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OCC’s Hsu discusses bank cryptocurrency regulation
On January 13, acting Comptroller of the Currency Michael J. Hsu spoke before the British American Business Transatlantic Finance Forum’s Executive Roundtable to discuss stablecoins and other crypto-assets regulations. In his remarks, Hsu described stablecoins as “the oxygen of the crypto ecosystem,” noting that they help link cryptocurrencies to fiat currencies. Hsu noted that crypto has “gone mainstream,” providing the example that “[s]ixteen percent of U.S. adults say that they have owned, traded or used some form of cryptocurrency.” In discussing the underbanked and minorities interested in crypto, Hsu quoted a survey finding that “37 percent of the underbanked indicated that they own cryptocurrency, compared to 10 percent of the fully banked.” Hsu argued that banking regulations are designed to mitigate run risks for stablecoins, stating that “[s]tablecoin issuers subject to bank regulation would give holders of those stablecoins confidence that those coins were as reliable and ‘money good’ as bank deposits,” and that “[s]trong, targeted federal regulation of money and banking can help establish a solid foundation for the economy enabling healthy innovation and growth.” While Hsu expressed his excitement for “the pace of innovation in crypto,” he warned that “a careful approach is warranted,” as a result of the “lack of standards and controls in the crypto space.” Hsu also expressed that “bank regulation would give credibility to the ‘stable’ part of stablecoins,” and stressed the need for a coordinated and collaborative regulatory approach “with regards to large crypto intermediaries, which are increasingly operating globally and across a wide range of activities.”
Biden nominates three for Fed
On January 14, President Biden nominated Sarah Bloom Raskin to serve as Vice Chair for Supervision for the Federal Reserve Board, and Lisa Cook and Philip Jefferson to serve as Board Governors. Earlier on January 4, Biden also submitted new nominations for Jerome Powell to serve a second term as Chair of the Federal Reserve Board and for Fed Governor Lael Brainard to serve as Vice Chair of the Board of Governors, replacing current Vice Chair Richard H. Clarida. (Covered by InfoBytes here.) If all the nominees are confirmed by the Senate, the Board will include the first Black woman and the fourth Black man and will be majority women. Previously, Raskin served as the Deputy Secretary of the U.S. Department of the Treasury where she pursued innovative solutions related to climate risk, cybersecurity, and consumer safeguards in the financial marketplace. Raskin also served as a Fed Governor where she helped conduct the nation’s monetary policy and promoted financial stability. Additionally, Raskin served as the Commissioner of Financial Regulation for the State of Maryland where she and her agency regulated Maryland’s financial institutions, including all state-chartered depository institutions, banks, credit unions, mortgage lenders, mortgage servicers, and trust companies, among others.
Earlier on January 10, Clarida announced his intention to resign from the Federal Reserve Board effective January 14. Clarida has been a member of the Board since September 2018, and his statutory term was set to expire on January 31. Clarida’s announcement follows key regulatory nominations sent to the Senate by Biden on January 4 and 7 (see here and here). Among the recent nominations was a resubmission of Alvara Bedoya to serve as a Democratic commissioner at the FTC after the Senate Committee on Commerce, Science, and Transportation failed to report favorably on Bedoya’s 2021 nomination and it expired at the end of the December session of Congress. If confirmed, Bedoya would fill the FTC commissioner seat vacated by current CFPB Director Rohit Chopra. (Covered by InfoBytes here.)
FDIC and FinCEN launch Tech Sprint to help digital identity proofing
On January 11, the FDIC’s technology lab, FDiTech, and FinCEN announced the launch of a Tech Sprint challenging participants “to develop solutions for financial institutions and regulators to help measure the effectiveness of digital identity proofing—the process used to collect, validate, and verify information about a person.” According to the Tech Sprint program, Measuring the Effectiveness of Digital Identity Proofing for Digital Financial Services, solutions developed from this Tech Sprint will inform future FDIC, FinCEN, and industry-led efforts, plans, and programs to: (i) increase efficiency and account security; (ii) decrease fraud and other forms of identity-related crime, money laundering and terrorist financing; and (iii) foster customer confidence in the digital banking environment. According to the agencies, digital identity proofing is “challenged by the proliferation of compromised personally identifiable information, the increasing use of synthetic identities, and the presence of multiple, varied approaches for identity proofing.” The FDIC and FinCEN will open registration in the coming weeks, and stakeholders interested in participating will have approximately two weeks to submit applications.
