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Financial Services Law Insights and Observations


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  • FDIC updates risk management, consumer compliance examination policies

    Recently, the FDIC updated Section 2.1 of its Risk Management Manual of Examination Policies related to capital. The FDIC noted that since capital adequacy assessments are central to the supervisory process, examination staff “evaluate all aspects of a financial institution’s risk profile and activities to determine whether its capital levels are appropriate and in compliance with minimum regulatory requirements.” This includes examining a financial institution’s capital ratios, risk-weighted assets, regulatory capital requirements, community bank leverage ratios, capital adequacy (including liquidity, earnings, and market risk), and adherence to laws and regulations. The FDIC also announced updates to the Privacy—Telephone Consumer Protection Act section within 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.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance FDIC Compliance Examination Risk Management Supervision

  • FDIC warns financial institutions about NSF fees

    On August 18, the FDIC issued FIL-40-2022 along with supervisory guidance to warn supervised financial institutions that charging customers multiple non-sufficient funds (NSF) fees on re-presented unpaid transactions may increase regulatory scrutiny and litigation risk. According to the FDIC, some institutions’ disclosures did not fully or clearly describe their re-presentment practices and failed to explain that the same unpaid transaction may result in multiple NSF fees if presented more than once. Failing to disclose “material information to customers about re-presentment and fee practices has the potential to mislead reasonable customers,” the agency said, noting that the material omission of this information is considered to be deceptive pursuant to Section 5 of the FTC Act. Additionally, “there are situations that may also present risk of unfairness if the customer is unable to avoid fees related to re-presented transactions,” the FDIC said.

    The supervisory guidance also discussed the agency’s approach for addressing violations of law, noting that it will focus on identifying re-presentment-related issues to ensure correction of deficiencies and remediation to harmed customers. The agency stated that examiners “will generally not cite UDAP violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination,” and noted that it “will consider an institution’s record keeping practices and any challenges an institution may have with retrieving, reviewing, and analyzing re-presentment data, on a case-by-case basis, when evaluating the time period institutions utilized for customer remediation.” However, the FDIC warned that “[f]ailing to provide restitution for harmed customers when data on re-presentments is reasonably available will not be considered full corrective action.” Financial institutions are encouraged to review practices and disclosures related to the charging of NSF fees for re-presented transactions and should consider FDIC risk-mitigation practices to reduce the risk of customer harm and potential violations.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance FDIC NSF Fees Consumer Finance Supervision FTC Act UDAP Deceptive Risk Management

  • CFPB updates list of institutions under its authority

    Federal Issues

    Recently, the CFPB updated its list of depository institutions (DIs) and depository affiliates of DIs under its supervisory authority. The CFPB has supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates. The list is based on total assets as of March 31.

    Federal Issues CFPB Supervision

  • Toomey pressures FDIC to respond to alleged anti-crypto actions

    On August 16, Senator Pat Toomey (R-PA) informed FDIC acting Chairman Martin Gruenberg that information provided by whistleblower communications suggest that the agency may be asking banks to “refrain from expanding relationships with crypto-related companies, without providing any legal basis.” Toomey’s letter expressed concerns about the ramifications of banks restricting services to legal crypto-related companies, stressing that “[g]iven the FDIC’s involvement under [Gruenberg’s] leadership in the Obama administration’s notorious Operation Choke Point, which sought to coerce banks into denying services to legal yet politically disfavored businesses, it is important to better understand the actions the FDIC is now taking and the legal basis for them.” He commented that regional offices allegedly received draft letters to send to banks requesting that they refrain from expanding relationships with crypto-related companies, and cited an example of a bank that planned to provide customers access to a crypto-related trading platform through the bank’s mobile app. “This arrangement appears similar to the common practice of banks partnering with third-parties so customers can access services like stock-trading platforms,” Toomey said, adding that the bank was going to send customers clear disclosures warning them that neither the trading platform nor their digital assets were insured by the FDIC. He cited another alleged incident where FDIC-headquartered employees purportedly urged regional examination staff to downgrade their classification of a specific loan that a bank made to a crypto-related company. “It is my understanding that it is highly atypical for FDIC headquarters personnel to be involved in reviewing an individual loan,” Toomey said. “FDIC regional office staff reportedly interpreted the involvement of FDIC headquarters in this matter as an effort to change how loans to crypto-related companies are generally classified and to deter banks from extending such loans in the future.” Claiming that the agency “may be abusing its supervisory powers to deter banks from extending credit to crypto-related companies,” Toomey asked the FDIC to respond to several questions pertaining to its alleged behavior by August 30.

