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OCC addresses permissible activities for chartered national banks
On January 11, the OCC published an interpretive letter #1176 addressing the OCC’s authority to charter national banks within the scope of 12 U.S.C. § 27(a) of the National Bank Act. As described by the OCC, the statute “recognizes the authority of the OCC to charter a bank that limits its operations to those of a trust company and activities related thereto.” Trust company activities include those “permissible for a state trust bank or company even if those state authorized activities are not necessarily considered fiduciary in nature under 12 U.S.C. § 92a and 12 CFR Part 9.” Accordingly, the letter explains that a national bank chartered under 12 U.S.C. § 27(a) is not limited to fiduciary activities as defined for purposes of 12 C.F.R. Part 9 and may engage in any permissible activities of a trust company. The letter also discusses (i) standards the OCC considers when assessing whether an activity is conducted in a fiduciary capacity; (ii) implications for chartering de novo institutions that limit activities to those of a trust company; (iii) permissible activities of converting state-chartered institutions and the handling of nonconforming assets; and (iv) permissible activities for national banks that do not have fiduciary powers.
OCC addresses qualifying activities for CRA final rule
On January 4, the OCC issued interpretive letter #1177, which addresses qualifying activities of the affiliates and subsidiaries of national banks and savings associations under the OCC’s 2020 final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by a Buckley Special Alert here, the 2020 final rule, among other things (i) updated deposit-based assessment areas; (ii) mandated the inclusion of consumer loans in CRA evaluations; and (iii) included a non-exhaustive illustrative list of activities that qualify for CRA consideration. The interpretive letter states that qualifying activities under the 2020 final rule may include the CRA qualifying activities of the consolidated subsidiaries of a bank, but that a bank’s qualifying activities generally do not include the activities of the bank’s nonbank affiliates. The OCC notes that the “very factors demonstrating the tight link between a bank and its consolidated subsidiary…suggest that activities conducted by a bank’s parent and sister companies should generally not receive CRA credit.” Thus, banks will not be given credit for qualifying activities conducted by such affiliates unless the bank “directly financed or otherwise supported such activities.”
Fed proposes SAR filing exemptions
On January 22, the Federal Reserve Board published a notice of proposed rulemaking, which would modify the requirements to file Suspicious Activity Reports (SARs) for state member banks, Edge and agreement corporations, U.S. offices of foreign banking organizations supervised by the Federal Reserve, and bank holding companies and their nonbank subsidiaries. The proposal would amend the Board’s SAR regulations to allow for the issuance of exemptions from the requirements of those regulations. As previously covered by InfoBytes, in December, the FDIC and the OCC issued similar proposals. As with the OCC and the FDIC proposals, the Board’s proposal is intended “to facilitate supervised institutions in meeting Bank Secrecy Act requirements more efficiently and effectively, including through development of innovative solutions.” Comments on the proposed rule are due February 22.
FDIC revises supervisory appeals guidelines
On January 19, the FDIC issued FIL-04-2021 announcing the adoption of revised Guidelines for Appeals of Material Supervisory Determinations (Guidelines). The Guidelines, originally proposed last August (covered by InfoBytes here), will establish a new, independent Office of Supervisory Appeals (Office) replacing the current Supervision Appeals Review Committee. The new Office will have final authority to resolve appeals by a panel of reviewing officials and will be independent from other divisions within the FDIC that have authority to issue material supervisory determinations. The Guidelines provide that appeals submitted to the Office will be decided by a panel of term-appointed reviewing officials with bank supervisory or examination experience. Additionally, the division director will make an independent supervisory determination without deferring to the judgments of either party, with communications between the Office and members of either the supervisory staff or the appealing institution to be shared with the other party to the appeal. The Guidelines will also permit an institution to request expedited review of its appeal, and will amend the procedures and timeframes for considering formal enforcement-related decisions through the supervisory appeals process. The Guidelines will take effect once the new Office is fully operational. In the meantime, the current guidelines will remain in effect.