FFIEC proposes amendments to temporary waiver proceedings
On January 13, the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) published a request for comments on proposed amendments to provide greater transparency and clarity to the existing rules of practice and procedure governing temporary waiver proceedings. The existing temporary waiver proceedings, which were promulgated in 1992 under FIRREA, allow temporary waivers to be granted if a state appraiser regulatory agency makes a written determination that a scarcity of state-certified or licensed appraisers in a state or geographical area is causing significant delays in the performance of real estate appraisals utilized in connection with federally related transactions. Temporary waivers terminate once the ASC determines that the significant delays have been eliminated.
The FFIEC’s notice of proposed rulemaking (NPRM) seeks “to clarify the procedural differences in processing a Request for Temporary Waiver accompanied by a written determination as compared to a Petition requesting the ASC exercise its discretion to initiate a temporary waiver proceeding.” Among other things, the NPRM would allow the ASC to draw a clear distinction between: (i) a state appraiser regulatory agency’s request that is accompanied by a written determination (referred to in the NPRM as a “Request for Temporary Waiver”); and (ii) information received from other persons or entities, which could include a state appraiser regulatory agency (referred to as a “Petition”). As presented in the NPRM’s accompanying flowchart, the procedures will vary depending on whether the ASC has received a Request for Temporary Waiver or a Petition requesting the initiation of a temporary waiver proceeding. Comments on the NPRM must be received by March 14.
Fed streamlines reporting requirements for member banks
On January 10, the Federal Reserve announced a final rule regarding reporting requirements for member banks related to adjusting subscriptions to Federal Reserve Bank capital stock. Specifically, the Fed noted that the “technical rule” amends Regulation I to decrease the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to Federal Reserve Bank capital stock, except in the context of mergers. Under the new process, Reserve Banks will adjust a member bank’s stock subscription each time the member bank files a Call Report, eliminating the need for member banks to file applications to adjust their stock subscriptions (except in the context of mergers). Additionally, the Fed codified its current practices of requiring a surviving member bank to apply to adjust its stock subscription prior to merging or consolidating with another bank. The final rule is effective 30 days after publication in the Federal Register.
Agencies adjust civil penalties to account for inflation
Recently, the CFPB, CFTC, FDIC, FinCen, FHFA, and OCC provided notice in the Federal Register regarding adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, CFTC here, FDIC here, FinCen here, FHFA here, and OCC here) adjusts the maximum amounts of civil money penalties and provides a chart reflecting the inflation-adjusted maximum amounts associated with the penalty tiers for particular types of violations within each regulator’s jurisdiction. The OCC’s adjusted civil money penalty amounts are applicable to penalties assessed on or after January 12. The new CFPB, CFTC, FDIC, and FHFA civil money penalty amounts are applicable to penalties assessed on or after January 15. FinCEN's adjusted civil money penalty amounts are effective January 24.
FDIC announces Washington, Arkansas, and Colorado disaster relief
On January 12, the FDIC issued FIL-05-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Washington state affected by flooding and mudslides. The FDIC acknowledged the unusual circumstances faced by institutions and their customers affected by the severe weather events in certain counties of Washington and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” The FDIC noted that it will consider the unusual circumstances when examining efforts to work with borrowers in affected communities and that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements. Earlier on January 5, the FDIC also issued FIL-01-2022 and FIL-02-2022 to provide the same regulatory relief to financial institutions and help facilitate recovery in areas of Arkansas and Colorado affected by severe storms, tornados, winds, and wildfires.
