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Financial Services Law Insights and Observations

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  • NY Fed launches center to study fintech and central banking

    Federal Issues

    On November 29, the Federal Reserve Bank of New York announced the launch of the New York Innovation Center (NYIC), which is intended to advance the partnership with the Bank for International Settlements (BIS) Innovation Hub. According to the announcement, the NYIC will aim to, among other things: (i) identify and develop insights on financial technology trends associated to central banks; (ii) examine the development of public goods to increase the global financial system function; and (iii) “advance and support expertise in the area of central bank innovation.” According to the announcement, to inform the activities of the NYIC, the New York Fed will focus on five opportunity areas, which include “Supervisory and Regulatory Technology, Financial Market Infrastructures, Future of Money, Open Finance, and Climate Risk.” The announcement also noted that, “[t]his work will be based on the venture development process, drawing on principles from entrepreneurship, venture capital, and corporate innovation to produce high-impact solutions.”

    Federal Issues Federal Reserve Bank of New York Fintech Bank Regulatory

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  • Fed provides guidance on LIBOR transition

    Agency Rule-Making & Guidance

    On November 19, the Federal Reserve Board announced answers to “Supervision FAQs on the Transition away from LIBOR.” The Fed’s announcement follows an October 2021 joint statement by the CFPB, Fed, FDIC, NCUA, and OCC, in conjunction with the state bank and state credit union regulators, regarding the transition away from LIBOR. (Covered by InfoBytes here.) Among other things, the FAQs included statements regarding what qualifies as a “new contract” under the previously issued guidance, specifically regarding: (i) modifications to adjustable-rate mortgages; (ii) loans that “automatically renew” after December 31, 2021; and (iii) physical settlement of a contract that existed before December 31, 2021. The FAQs also discussed: (i) Board-supervised institutions engaging in secondary trading of LIBOR-linked cash instruments that were issued before December 31, 2021; (ii) the need for fallback language in contracts entered into prior to 2022; and (iii) the approach by examiners in assessing firms’ LIBOR transition plans.

    Agency Rule-Making & Guidance Federal Reserve LIBOR Mortgages Bank Regulatory

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  • OCC gives guidance on cryptocurrency, trust bank chartering

    Agency Rule-Making & Guidance

    On November 23, the OCC issued Interpretive Letter 1179, which clarified and expanded on prior interpretive letters concerning bank engagements in cryptocurrency activities. Interpretive Letter 1179 also addressed the OCC’s authority to charter national trust banks. According to the OCC, national banks and federal savings associations may engage in certain cryptocurrency activities discussed in Interpretive Letters 1170, 1172, and 1174, provided a bank is able to “demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.” Legally permissible activities include those pertaining to (i) cryptocurrency custody services; (ii) the holding of dollar deposits to serve as “reserves backing stablecoin in certain circumstances”; (iii) acting “as nodes on an independent node verification network” to verify customer payments; and (iv) bank engagements with distributed ledger technology to facilitate payment transactions for certain stablecoin activities. A bank intending to engage in such activities must first notify its supervisory office and should not engage in any activity until it receives permission. Supervisory offices must assess whether a bank’s risk management systems and controls are sufficiently adequate for engagement in such activities. “Today’s letter reaffirms the primacy of safety and soundness. Providing this clarity will help ensure that these cryptocurrency, distributed ledger, and stablecoin activities will be conducted by national banks and federal savings associations in a safe and sound manner,” acting Comptroller Michael Hsu stated in an agency press release. “Because many of these technologies and products present novel risks, banks must be able to demonstrate that they have appropriate risk management systems and controls in place to conduct them safely. This will provide assurance that crypto-asset activities taking place inside of the federal regulatory perimeter are being conducted responsibly.”

    The Interpretive Letter also addressed OCC standards for chartering national bank trusts, as previously discussed in Interpretive Letter 1176. The OCC reiterated that it “retains discretion to determine if an applicant’s activities that are considered trust or fiduciary activities under state law are considered trust or fiduciary activities for purposes of applicable federal law.” The OCC further emphasized that the OCC’s chartering authority does not expand or modify current responsibilities under 12. C.F.R. Part 9 for national banks that have already been granted fiduciary powers, and that “national banks currently conducting activities in a non-fiduciary capacity that are not subject to Part 9 have not, and will not, become subject to 12 C.F.R. Part 9 because of the letter.”

    Agency Rule-Making & Guidance OCC Bank Regulatory Cryptocurrency Fintech Bank Charter

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  • Agencies finalize 2022 HPML exemption threshold

    Agency Rule-Making & Guidance

    On November 30, the CFPB, OCC, and Federal Reserve Board published finalized amendments to the official interpretations for regulations implementing Section 129H of TILA, which establishes special appraisal requirements for “higher-priced mortgage loans” (HPMLs). The final rule increases the TILA smaller loan exemption threshold for the special appraisal requirements for HPMLs. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold for 2022 will increase from $27,200 to $28,500 effective January 1.

    Agency Rule-Making & Guidance CFPB OCC Federal Reserve HPML Appraisal Mortgages Bank Regulatory

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  • Agencies finalize TILA, CLA 2022 thresholds

    Agency Rule-Making & Guidance

    On December 1, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of TILA (Regulation Z) and the Consumer Leasing Act (Regulation M) (available here and here), as required by the Dodd-Frank Act. The exemption threshold for 2021, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, will increase from $58,300 to $61,000, except for private education loans and loans secured by real or personal property used or expected to be used as the principal dwelling of a consumer, which are subject to TILA regardless of the amount. The final rules takes effect January 1, 2022.

