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Agencies to allow supplementary leverage ratio flexibility to expire
On March 19, the OCC, FDIC, and Federal Reserve Board announced that the temporary changes to the supplementary leverage ratio (SLR) for depository institutions will expire as scheduled on March 31. As previously covered by InfoBytes, the federal banking agencies issued an interim final rule last May, which temporarily permitted depository institutions to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the SLR, enabling depository institutions to expand their balance sheets to provide additional credit to households and businesses in light of the Covid-19 pandemic. In connection with announcing its decision to allow the temporary SLR changes to expire, the Fed noted that due to “recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability.” The Fed noted it intends to “shortly seek comments on measures to adjust the SLR” and “will take appropriate actions to assure that any changes to the SLR do not erode the overall strength of bank capital requirements.”
CFPB rescinds abusiveness policy statement
On March 11, the CFPB announced it has rescinded its January 2020 policy statement, which addressed prohibitions on abusive acts or practices. As previously covered by InfoBytes, the Bureau issued the policy statement to provide a “common-sense framework” for how it planned to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the 2020 policy statement, the Bureau stated it would only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau also stated it would generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive, and that it would decline to seek civil money penalties and disgorgement for certain abusive acts or practices, absent unusual circumstances.
The Bureau now states that it is rescinding the 2020 policy statement after reaching the conclusion that the principles set forth do not actually provide clarity to regulated entities. Among other things, the Bureau notes that the 2020 policy statement is counterproductive, “afford[s] the Bureau considerable discretion in its application,” and adds uncertainty to market participants. Moreover, the Bureau claims that after reviewing and applying the 2020 policy statement, it has had “the opposite effect on preventing harm.” Going forward, the Bureau states it intends to “exercise the full scope of its supervisory and enforcement authority to identify and remediate abusive acts and practices” as established by Congress.
FinCEN issues antiquities and art warning
On March 9, the Financial Crimes Enforcement Network (FinCEN) issued an advisory notice alerting financial institutions with existing Bank Secrecy Act (BSA) obligations about illicit activity associated with trade in antiquities and art. As previously covered by InfoBytes, the Anti-Money Laundering Act of 2020 (AML Act) was enacted in January as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, and made significant changes to BSA and AML laws, including amending the definition of “financial institution” under the BSA to include persons “engaged in the trade of antiquities.” Among other things, FinCEN’s advisory notice updates financial institutions on AML Act measures related to the regulation of antiquities, noting in particular that the Department of Treasury, in coordination with the FBI, the U.S. Attorney General, and Homeland Security, “will perform a study of the facilitation of money laundering and the financing of terrorism through the trade in works of art.” The notice further warns financial institutions that crimes related to the trade of antiquities “may involve their institution” and could include the “sale of stolen or counterfeit objects,” as well as money laundering and sanctions violations. The advisory notice also provides suspicious activity report filing instructions related to trade in antiquities and art.
Fed clarifies MDI definition guidance
On March 5, the Federal Reserve Board issued clarifying guidance regarding definitions for minority depository institutions (MDIs), expanding the definition of an MDI to include women-owned financial institutions. In addition to statutory provisions—which define the term “minority” to mean any African American, Native American, Hispanic American, or Asian American, and “states that an MDI is any depository institution where a majority of the voting stock is owned by one or more socially and economically disadvantaged individuals”—the Federal Reserve System’s definition of an MDI will now recognize women’s depository institutions, and will provide these depository institutions with the same resources as other MDIs. According to the Board, the definition of a “women’s depository institution” is consistent with how the term is defined under the Community Reinvestment Act. Additionally, the Board highlighted resources available for MDIs through its Partnership for Progress program, which helps MDIs operate in a safe and sound manner and meet supervisory standards.
Treasury announces Emergency Capital Investment Program for CDFIs and MDIs
On March 4, the U.S. Treasury Department announced a new initiative to provide access to capital for communities traditionally excluded from the financial system that have significantly struggled during the Covid-19 pandemic. The Emergency Capital Investment Program (ECIP), established by the Consolidated Appropriations Act of 2021, will provide up to $9 billion in capital directly to Community Development Financial Institutions (CDFIs) and minority depository institutions (MDIs) to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities.” The ECIP will set aside $2 billion for CDFIs and MDIs with less than $500 million in assets, as well as $2 billion for CDFIs and MDIs with less than $2 billion in assets. Treasury notes that the program is intended to incentivize impactful lending, and states it is currently “developing additional ‘deep impact’ metrics to further incentivize targeted investments by participants in those communities most in need of capital.” Institutions seeking to participate in the ECIP can access application instructions and materials along with an application portal here.
To support the implementation of the ECIP, the FDIC, Federal Reserve Board, and the OCC issued an interim final rule to “revis[e] their capital rules to provide that Treasury’s investments under the program qualify as regulatory capital of insured depository institutions and holding companies.” The interim final rule is effective immediately upon publication in the Federal Register. Comments will be accepted for 60 days following publication.
