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CSBS Announces Dates for Community Banking Research Conference
On August 2, the CSBS announced that it will co-host with the Federal Reserve System the fourth annual “Community Banking in the 21st Century” research and policy conference on September 28 and 29. The two-day event will take place in St. Louis and will feature, among other things, the release of the 2016 Community Banking in the 21st Century national survey and a panel discussion of its findings. Federal Reserve Governor Jerome Powell and Federal Reserve Bank of Chicago President Charles Evans are among the speakers scheduled to deliver keynote speeches.
MA Division of Banks Releases 2015 Annual Report
Recently, the Massachusetts Division of Banks released its annual report for year-end 2015. The report provides a broad overview of the Division’s 2015 efforts related to, among other things, foreclosure relief, cybersecurity protection, mortgage and depository supervision, and corporate transactions. Notable 2015 updates outlined in the report include the Division (i) approving 24 new mortgage companies in 2015, which resulted in 497 mortgage brokers and lenders being licensed to do business in Massachusetts; (ii) expanding its coordination, cooperation, and participation with the CFPB, Multi-state Mortgage Committee, and the New England Regional Mortgage Committee through sharing information in concurrent examinations of non-depository mortgage entities; and (iii) increasing oversight of the financial industry’s information technology environment, including collaborating with the Conference of State Bank Supervisors to host an event for Massachusetts bankers about common cybersecurity situations. The report includes objectives for 2016, including such as implementing and enforcing “consumer protection laws and regulations while providing consumers the information they need to know their rights and make informed financial decisions.”
Illinois Adopts National SAFE MLO Test
On June 1, the Conference of State Bank Supervisors announced that the Illinois Department of Financial and Professional Regulation (IDFPR) will now use the National SAFE Mortgage Loan Originator (MLO) Test with Uniform State Content, making it the 52nd state agency to adopt the test. Under the new process, Illinois licensees who pass the SAFE MLO Test with Uniform State Content no longer need to take an additional, state-specific test. IDFPR Secretary Bryan Schneider commented on the streamlined test process saying, “[b]y providing a more effective regulatory experience, we foster the creation of a regulatory environment conducive to strong economic growth and opportunity.”
CSBS Names Charles Cooper Chairman of Board of Directors; Calls for Regulatory Collaboration
On May 24, the Conference of State Bank Supervisors (CSBS) announced several new officers, including Charles G. Cooper, Commissioner of the Texas Department of Banking, who will serve as the chairman of the CSBS Board of Directors. In his new role, Cooper delivered remarks at the State-Federal Supervisors Forum on May 26, addressing the following current issues facing the banking industry: (i) community banking; (ii) cybersecurity; and (iii) financial services provided by non-depository institutions, commenting on the expansion of the Nationwide Multistate Licensing System & Registry to include check cashers, debt collectors, and money service businesses. Cooper emphasized the significance of community banks, stating, “[t]heir role in providing credit and banking services is just as important as that of the largest financial intuitions.” Observing the decline in the number of community banks, Cooper called on Congress to implement “right-size regulation through legislation,” and stressed that regulators “need to continue to right-size [their] regulatory and supervisory processes.” Regarding cybersecurity, Cooper mentioned the CSBS Executive Leadership on Cyber Security (ELOC) program, which is intended to “bring [the] cyber issue out of the backroom and into the Board room.” Finally, Cooper concluded by calling on state and federal regulators, including the newer CFPB and FinCEN agencies, to “commit to working better together.”
CSBS and MTRA Issue Report on State Supervision of Money Services Businesses
On May 24, the Conference of State Bank Supervisors (CSBS) and the Money Transmitter Regulators Association (MTRA) published a report titled “The State of State Money Services Businesses Regulation and Supervision.” According to the report, money services businesses (MSBs) are losing access to traditional banking services, with many banks “indiscriminately terminating the accounts of MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers.” Evidence suggests that banks are terminating or refusing to open MSB accounts partially because of the regulatory scrutiny surrounding the industry and the concern of BSA/AML risks. However, the report recognizes that MSBs are an important part of the financial system at large: “[MSBs], and specifically money transmitters, play a vital role in providing financial services to consumers and small businesses across the country. Countless Americans use MSBs every day to pay bills, purchase items online or send funds to family members and friends domestically and abroad.” Acknowledging the significant role MSBs play in providing financial services to U.S. households, the CSBS’ and MTRA’s report is intended to provide an outline of the states’ system of supervision of MSBs, highlighting that “state regulatory requirements are focused on consumer protection, safety and soundness and adherence to BSA/AML requirements and enforcement through state supervisory programs.”
