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SEC proposes new rules for clearing agencies
On September 14, the SEC announced a proposed rule regarding risk management practices for central counterparties in the U.S. Treasury Department market. Among other things, the proposed rule would update the membership standards required of covered clearing agencies for the Treasury market with respect to a member’s clearance and settlement of specified secondary market transactions. Specifically, the proposal would require that clearing agencies in the U.S. Treasury market adopt policies and procedures designed to require their members to submit for clearing certain specified secondary market transactions, which would include: “all repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities entered into by a member of the clearing agency; all purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker; and all purchase and sale transactions entered into between a clearing agency member and either a registered broker-dealer, a government securities broker, a government securities dealer, a hedge fund, or a particular type of leveraged account.” According to a statement by SEC Chair Gary Gensler, the proposed rule would “reduce risk across a vital part of our capital markets in both normal and stress times.” The SEC also released a Fact Sheet providing more information on the proposal. Comments are due 60 days after publication in the Federal Register.
Fed issues final rule revising delegations of authority
On August 29, the Federal Reserve Board published a final rule in the Federal Register revising rules regarding delegation of authority. Among other things, the Fed noted that the final rule “enhances transparency, improves usability, and relieves burden on regulated institutions, practitioners before the Board, and Federal Reserve staff.” Specifically, the final rule “codifies and revises delegations of authority previously approved by the Board, makes technical changes, and rescinds moot or superseded delegations.” The final rule also notes that its rules regarding delegation of authority implement section 11(k) of the Federal Reserve Act and enumerate the actions that the Fed has determined to delegate. Section 11(k) authorizes the Fed to delegate, by published order or rule and subject to the Administrative Procedure Act, any of its functions, other than those related to rulemaking or pertaining principally to monetary and credit policies. By delegating actions that do not raise significant legal, supervisory, or policy issues, the Fed can respond more efficiently to applications, requests, and other matters. The final rule is effective September 1.
SEC publishes amendments on disclosures failures
On August 25, the SEC announced proposed amendments to its rules requiring registrants to disclose information reflecting the relationship between executive compensation actually paid by a registrant and the registrant’s financial performance. According to the final rule, registrants would be required to provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed fiscal years. In regard to the measures of performance, a registrant will be required to report its total shareholder return (TSR), the TSR of companies in the registrant's peer group, its net income, and a financial performance measure chosen by the registrant. Using the information presented in the table, registrants will be required to disclose the relationships between the executive compensation actually paid and each of the performance measures, as well as the relationship between the registrant’s TSR and the TSR of its selected peer group. Specifically, large companies would be required to disclose details on executive compensation for the past five fiscal years, and small companies would be required to report the past three fiscal years. Additionally, small companies would be exempt from disclosing details on pensions and peer groups. They also are exempt from new language requiring companies to list the three to seven most important measures linking executive compensation to company performance. Emerging growth companies, registered investment companies, and foreign private issuers are not required to provide the disclosure. The final rules are effective 30 days after publication in the Federal Register, and registrants must comply with the new disclosure requirements in proxy and information statements that are required for fiscal years ending on or after December 16. The same day, the SEC published a fact sheet clarifying, among other things, the final rules implementing the pay versus performance requirement as required by Congress in the Dodd-Frank Act.
OCC requests comments on various Volcker Rule requirements
On August 23, the OCC published in the Federal Register a request to renew its information collection titled “Reporting, Recordkeeping, and Disclosure Requirements Associated with Proprietary Trading and Certain Interests in and Relationships with Covered Funds.” Section 13 of the Bank Holding Company Act “generally prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a covered fund, subject to certain exceptions . . . that allow certain types of permissible trading and covered fund activities.” As previously covered by InfoBytes, in 2019, the OCC, FDIC, Federal Reserve Board, CFTC, and SEC published a final rule amending the Volcker Rule to simplify and tailor compliance with Section 13 of the Bank Holding Company Act’s restrictions on a bank’s ability to engage in proprietary trading and own certain funds.
The OCC is seeking comments specifically related to the reporting, disclosure, documentation and information collection requirements under the rule, including: (i) whether the information collections are necessary for the proper function of the agency and if the information has practical utility; (ii) whether the OCC’s estimates of the burden of the information collections are accurate and the methodology and assumptions used are valid; (iii) measures to enhance the quality, utility, and clarity of the information to be collected; (iv) ways to minimize the burden of information collections on respondents, such as using automated collection techniques or other forms of information technology; and (v) capital or start-up cost estimates, as well as costs of operation, maintenance, and purchase of services to provide information. Comments are due October 24.
CFPB announces plans to modernize credit card data collection
On August 19, the CFPB published a blog post announcing plans to update how credit card data is collected. Current methods for collecting and publishing credit card data make it challenging for consumers to shop for credit cards or compare interest rates, the Bureau said, explaining for example that “card issuers do not have to disclose realistic rates based on someone’s creditworthiness and instead report the midpoints of broad ranges that are often meaningless to people trying to compare cards.” The Bureau said it hopes to address the lack of transparency in credit card terms and conditions to spur competition and to give consumers power to choose the best credit card for their needs.
