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Financial Services Law Insights and Observations


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  • U.S.-UK financial regulators discuss bilateral issues

    Financial Crimes

    On December 17, the U.S. Treasury Department issued a joint statement covering the recently held fifth meeting of the U.S.-UK Financial Regulatory Working Group (Working Group). Participants included officials and senior staff from both countries’ treasury departments, as well as regulatory agencies including the Federal Reserve Board, CFTC, FDIC, OCC, SEC, the Bank of England, and the Financial Conduct Authority. The Working Group discussed, among other things, (i) international and bilateral cooperation; (ii) “emerging regulatory approaches and the need to promote multilateral cooperation and alignment given that a number of third-party providers operate cross-border to provide services to the financial sector and there are potential risks of regulatory fragmentation”; (iii) “risks associated with regulatory driven fragmentation in derivatives clearing and banking markets”; (iv) “efforts in relation to the LIBOR transition, market developments, the risks associated with newly created credit-sensitive rates, and transition implications for other jurisdictions;” and (v) the management of climate-related financial risks and other sustainable finance issues. According to the statement, Working Group participants will continue to engage bilaterally on these issues and others ahead of the next meeting planned for this spring.

    Financial Crimes UK Of Interest to Non-US Persons Department of Treasury Federal Reserve OCC FDIC SEC CFTC Financial Conduct Authority LIBOR Climate-Related Financial Risks

  • FSOC highlights potential risks in 2021 annual report

    Agency Rule-Making & Guidance

    On December 17, the Financial Stability Oversight Council (FSOC) released its annual report highlighting significant financial market and regulatory developments, potential financial risks, and recommendations for promoting U.S. financial stability. The report focused on several recommendations that FSOC member agencies should take to mitigate systemic risk and ensure financial stability.

    • Climate-related Financial Risk. FSOC advised financial regulators to “promote consistent, comparable, and decision-useful disclosures that allow investors and financial institutions to take climate-related financial risks into account in their investment and lending decisions.” Taking these steps, FSOC noted, will enable financial regulators to promote resilience within the financial-sector and help support an orderly, economy-wide transition to net-zero emissions. FSOC also recognized the importance of incorporating climate-related risks into risk management practices and supervisory expectations for regulated entities. The same day, acting Comptroller of the Currency Michael J. Hsu issued a statement supporting FSOC’s new Climate-Related Financial Risk Committee, which was announced in October (covered by InfoBytes here). “The CFRC will play an important role in identifying priority areas for assessing and mitigating climate-related risks to the financial system, coordinating information sharing, aiding in the development of common approaches and standards, and facilitating communication across FSOC members and interested parties. Addressing climate-related risks to the financial system requires the collaboration of multiple parties and partnerships, using many strategies and mechanisms.”
    • Digital Assets. FSOC recommended that federal and state regulators continue to examine financial risks posed by emerging uses of digital assets and coordinate efforts to address potential issues arising in this space. FSOC advised member agencies to consider the recommendations in the President’s Working Group on Financial Markets’ “Report on Stablecoins” (covered by InfoBytes here), which was published in coordination with the FDIC and the OCC.
    • LIBOR Transition. FSOC commended the Alternative Reference Rates Committee’s efforts to facilitate an orderly transition from LIBOR to alternative reference rates, and advised member agencies to “determine whether regulatory relief is necessary to encourage market participants to address legacy LIBOR portfolios.” Additionally, member agencies should “continue to use their supervisory authority to understand the status of regulated entities’ transition from LIBOR, including their legacy LIBOR exposure and plans to address that exposure.”
    • Cybersecurity. FSOC advised federal and state agencies to “continue to monitor cybersecurity risks and conduct cybersecurity examinations of financial institutions and financial infrastructures to ensure, among other things, robust and comprehensive cybersecurity monitoring, especially in light of new risks posed by the pandemic, ransomware incidents, and supply chain attacks.”

    While noting that financial conditions have normalized since spring 2020, FSOC noted that “risks to U.S. financial stability today are elevated compared to before the pandemic” and that “the outlook for global growth is characterized by elevated uncertainty, with the potential for continued volatility and unevenness of growth across countries and sectors.”

    Agency Rule-Making & Guidance Bank Regulatory Federal Issues FDIC OCC Climate-Related Financial Risks Fintech Digital Assets LIBOR Privacy/Cyber Risk & Data Security

  • CFPB publishes fall 2021 rulemaking agenda

    Agency Rule-Making & Guidance

    On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.

    Key rulemaking initiatives include:

    • Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
    • Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
    • Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
    • Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
    • Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
    • Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”

    Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.