Fed finalizes rule updating capital planning and stress testing requirements
On January 19, the Federal Reserve Board adopted a final rule updating the agency’s capital planning and stress testing requirements applicable to large bank holding companies and U.S. intermediate holding companies of foreign banking organizations. Among other things, the final rule, which is generally similar to the Fed’s September 2020 notice of proposed rulemaking (covered by InfoBytes here), conforms the capital planning, regulatory reporting, and stress capital buffer requirements for firms with $100 billion or more in total assets (Category IV) with the tailored regulatory framework approved by the Fed in 2019 (covered by InfoBytes here). The final rule also makes additional changes to the Fed’s stress testing rules, stress testing policy statement, and regulatory reporting requirements related to “business plan changes and capital actions and the publication of company-run stress test results for savings and loan holding companies.” In addition, the Fed’s capital planning and stress capital buffer requirements will now apply to covered saving and loan holding companies subject to Category II, III, and IV standards under the tailoring framework. The Fed notes that firms in the lowest risk category are on a two-year stress test cycle and will not be subject to company-run stress test requirements. The final rule takes effect 60 days after publication in the Federal Register.
Biden freezes regulations
On January 20, the Biden administration issued a memo directing the heads of executive departments and agencies across the federal government to “immediately withdraw” or delay action on any pending regulations not yet published in the Federal Register. The memo, among other things, directs departments and agencies to withdraw any new finalized rules that have not yet been published in the Federal Register in order to seek approval from a department or agency head appointed or designated by President Biden. Departments and agencies are also encouraged to “consider” 60-day postponements for published rules that have not taken effect yet to allow for 30-day public comment periods and to consider petitions for reconsideration. The memo, which does not specify which departments or agencies are covered, allows for exceptions in “emergency situations or other urgent circumstances relating to health, safety, environmental, financial, or national security matters, or otherwise.”
Agencies release SARs/AML consideration FAQs
On January 19, the Financial Crimes Enforcement Network (FinCEN), Federal Reserve Board, FDIC, NCUA, and the OCC, in consultation with staff at certain other federal functional regulators, published answers to frequently asked questions concerning suspicious activity reporting (SAR) and other anti-money laundering (AML) considerations. The answers clarify financial institutions’ commonly asked questions about SARs/AML regulatory requirements and are provided to assist financial institutions with their Bank Secrecy Act (BSA)/AML compliance obligations in order to enable them “to focus resources on activities that produce the greatest value to law enforcement agencies and other government users of [BSA] reporting.” Topics discussed include (i) law enforcement requests for financial institutions to maintain accounts; (ii) receipt of grand jury subpoenas and law enforcement inquiries and SAR filings; (iii) maintaining customer relationships following the filing of SARs; (iv) filing SARs based on negative news identified in media searches; (v) information provided in SAR data and narrative fields; and (vi) SAR character limits. The agencies note that the FAQs do not alter existing BSA/AML requirements or establish new supervisory expectations, but have been developed in response to recent recommendations as described more thoroughly in FinCEN’s Advance Notice or Proposed Rulemaking issued last September on AML program effectiveness (covered by InfoBytes here).
DACA recipients eligible for FHA loans
On January 20, the Federal Housing Administration (FHA) announced that Deferred Action for Childhood Arrivals (DACA) recipients are now eligible for FHA loans. Specifically, FHA is waiving the FHA Single Family Housing Handbook statement: “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.” As previously covered by InfoBytes, in June 2019, Len Wolfson, the Assistant Secretary for Congressional and Intergovernmental Relations at HUD sent a letter to Representative Pete Aguilar (D-CA) stating that DACA recipients are not eligible for FHA loans under FHA published policy, referring to the handbook statement. FHA is now reversing course, stating that the term “‘lawful residency’ pre-dates DACA and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present.” In order to avoid confusion, FHA is waiving the Handbook subsection containing the statement in its entirety, but emphasizes that all other FHA borrower requirements remain in effect for all potential borrowers, including DACA recipients.
CFPB finalizes Regulation Z HPML escrow exemptions
On January 19, the CFPB issued a final rule amending Regulation Z, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, to exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). Under the final rule, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria. The final rule essentially adopts the proposed rule (covered by InfoBytes here) without change, except the end date for the exception to the prerequisite against maintaining escrows is finalized as 120 days after the date of publication in the Federal Register, instead of the 90 days as proposed.
CFPB finalizes rule stating supervisory guidance lacks force of law
On January 19, the CFPB issued a final rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the CFPB, OCC, Federal Reserve Board, FDIC, and the NCUA on September 11, 2018 (2018 Statement). As previously covered by InfoBytes, the October 2018 joint proposal amended the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”
The Bureau notes that it chose to issue a final rule that is specific to the Bureau and Bureau-supervised institutions, rather than a joint version including the five agencies as it did with the proposal. However, the final rule adopts the proposed rule without substantive change. The final rule is effective 30 days after publication in the Federal Register.
Similar announcements were issued by the OCC, FDIC, and NCUA.