resolve all issues or concerns related to a possible future application or notice. The Federal Reserve also notes that it is not inviting negotiations on the structure of a potential proposal or for resolving significant issues of policy or law as part of this advance guidance program.

    Federal Reserve Bank Compliance

  • FDIC Reveals Banks' Living Wills

    Consumer Finance

    On July 3, the Federal Deposit Insurance Corporation (FDIC) posted the public sections of the initial resolution plans submitted by sixteen large bank holding companies.  The resolution plans were required by the Dodd-Frank Act.  The documents are meant to act as living wills that spell out how the banks could wind themselves down in the event of their failure.  Generally, the public portions of these plans contain an outline of the bank’s organization, assets and capital ratios, and describe in high-level detail the mechanisms that each would employ to wind up its operations in the event of failure.  The plans are subject to revisions following review by the FDIC and the Federal Reserve.

    FDIC Bank Compliance Bank Resolution Living Wills

  • House Committee Approves Legislation to Alter ATM Fee Disclosure Requirement


    On June 27, the House Financial Services Committee unanimously approved H.R. 4367, which would amend the Electronic Fund Transfer Act to remove the requirement that ATMs attach a placard disclosing fees. Instead, the bill would require only that fees be disclosed on the ATM screen.

    Bank Compliance

  • State Law Update: North Carolina Overhauls Banking Statute

    State Issues

    On June 21, North Carolina Governor Bev Perdue signed Senate Bill 816, which rewrites substantial portions of the state’s banking laws. The bill derives from a Joint Legislative Study Commission report, which found several deficiencies in the state’s existing state banking laws. In particular, the report found that the state’s banking laws (i) needed to be modernized in the wake of the Dodd-Frank Act and other changes in federal law, (ii) encouraged banks to avoid the burden of the banking law by forming holding companies under the more liberal standards of the North Carolina Business Corporation Act, and (iii) failed to address changes in banks’ capital needs. To remedy these and other issues, the bill revises several parts of the existing law, including: (i) the size and composition of the Banking Commission, (ii) the rules regarding bank governance, powers, and operations, and (iii) the framework for bank supervision and liquidation.

    Examination Bank Compliance

  • State Law Update: North Carolina, Connecticut, Ohio Update Banking, Mortgage Laws


    North Carolina Alters Mortgage Regulation Funding Mechanism. On June 20, North Carolina enacted Senate Bill 806, which creates a new funding mechanism for mortgage regulation. The new law replaces the current licensing fee, which offsets the state’s regulatory costs, with an assessment structure similar to the one currently applicable to banks. The change takes effect October 1, 2012.

    Connecticut Enacts Bill to Update State Banking Laws. On June 8, Connecticut enacted Senate Bill 67, which makes numerous revisions to the state banking laws. Among the changes, the law (i) alters mortgage licensing requirements to exempt “housing finance agencies” and nonprofit groups, (ii) requires certain lender and broker employees to be licensed as mortgage loan originators, (iii) requires banks to review a mortgage loan before excusing the borrower from amortization of the principal, (iv) requires that banks consider an obligor’s credit exposure arising from a derivative transaction when determining the obligor’s liability limitations, (v) exempts from certain requirements “loan production offices.” The law also gives new investigatory powers to the state banking commissioner and allows the commissioner to require, without seeking a court order, restitution and disgorgement for banking law violations. Most of the law’s provisions take effect October 1, 2012.

    Ohio Levels Playing Field for State Banks. Recently, Ohio Governor John Kasich signed House Bill 322, permits Ohio-chartered banks, savings banks, savings and loan associations, and credit unions to charge the same or lower rates or amounts of interest, fees, and other charges under a revolving credit agreement that their out-of-state counterparts may charge Ohio customers. The change does not apply to residential mortgages.  It takes effect September 4, 2012.

    Mortgage Licensing Bank Compliance

  • OCC Adopts Interim Final Lending Limit Rule

    Consumer Finance

    On June 20, the OCC adopted an Interim Final Rule that applies the OCC’s existing lending limit rule to certain credit exposures arising from derivative transactions and securities financing transactions. The Dodd-Frank Act added credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction to the definition of loans and extensions of credit for purposes of the lending limit. The interim final rule implements the new definition, effective July 21, 2012, but gives national banks and savings association until January 1, 2013 to comply. The interim final rule permits use in certain circumstances of look-up tables for measuring the exposures for each transaction type, a change that is expected to reduce the burden on smaller institutions. The OCC is accepting comments on the interim final rule through August 6, 2012.

    OCC Bank Compliance

  • CFPB Seeks Information on Compliance Costs

    Consumer Finance

    On June 14, the CFPB published a Notice and Request for Comment on its proposal to collect qualitative information from industry participants regarding the compliance costs and other effects of CFPB rules on providers and consumers. The CFPB plans to use structured interviews, focus groups, conference calls, and written questionnaires to obtain supplemental information about industry compliance burdens. The CFPB frames the proposal as part of its ongoing effort to streamline inherited regulations, and has asked that comments on the proposed information collection be submitted by August 13, 2012.

    CFPB Bank Compliance

  • Two Largest U.S. Cities Adopt Responsible Banking Ordinances

    Consumer Finance

    On May 15, the cities of New York and Los Angeles adopted ordinances that will require banks doing business with those cities to report certain information about their banking and lending activities. In New York, the City Council adopted a Local Law that, once approved by the mayor or passed over the mayor’s veto, will establish a community investment advisory board comprised of city officials, banking industry representatives, community development or consumer protection groups, and small business owners. The board will assess the banking needs of the city and evaluate the performance of the city’s depository banks in meeting those needs. To conduct the assessment and evaluation, the board will collect from depository banks information regarding each institution’s efforts to, among other things, (i) meet small business credit needs, (ii) conduct consumer outreach and other steps to provide mortgage assistance and foreclosure prevention, and (iii) offer financial products for low and moderate income individuals throughout the city. The board will be required to publish the information collected and prepare an annual report, which city officials can consider in deciding with which institutions the city will place its deposits. The ordinance adopted by the Los Angeles City Council establishes a monitoring program headed by the City Treasurer. Under the program, a depository bank doing business with the city or wishing to do so will be required to report each year information regarding its small business, mortgage, and community development lending, as well as information about its participation in foreclosure prevention and principal reduction programs. Investment banks will be required to file a statement describing their corporate citizenship in areas such as participation in charitable programs or scholarships and internal policies regarding the utilization of subcontractors designated as women-owned, minority-owned, or disadvantaged businesses. The disclosures will be posted online for public viewing within 30 days of the beginning of each new fiscal year. The cities of Cleveland, Pittsburgh, Philadelphia, and San Diego already have laws in place designed for the same general purposes, and other cities are considering similar laws.

    Bank Compliance CRA Responsible Banking


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