    Agency Rule-Making & Guidance CFPB Federal Reserve TILA Consumer Leasing Act Regulation Z Regulation M Bank Regulatory Dodd-Frank

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  • FFIEC updates BSA/AML examination manual

    Agency Rule-Making & Guidance

    On December 1, the Federal Financial Institutions Examinations Council (FFIEC) published updated versions of three sections and one new section of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual), which provides examiners with instructions for assessing a bank or credit union’s BSA/AML compliance program and adherence to BSA regulatory requirements. The new section is Introduction – Customers, and the revisions include the following updated sections: Charities and Nonprofit Organizations, Independent Automated Teller Machine Owners or Operators, and Politically Exposed Persons. The FFIEC noted that the “updates should not be interpreted as new instructions or as a new or increased focus on certain areas,” but rather are intended to “provide information and considerations related to certain customers that may indicate the need for bank policies, procedures, and processes to address potential money laundering, terrorist financing, and other illicit financial activity risks.” In addition, the Manual itself does not establish requirements for financial institutions, which are found in applicable statutes and regulations. (See also FDIC FIL-12-2021 and OCC Bulletin 2021-10.) As previously covered by InfoBytes, in June, the FFIEC updated the following sections of the Manual: International Transportation of Currency or Monetary Instruments ReportingPurchase and Sale of Monetary Instruments RecordkeepingReports of Foreign Financial Accounts, and Special Measures.

    Agency Rule-Making & Guidance FDIC Federal Reserve OCC FFIEC NCUA Bank Secrecy Act Anti-Money Laundering Of Interest to Non-US Persons Financial Crimes Bank Regulatory

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  • Agencies discuss crypto-asset next steps

    Agency Rule-Making & Guidance

    On November 23, the FDIC, OCC, and Federal Reserve Board issued a joint statement summarizing a recent series of interagency “policy sprints” focused on crypto-assets. During the policy sprints, the agencies conducted preliminary analysis on issues related to banking organizations’ potential involvement in crypto-asset-related activities, and identified and assessed key risks related to safety and soundness, consumer protection and compliance. The agencies also, among other things, analyzed the applicability of existing regulations and guidance on this space and identified several areas where additional public clarity is needed. Throughout 2022, the agencies intend to provide greater clarity on whether certain crypto-asset-related activities conducted by banking organizations are legally permissible. The agencies also plan to expand upon their safety and soundness expectations related to: (i) crypto-asset safekeeping and traditional custody services; (ii) ancillary custody services; (iii) facilitation of customer purchases and the sale of crypto-assets; (iv) loans collateralized by crypto-assets; (v) issuance and distribution of “stablecoins”; and (vi) activities involving a bank’s holding of crypto-assets on its balance sheet. The joint statement, which does not alter any current regulations, also states that the agencies plan to “evaluate the application of bank capital and liquidity standards to crypto-assets for activities involving U.S. banking organizations” and that the agencies will continue to monitor developments in this space as the market evolves.

    Agency Rule-Making & Guidance FDIC OCC Federal Reserve Federal Issues Cryptocurrency Fintech Bank Regulatory Consumer Protection Consumer Finance

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  • OCC reminds banks of venture capital prohibitions

    Agency Rule-Making & Guidance

    On November 23, the OCC sent banks a reminder that they are generally prohibited from making most equity investments in venture capital funds. The bulletin warned that simply because an investment in a fund qualifies for the venture capital fund exclusion under the Volcker Rule, it does not mean the fund is a permissible investment for a national bank, federal savings association, or federal branch and agency of a foreign bank. Prior to investing in a venture capital fund, banks must make a determination as to whether the investment is permissible and appropriate for the bank. The OCC reminded banks that engaging in impermissible and inappropriate investments may expose a bank and its institution-affiliated parties to enforcement actions and civil money penalties. Additionally, national bank directors may be held personally liable for losses attributed to impermissible investments. The OCC noted, however, that equity investments in venture capital funds may be allowed provided they are public welfare investments or investments in small business investment companies.

    Agency Rule-Making & Guidance OCC Federal Issues Venture Capital Volcker Rule Bank Regulatory Of Interest to Non-US Persons

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  • FDIC releases October enforcement actions

    Federal Issues

    On November 26, the FDIC released a list of administrative enforcement actions taken against banks and individuals in October. During the month, the FDIC issued three orders consisting of “one Order to Pay Civil Money Penalty, one Consent Order, and one Section 19 Order.” Among the orders is a civil money penalty imposed against an Arkansas-based bank based on allegations of deceptive practices related to misrepresenting the availability of Veterans Administration refinance loan terms. The bank, which did not admit or deny the violations, agreed to pay a $129,800 civil money penalty.

    Federal Issues FDIC Enforcement Bank Regulatory

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  • FDIC updates brokered deposit FAQs

    Agency Rule-Making & Guidance

    On November 22, the FDIC released an update to the Questions and Answers Related to the Brokered Deposits Rule. The FDIC clarified in a new FAQ in conjunction with the updated Brokered Deposit framework that, with respect to the “facilitation” definition’s first prong, a “third party that has legal authority, contractual or otherwise, to direct another entity (e.g., custodial agent) to move a depositor’s funds or close a depositor’s account would meet the first prong of the ‘facilitation’ definition.” The FAQ specified, however, that such third parties would not meet this first prong if the third party directs another entity to move depositor funds or close a depositor’s account “based only upon either instructions or an approval received from the depositor for each occurrence and specific to each deposit account.” The FAQ further noted that third parties recommending the placement of funds in a particular deposit account may meet the second and/or third prong of the “facilitation” definition depending on various facts and circumstances.

    Agency Rule-Making & Guidance FDIC Brokered Deposits Bank Regulatory

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