    Agency Rule-Making & Guidance CFPB Covid-19 Small Business Lending Section 1071 Consumer Finance PACE Programs AVMs Dodd-Frank Section 1033 Regulation Z LIBOR HMDA RESPA TILA CARES Act Debt Collection EGRRCPA Federal Reserve OCC FDIC NCUA FHFA Bank Regulatory FIRREA CARD Act

  • CFPB finalizes LIBOR transition rule

    Agency Rule-Making & Guidance

    On December 7, the CFPB issued a final rule facilitating the transition from LIBOR for consumer financial products. (Corrected rule published February 16, 2022.) The final rule amends Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establishes requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans.

    • Closed-end provision amendments provide examples of indices that meet certain Regulation Z standards, which may be used to replace LIBOR indices. To assist creditors in determining a comparable index for closed-end loans, the final rule identifies certain Secured Overnight Financing Rate (SOFR)-based spread-adjusted indices recommended by the Alternative Reference Rates Committee (ARRC) for consumer products. The final rule also provides a non-exhaustive list of factors for creditors to use when determining whether a replacement index meets the Regulation Z “comparable” standard.
    • Updated post-consummation disclosure sample forms for certain adjustable-rate mortgage loan products replace LIBOR references with a SOFR index.
    • Amendments related to open-end loans add LIBOR-specific provisions, which allow creditors for home equity lines of credit (HELOCs) and credit card issuers to transition existing accounts using a LIBOR index to a replacement index on or after April 1, 2022, provided certain conditions are met. Creditors and card issuers are provided a non-exhaustive list of factors to consider when determining whether a replacement index meets Regulation Z’s “historical fluctuations are substantially similar” standard. In addition to identifying certain ARRC recommended SOFR-based spread-adjusted indices for consumer products, the final rule also lists the Prime rate as an example of an index that also meets this standard.
    • The final rule also addresses change-in-terms notice provisions for HELOCs and credit card accounts related to the disclosure of margin reductions once LIBOR ends. Additionally, the final rule discusses how the requirement for reevaluating rate increases on credit card accounts applies to the transition from using LIBOR indices to a replacement index.

    The final rule takes effect April 1, 2022, with the exception of certain provisions related to an amendment to appendix H which is effective October 1, 2023. Additionally, while the mandatory compliance date for change-in-terms notice requirement revisions is October 1, 2022, the mandatory compliance date for all other final rule provisions is April 1, 2022. Furthermore, the Bureau “is reserving judgment about whether to include references to a 1-year USD LIBOR index and its replacement index in various comments; the Bureau will consider whether to finalize comments proposed on that issue in a supplemental final rule once it obtains additional information.”

    CFPB Director Rohit Chopra warned that “[n]o new financial contracts may reference LIBOR as the relevant index after the end of 2021,” and that beginning June 2023, “LIBOR can no longer be used for existing financial contracts.” Chopra further emphasized that creditors and servicers must continue to prepare for LIBOR’s cessation and should take clear and orderly steps to reduce risk and mitigate compliance, legal, financial, and operational risks. 

    Agency Rule-Making & Guidance CFPB LIBOR SOFR ARRC Consumer Finance Regulation Z TILA

  • ARRC recommends SOFR fallbacks for one-week, two-month LIBOR contracts

    Federal Issues

    On December 3, the Alternative Reference Rates Committee (ARRC) under the New York and Alabama LIBOR Relevant Recommending Body, released a statement recommending forms of the Secured Overnight Financing Rate (SOFR) and associated spread adjustments to replace references to 1-week and 2-month USD LIBOR in certain contracts affected by New York and Alabama state LIBOR legislation. The statement comes “with just one month until no new LIBOR and the cessation of these two USD LIBOR tenors,” noting that these recommendations are “important for the legacy contracts that rely on those tenors.”  Under the states’ LIBOR legislation, ARRC serves as the “Relevant Recommending Body,” while SOFR is the recommended rate and alternative to USD LIBOR.

    As previously covered by InfoBytes, ARRC announced its recommendation of CME Group’s forward-looking SOFR term rates, following the completion of key changes in trading conventions on July 26 under the SOFR First initiative. According to the recently released statement, ARRC recommends applying SOFR only to the narrow set of LIBOR-based contracts that are affected by the states’ LIBOR legislation, which are generally contracts with no fallbacks or fallbacks that reference LIBOR. For contracts with fallbacks that give a party discretion to decide on a replacement rate, the state laws also provide a safe harbor if that party chooses the SOFR-based rate and conforming changes recommended by ARRC. ARRC also published a set of frequently asked questions regarding the application of New York state law.