OCC updates SCRA Comptroller’s Handbook booklet
On March 4, the OCC issued Bulletin 2021-11 announcing the revision of the Servicemembers Civil Relief Act (SCRA) booklet of the Comptroller’s Handbook. The booklet rescinds the 2011 version and provides background information and examination procedures on consumer protections afforded servicemembers under the SCRA. Among other things, the revised booklet (i) summarizes SCRA protections and requirements; (ii) discusses compliance, operational, strategic, and reputation risks associated with a bank’s SCRA activities; (iii) discusses risk management practices for effective SCRA compliance; and (iv) includes procedures for examining banks’ compliance with the SCRA.
FDIC updates Consumer Compliance Examination Manual
On March 2, the FDIC announced updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for FDIC examination staff evaluating financial institutions’ compliance with federal consumer protection laws and regulations. The recent updates include, among other things, changes to the sections and questions related to (i) fair lending laws and regulations and the Fair Lending Scope and Conclusions Memorandum; (ii) TILA and the Consumer Leasing Act; and (iii) the asset-based definitions for small, intermediate, and large institutions for the Community Reinvestment Act.
CFPB proposes extending General QM Final Rule compliance date
On March 3, the CFPB released a notice of proposed rulemaking (NPRM) to delay the mandatory compliance date of the General Qualified Mortgage (QM) Final Rule from July 1, 2021 to October 1, 2022. As previously covered by InfoBytes, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The new General QM definition became effective on March 1, 2021. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” In issuing the NPRM, the Bureau expressed concerns “that the potential impact of the COVID-19 pandemic on the mortgage market may continue for longer than anticipated at the time the Bureau issued the General QM Final Rule, and so could warrant additional flexibility in the QM market to ensure creditors are able to accommodate struggling consumers.” Extending the compliance date will allow lenders to offer QM loans based on either the old or new QM definitions, including the GSE Patch (unless the GSEs exit conservatorship), until October 1, 2022. Comments on the NPRM must be received by April 5.
The NPRM follows a statement issued last month (covered by InfoBytes here), in which the Bureau said it is considering whether to revisit final rules issued last year that took effect March 1 concerning the definition of a Qualified Mortgage and the establishment of a “Seasoned QM” category of loans. In the NPRM, the Bureau stated “this rulemaking does not reconsider the merits of the price-based approach adopted in the General QM Final Rule. . . . Rather, this proposal addresses the narrower question of whether it would be appropriate in light of the continuing disruptive effects of the pandemic to help facilitate greater creditor flexibility and expanded availability of responsible, affordable credit options for some struggling consumers” by keeping both the old and new rule until October 1, 2022.
FATF steps up combating terrorist and proliferation financing
On February 25, the U.S. Treasury Department announced that the Financial Action Task Force (FATF) concluded another plenary meeting, in which it “advanced its work on several important issues, including finalizing a non-public report on terrorist financing and agreeing to seek public comment on updated guidance documents on virtual assets and proliferation finance.” Among other things, FAFT finalized three non-public reports outlining best practices for investigating and prosecuting terrorist financing for FATF member states, as well as an internal ISIS/Al Qaeda financing update and internal guidance designed “to assist investigative authorities trace financial flows between illicit arms traffickers and terrorists.” FATF also approved new guidance (to be published early March) intended to clarify and improve the adoption of risk-based supervision, which outlines ways supervisors should apply risk-based approaches to their activities, highlights common implementation challenges to risk-based supervision, and provides examples of effective strategies. Additionally, FAFT noted it has agreed to seek public consultation on amendments to its 2019 guidance concerning anti-money laundering/countering the financing of terrorism obligations concerning virtual assets and virtual asset service providers, and expects to release final updated guidance this summer. FATF also stated it intends to issue new guidance this summer on ways countries and the private sector can understand and mitigate proliferation financing threats, vulnerabilities, and risks.
FFIEC updates BSA/AML examination manual
On February 25, the FFIEC published updated versions of four sections of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual), which provides examiners with instructions for assessing a bank’s or credit union’s BSA/AML compliance program and compliance with BSA regulatory requirements. The revisions can be identified by a 2021 date on the FFIEC BSA/AML InfoBase and include the following updated sections: Assessing Compliance with Bank Secrecy Act Regulatory Requirements, Customer Identification Program, Currency Transaction Reporting, and Transactions of Exempt Persons. The FFIEC notes that the “updates should not be interpreted as new instructions or as a new or increased focus on certain areas,” but are intended to “offer further transparency into the examination process and support risk-focused examination work.” In addition, the Manual itself does not establish requirements for financial institutions as these requirements are found in applicable statutes and regulations. (See also FDIC FIL-12-2021 and OCC Bulletin 2021-10.)