NYDFS puts CFDL compliance obligations on hold
On December 31, NYDFS announced that providers’ compliance obligations under the state’s Commercial Finance Disclosure Law (CFDL) will not take effect until the necessary implementing regulations are issued and effective. The CFDL was enacted at the end of December 2020, and amended in February 2021, to expand coverage and delay the effective date to January 1, 2022. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which include persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients when a specific offering of finance is extended for certain commercial transactions of $2.5 million or less. In October 2021, NYDFS published a notice announcing a proposed regulation (23 NYCRR 600) to implement the CFDL, which provided that the compliance date for the final regulation will be six months after the final adoption and publication of the regulation in the State Register (covered by InfoBytes here). Comments on the proposed regulation were due December 19. NYDFS noted in its announcement that “[i]n light of the significant feedback received, the Department is carefully considering the comments received and intends to publish a revised proposed regulation for notice-and-comment early in the new year.”
Fed updates legal interpretations related to several regulations
On December 30, the Federal Reserve Board added several new frequently asked questions related to legal interpretations of the Board’s regulations, including Regulations H, O, W, and Y, as well as questions concerning covered savings associations. The Fed noted that, unless specified, the FAQs are staff interpretations and have not been approved by the Board. Future revisions or supplements may be released as necessary or appropriate.
- Regulation H: Five new FAQs discuss (i) branch closing procedures and required notices; (ii) the ability to conduct branch activities should a bank relocate its main office; (iii) when a bank may acquire a debt obligation under its general powers to lend under state law; and (iv) public welfare investments made by state member banks involving housing projects with multiple residential buildings.
- Regulation O: A revised FAQ states that banks may not offer discounts on loan origination fees to an insider if the discount is not available to members of the public with one exception: a bank is not prohibited from “extending credit to an insider as part of a benefit or compensation program that (i) is widely available to employees of the member bank and (ii) does not give preference to any insider of the member bank over other employees of the member bank.”
- Regulation W: Thirty-four new FAQs address various topics related to (i) provisions concerning nonaffiliate and affiliate lending and extensions of credit under the attribution rule; (ii) valuation and timing principles; (iii) revolving credit facilities and loan commitments involving nonaffiliates; (iv) asset purchases from affiliates; (v) a bank’s acquisition of another company’s shares and liabilities; and (vi) exemptions.
- Regulation Y: Nine new FAQs discuss (i) circumstances under the Bank Holding Company Act (BHC Act) where “a bank or company that holds bank shares in a fiduciary capacity [would] be considered to have sole discretionary authority to exercise voting rights”; (ii) tying restriction qualifications, exceptions, and safe harbor; (iii) factors considered in the acquisition of bank securities or assets; (iv) trustee powers; (v) filing requirements for persons acquiring ownership or control of shares; (vi) appraisal standards for federally-related transactions; and (vii) rules for engaging in an activity that is complementary to a financial activity. The Fed notes that while these FAQs refer at times to bank holding companies, the FAQs are also applicable to foreign banking organizations that are subject to the BHC Act in the same manner as a bank holding company under the International Banking Act of 1978.
- Covered Savings Associations: Twenty-nine new FAQs address topics related to covered savings associations (CSAs) and companies that control a CSA pursuant to Section 5A of the Home Owners’ Loan Act. Among other things, the FAQs address (i) the scope of Section 5A; (ii) a CSA’s membership in the Federal Reserve System; (iii) filing requirements; (iv) requirements applicable to a CSA or a company controlling a CSA, as well as mutual CSAs and mutual holding companies controlling a CSA; (v) transactions involving a CSA or a company controlling a CSA; and (vi) the termination of an election to operate as a CSA.
FDIC releases November enforcement actions
On December 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in November. During the month, the FDIC made public fourteen orders consisting of “three Orders to Pay Civil Money Penalty, one Consent Order, three Termination of Consent Orders, one Order Terminating Supervisory Prompt Corrective Action Directive, one Amended Supervisory Prompt Corrective Action Directive, two Orders of Prohibition from Further Participation, and three Section 19 Orders.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank: (i) “made, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “made, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral”; and (iii) “failed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $6,500 civil money penalty.
The FDIC and the California Department of Financial Protection and Innovation also issued a consent order to a California-based bank, which alleged that the bank had unsafe or unsound banking practices relating to management, capital, asset quality, liquidity and funds management, and violations of law. The bank neither admitted nor denied the alleged violations but agreed to, among other things, retain qualified management and “maintain its total risk-based capital ratio in such an amount as to equal or exceed 12 percent.”