    Federal Issues LIBOR ARRC New York Alabama SOFR

  • Fed provides guidance on LIBOR transition

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Federal Reserve LIBOR Mortgages Bank Regulatory

  • OCC to focus supervisory efforts on non-SOFR rates after LIBOR ends

    Federal Issues

    On October 26, acting Comptroller of the Currency Michael J. Hsu warned banks not to be complacent when transitioning away from LIBOR. Hsu reiterated that federal regulators will not allow new contracts that use LIBOR as a reference rate after December 31. Hsu stressed that banks must look outside of activities that directly involve LIBOR exposure, such as lending, derivatives activities, and market-making capacities, to screen for LIBOR exposure in other contexts, such as LIBOR-based loan participation interests or as part of an instrument for a bank’s investment or liquidity portfolio paying LIBOR-based income or otherwise reflecting LIBOR exposures. As previously covered by InfoBytes, the CFPB, Federal Reserve Board, FDIC, NCUA, and OCC recently released a joint statement providing supervisory considerations for institutions when choosing an alternative reference rate. Hsu addressed the use of these alternative reference rates and reminded banks that they are expected to be able to demonstrate that their replacement rate is robust and appropriately tailored to their risk profile. He further commented that because the Secured Overnight Financing Rate (SOFR) “provides a robust rate suitable for use in most products, with underlying transaction volumes that are unmatched by other alternatives,” the OCC will initially focus its supervisory efforts on non-SOFR rates.

    Federal Issues OCC LIBOR Bank Regulatory Agency Rule-Making & Guidance CFPB Federal Reserve FDIC NCUA SOFR

  • Agencies release statement on LIBOR transition

    Federal Issues

    On October 20, the CFPB, Federal Reserve Board, FDIC, NCUA, and OCC, in conjunction with the state bank and state credit union regulators, (collectively, “agencies”) released a joint statement regarding the transition away from LIBOR. As previously covered by InfoBytes, the Fed, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The agencies' October 20 joint statement provides supervisory considerations for institutions when choosing an alternative reference rate, such as, among other things: (i) the meaning of new LIBOR contracts; (ii) understanding how the chosen reference rate is constructed and the fragilities associated with it; and (iii) expectations for fallback language. In addition, the agencies noted that supervised institutions should “develop and implement a transition plan for communicating with consumers, clients, and counterparties; and ensure systems and operational capabilities will be ready for transition to a replacement reference rate after LIBOR’s discontinuation.”

    Federal Issues CFPB LIBOR Agency Rule-Making & Guidance FDIC OCC Federal Reserve NCUA Bank Regulatory

  • OCC issues updated LIBOR self-assessment tool

    Federal Issues

    On October 18, the OCC released an updated self-assessment tool for banks to evaluate their preparedness for the LIBOR cessation at the end of the year. The updated guidance reminds banks that they should cease entering into new contracts using LIBOR as a reference rate as soon as practicable but no later than December 31, 2021. The self-assessment tool may be used by banks to identify and mitigate a bank’s LIBOR transition risks, and management should use the tool to evaluate whether preparations for the transition are sufficient. The OCC notes that “LIBOR exposure and risk assessments and cessation preparedness plans should be complete or near completion with appropriate management oversight and reporting in place,” and “most banks should be working toward resolving replacement rate issues while communicating with affected customers and third parties, as applicable.” The OCC also reminds banks to tailor risk management processes to the size and complexity of a bank’s LIBOR exposures and “consider all applicable risks (e.g., operational, compliance, strategic, and reputation) when scoping and completing LIBOR cessation preparedness assessments.”

    Bulletin 2021-46 rescinds Bulletin 2021-7 published in February (covered by InfoBytes here).

    Federal Issues LIBOR OCC Bank Regulatory Risk Management

  • ARRC recommends firms reduce use of LIBOR before year end

    Federal Issues

    On October 14, the Alternative Reference Rates Committee (ARRC) recommended that all market participants take proactive action now to reduce their use of U.S. dollar LIBOR to promote a smooth end to new LIBOR contracts by year end. ARRC referred to a joint statement issued last November by the Federal Reserve Board, FDIC, and OCC encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. (Covered by InfoBytes here.) According to the agencies, entering into contracts after this date will create safety and soundness risks given consumer protection, litigation, and reputation risks at stake. ARRC recommended that firms adopt its selected alternative, the Secured Overnight Financing Rate, which is consistent with steps that several firms have already taken to ensure they are in the position to meet the supervisory guidance. This includes “setting targets for reductions in new LIBOR activity, limiting the range of LIBOR offerings, and implementing internal escalation exceptions processes around new LIBOR contracts for narrow cases in line with supervisory guidance.” 

    Federal Issues ARRC LIBOR SOFR Federal Reserve FDIC OCC Bank Regulatory


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