CSBS and Multi-State Mortgage Committee Report on 2015 Supervisory Efforts
The Conference of State Bank Supervisors (CSBS) and the Multi-State Mortgage Committee (MMC) issued a report to state regulators regarding its 2015 review of the supervisory structure around examination and risk assessment of non-bank mortgage loan servicers. Notable servicing examination findings outlined in the report include: (i) violations and deficiencies related to loan transfer activity, noting that a “significant portion of servicing examination findings are tied to the mortgage servicing requirements implemented into the [RESPA] and [TILA] in January of 2014”; (ii) ineffective oversight of sub-servicer activity and insufficient third party vendor management; and (iii) ineffective examination management procedures on the part of mortgage servicers, leading to delayed examination processes, as well as impeded regulatory oversight. The report further outlines origination examination findings, emphasizing RESPA violations related to Mortgage Servicing Agreements (MSAs) which typically include payments for promotional advertising services performed on behalf of the mortgage company. According to the MMC, MSA-related violations carry high risk. Additional MMC 2015 observations outlined in the report include, but are not limited to, the following: (i) state license engagement of third party providers overseen by federal regulators resulted in an increase of state/federal communications and information sharing, fostering a stronger regulatory framework; (ii) lapses in loan originator education may lead to significant deficiencies at the company level; (iii) whistleblower information provided to the MMC in 2015 played a large role in uncovering prohibited activity; and (iv) technological systems with incorrect programming continue to cause lenders to charge borrowers statutorily prohibited fees. Finally, the report briefly touches on the CSBS’ and the NMLS’s Mortgage Call Report Analytics Tool – designed to provide detailed information about the loan portfolio and financial condition of a company – and the State Coordinating Committee’s coordinated efforts with the CFPB to include the development of the Coordinated Examination Guidance tool, which is intended to provide “suggested best practices for coordinated examinations and a step-by-step listing of action items to be completed during a coordinated examination.”
Illinois to Host Cyber Risk and Security Conferences; CSBS to Co-host
On October 14, the Illinois Division of Banking announced that it would host two Cyber Risk and Security Conferences on November 9 and November 16. With the growing number of threats to financial data systems, cyber and data security has become a top concern for regulators in the financial industry. Topics to be addressed at the conferences include: (i) current cyber threats; (ii) bank and credit unions’ cyber preparedness and response to threats; and (iii) existing trends and the globalization of cyber crimes. The CSBS will co-host the conferences.
CSBS and Federal Reserve Provide Insight on Opportunities and Challenges for Community Banks
On October 6, the CSBS released a summary of research presented and discussions had at the third annual Community Banking Research and Policy Conference, held September 30 through October 1. At the conference, community bankers, academics, and federal and state policymakers discussed trends in community banking, with a particular focus on small business and farm lending, community bank performance, and community banks pre- and post-financial crisis. 27 state regulators attended the conference and held a roundtable to address first-hand the challenges – such as increased regulatory burden and evolving technology – and opportunities community bankers face.
CSBS' Multi-State Mortgage Committee: Mortgage Companies Must Comply with Technology-Based Examination Process
On September 29, the Conference of State Bank Supervisors (CSBS) and the Multi-state Mortgage Committee (MMC) released a bulletin titled, “Supervisory Expectations Regarding the Use of Electronic Examination Tools.” The bulletin explains the MMC’s use of electronic examination tools and the supervisory expectations for mortgage companies undergoing the state examination process. As a result of a 2008 initiative by the MMC, state regulators have been using technology to review loan transaction data for years, originally setting the expectation that companies fully participate with the process by 2011. According to the bulletin, however, “the mortgage industry has regularly failed to provide clean data in a format acceptable to the regulators’ technology platform.” As a result of this non-compliance, the MMC recommended that, going forward, state regulators take enforcement action against companies that are unable to provide accurate data in a timely fashion, so as to ensure a “more efficient and timely regulatory process.”
State Banking Regulators Issue Model Regulatory Framework for Virtual Currency Activities
On September 15, the Conference of State Bank Supervisors (CSBS) issued its Model Regulatory Framework for State Regulation of Certain Virtual Currency Activities (Model Framework). The CSBS Emerging Payments Task Force developed the Model Framework to assist states in licensing and regulating virtual currency activities. The Model Framework includes key components to a regulatory scheme that the CSBS hopes will protect consumers and the larger marketplace while facilitating innovation. It also defines virtual currency and describes specifically covered virtual currency activities, such as those involving third-party controls of virtual currency. Additionally, the Model Framework provides flexibility in denominating permissible investments, tailoring cybersecurity audits to a company’s business model, and includes an addition to the BSA/AML Compliance section that recommends that states require verification of an entity’s service users and account holders. The Model Framework also includes a supervision component that requires the establishment of policies and procedures that protect customer access to funds in the event of an institutional failure.
The Model Regulatory Framework for State Regulation of Certain Virtual Activities can be seen here.