The Bureau explained that twice a year, at least 150 issuers send the agency information on their largest credit card plans, including data on interest rates and fees through the Terms of Credit Card Plans (TCCP) Survey. To update this process, the Bureau announced it is considering modernizing the survey to make it a more useful resource on credit card price and availability for consumers. Potential changes include: (i) collecting median APR rates by credit score tiers; (ii) gathering information on credit cards available to specific communities or groups to help expand access; (iii) requiring the top 25 credit card issuers to submit data on each of their general purpose credit cards (currently these issuers only submit information on their product with the largest number of accounts); and (iv) enabling a broader range of institutions to volunteer to participate in the survey. Comments on the proposed changes, which were published in the Federal Register, are due October 17.
CFTC updates its interest rate swap clearing requirements as LIBOR ends
On August 12, the CFTC issued a final rule updating its interest rate swap clearing requirement under part 50 of the CFTC’s regulations. Among other things, the final rule eliminates the requirement to clear interest rate swaps referencing LIBOR and other interbank offered rates and replaces them with requirements to clear interest rate swaps referencing overnight, nearly risk-free reference rates. The final rule also “updates the swaps required to be submitted for clearing to a derivatives clearing organization (DCO) or an exempt DCO and the compliance dates for such swaps.” According to CFTC Chairman Rostin Behnam, the final rule “promotes financial stability and mitigates systemic risk,” and “is essential to ensure cross border harmonization in the interest rate swaps market.” The final rule is effective 30 days after publication in the Federal Register.
FTC seeks feedback on commercial surveillance and data security rulemaking
On August 11, the FTC announced that it issued an advanced notice of proposed rulemaking (ANPR) on a wide range of concerns about commercial surveillance practices. According to the FTC, it is exploring “rules to crack down on harmful commercial surveillance and lax data security.” The FTC described that commercial surveillance is the business of collecting, analyzing, and profiting from information about individuals. The FTC also noted that “[m]ass surveillance has increased the risks and stakes of data breaches, deception, manipulation, and other abuses.” The ANPR solicits public comment regarding “the harms stemming from commercial surveillance and whether new rules are needed to protect people’s privacy and information.” The ANPR also noted that there is increasing evidence that some surveillance-based services may be addictive to children and lead to a wide variety of mental health and social harms. The FTC also released a Fact Sheet on the FTC’s Commercial Surveillance and Data Security Rulemaking and a Fact Sheet on Public Participation in the Section 18 Rulemaking Process. Comments are due 60 days after publication in the Federal Register.
Agencies seek comment on CRE loan statement
On August 2, the FDIC, OCC, and NCUA (collectively, “the agencies”) issued a notice in the Federal Register soliciting public comment on an updated policy statement regarding accommodations and workouts for commercial real estate (CRE) loans whose borrowers are experiencing financial difficulty. In 2009, the Policy Statement on Prudent Commercial Real Estate Loan Workouts was issued by the FFIEC, which the agencies view “as being useful for both agency staff and financial institutions in understanding risk management and accounting practices for [] CRE loan workouts.” Among other things, the statement would include (i) a new section on short-term loan accommodations; (ii) information about changes in accounting principles since 2009; and (iii) revisions and additions to examples of CRE loan workouts. The new updated statement would also “address relevant accounting changes on estimating loan losses and provide updated examples of how to classify and account for loans modified or affected by loan accommodations or loan workout activity.” Specifically, the agencies seek input on how the document reflects sound practices in CRE loan accommodation and what additional information can be included to optimize the guidance of managing CRE loan portfolios.
CDFI Fund seeks comment on criteria for MDIs
On July 28, the Community Development Financial Institutions (CDFI) Fund published a notice in the Federal Register soliciting public comment to refine the criteria it should use to designate “minority lending institutions” (MDIs) as a subset of CDFIs. According to the notice, CDFI Fund “seeks to implement the designation for those CDFIs that wish to be recognized for their high levels of service and accountability to Minority populations, as well as to identify barriers such CDFIs experience in providing access to capital.” Among other things, the CDFI Fund is soliciting information on topics that include: (i) majority-minority Census tracts and the time period used to assess service in these tracts; (ii) CDFI status; (iii) financial products delivered to non-minority-owned customers that serve individuals from racial and ethnic minorities; (iv) methods MLIs may use to demonstrate accountability to minority populations; and (v) standards for accountability to minority populations, as determined by the CDFI Fund. Comments are due by November 25.
FDIC proposes new standards TDRs
On July 20, the FDIC issued a notice of proposed rulemaking (NPR) to incorporate updated accounting standards in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions (IDIs). The NPR is in response to the Financial Accounting Standards Board’s elimination of accounting guidance for troubled debt restructurings (TDR) for adopters of the current expected credit loss standard. The NPR noted that the “FDIC calculates deposit insurance assessment rates for large and highly complex IDIs based on supervisory ratings and financial measures, including the underperforming assets ratio and the higher-risk assets ratio, both of which are determined, in part, using restructured loans or [TDRs].” Both of these measures, the underperforming assets ratio and higher-risk assets ratio, are used to determine deposit insurance assessments for large and highly complex [IDIs]. According to the FDIC, the NPR “would amend the assessment regulations to include a new term, ‘modifications to borrowers experiencing financial difficulty’” for the underperforming assets ratio and higher-risk assets ratio. The NPR does not apply to FDIC-insured and/or FDIC- supervised institutions with less than $10 billion in total consolidated assets. Comments are due 30 days after publication the Federal Register.