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OCC seeks information on climate risk in banking and finance
On December 3, the OCC announced it is soliciting academic-focused papers and policy-focused research on climate risk in banking and finance for presentation to the OCC on June 6-7, 2022. The meeting will provide a platform for interested academic, regulatory, and other experts to meet and share research on the interactions of climate change and the financial system. The information gathered “will inform the OCC’s approach to developing climate-related financial risk management guidance for regulated institutions.” Areas of interest include: (i) physical risks directly arising from climate change; (ii) transition risks from climate policies, technological innovation, consumer sentiment, or investor sentiment; and (iii) differential community impact, among others.
Fed revises bank holding company supervision manual
Recently, the Federal Reserve Board’s Division of Supervision and Regulation released Supplement 55 of the Bank Holding Company Supervision Manual. Among other things, the updates reflect new regulatory provisions, guidance, and instructions since the last update in February 2020. The revisions include additional sections, removal of several sections, and revised sections. The revised sections include, among others: (i) Internal Credit-Risk Ratings at Large Firms; (ii) Risk-Focused Supervision Framework for Large Complex Banking Organizations; and (iii) Supervision Standards for De Novo State Member Banks of Bank Holding Companies.
OCC releases 2022 fees and assessments schedule
On December 1, the OCC issued Bulletin 2021-58, which informs all national banks, federal savings associations, and federal branches and agencies of foreign banks of the agency’s 2022 fees and assessment rates. The OCC noted that for the 2022 assessment year, among other things, (i) there will be no inflation adjustment to assessment rates; (ii) new entrants to the federal banking system will be assessed on a prorated basis using call report information as of December 31 or June 30, depending on the entrance date; and (iii) the hourly fee for special examinations and investigations will increase from $150 to $155. The bulletin takes effect January 1, 2022.
NY Fed launches center to study fintech and central banking
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.”
Fed provides guidance on LIBOR transition
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.
OCC gives guidance on cryptocurrency, trust bank chartering
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.”
Agencies finalize 2022 HPML exemption threshold
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.
Agencies finalize TILA, CLA 2022 thresholds
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.
FFIEC updates BSA/AML examination manual
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 Reporting, Purchase and Sale of Monetary Instruments Recordkeeping, Reports of Foreign Financial Accounts, and Special Measures.
Agencies discuss crypto-asset next steps
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.