    Bank Regulatory Federal Issues Digital Assets FDIC Cryptocurrency Supervision

  • Fed urges banks to assess legality of crypto activities

    On August 16, the Federal Reserve Board issued supervisory letter SR 22-6 recommending steps that Fed-supervised banking organizations engaging or seeking to engage in crypto-asset-related activities should take. The Fed stressed that organizations must assess whether such activities are legally permissible and determine whether any regulatory filings are required under the federal banking laws. Organizations should also notify the regulator and “have in place adequate systems, risk management, and controls to conduct such activities in a safe and sound manner” prior to commencing such activities. Risk management controls should cover, among other things, “operational risk (for example, the risks of new, evolving technologies; the risk of hacking, fraud, and theft; and the risk of third-party relationships), financial risk, legal risk, compliance risk (including, but not limited to, compliance with the Bank Secrecy Act, anti-money laundering requirements, and sanctions requirements), and any other risk necessary to ensure the activities are conducted in a manner that is consistent with safe and sound banking and in compliance with applicable laws, including applicable consumer protection statutes and regulations,” the supervisory letter explained, adding that state member banks are also encouraged to contact their state regulator before engaging in any crypto-asset-related activity. Organizations already engaged in crypto activities should contact the Fed “promptly” if they have not already done so, the agency said, noting that supervisory staff will provide any relevant supervisory feedback in a timely manner.

    The supervisory letter follows an interagency statement released last November by the Fed, OCC, and FDIC (covered by InfoBytes here), which announced the regulators’ intention to provide greater clarity on whether certain crypto-asset-related activities conducted by banking organizations are legally permissible.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Digital Assets Federal Reserve Cryptocurrency Supervision Risk Management Third-Party Risk Management Financial Crimes Bank Secrecy Act Of Interest to Non-US Persons

  • OCC updates bank accounting guidance

    On August 15, the OCC released an annual update to its Bank Accounting Advisory Series (BAAS). (See also OCC Bulletin 2022-20.) Intended to address a variety of accounting topics relevant to national banks and federal savings associations and to promote consistent application of accounting standards and regulatory reporting among OCC-supervised banks, the BAAS reflects updates that clarify accounting standards issued by the Financial Accounting Standards Board related to, among other things, (i) “the amortization of premiums on debt securities with a call option over a preset period”; and (ii) “lessors’ classification of certain leases with variable lease payments.” The 2022 edition also includes answers to frequently asked questions from industry and bank examiners. The OCC notes that the BAAS does not represent OCC rules or regulations but rather “represents the Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance based on the facts and circumstances presented.”

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance OCC Supervision FASB Compliance

  • FDIC issues 2022 Supervisory Insights

    On August 3, the FDIC released its summer 2022 issue of Supervisory Insights, which contains an article discussing financial performance and examination observations about commercial real estate (CRE) lending risk management practices and an article describing the application of capital, investment, and financial reporting requirements for the issuance of and investment in subordinated debt. The article, Commercial Real Estate: An Update on Bank Lending Amid the Evolving Pandemic Backdrop, discusses the financial performance of banks concentrated in CRE lending as well as examination observations about CRE lending risk management practices. The article also describes the FDIC’s forward-looking supervisory focus for banks with significant exposure in this sector. The FDIC noted that inflation, rising interest rates, and supply chain challenges are possible determinants of increased risk. The article, Subordinated Debt: Issuance and Investment Considerations, “is intended to help financial institutions better understand the applicable capital, investment, and financial reporting requirements for the issuance of and investment in subordinated debt.” According to the FDIC, a key takeaway of Subordinated Debt Investments is that “[i]nstitutions may generally only purchase investment grade subordinated debt securities that are permissible investments for national banks.”

    Bank Regulatory Federal Issues FDIC Supervision Commercial Lending

  • Trade groups petition CFPB to supervise data aggregators

    Federal Issues

    On August 2, several bank and credit union trade groups petitioned the CFPB asking the Bureau to create regulations that would allow the agency to conduct routine exams and supervise data aggregators and their customers. While the Bureau is currently considering rulemaking under Section 1033 of the Dodd-Frank Act with respect to consumer access to financial records and has “affirmed its commitment to ‘monitoring the aggregation services market and ensuring consumer protection and safety,’” the petition argued that there is a “supervisory imbalance” between banks and nonbanks in terms of data oversight. “[A]mong the participants in the market for aggregation services, typically, data holders, such as banks and credit unions, are regularly supervised and examined by the CFPB, whereas nondepository institutions such as data aggregators and data users are not examined by the CFPB,” the petition stated, adding that this “creates both an unsustainable model as the aggregation services market grows and the risk that the laws applicable to the activities of those larger participants in this market will be enforced inconsistently.” As a result, the petition warned that potential consumer harm attributed to data aggregator and data user activity may not be identified and remedied in a timely manner. The trade groups called for the Bureau to create a rule that would add a definition for “larger participants of a market” for aggregation services, as well as define the term “aggregation services” to mean a “financial product or service” under Title X of Dodd-Frank. Doing so would ensure that “all providers of comparable financial products and services” are subject to similar levels of accountability, the petition said.

    Federal Issues Privacy, Cyber Risk & Data Security CFPB Data Aggregator Section 1033 Dodd-Frank Supervision Nonbank

  • Senate confirms Barr as Fed Vice Chairman for Supervision

    Federal Issues

    On July 14, the U.S. Senate voted 66 to 28 to confirm Michael Barr as Vice Chairman for Supervision at the Federal Reserve for a four-year term. Barr was also confirmed by a 66-28 vote to serve the 10-year balance of a 14-year term on the Federal Reserve Board of Governors. He fills the last vacant seat on the Fed’s seven-member board. Barr is currently a law and public policy professor at the University of Michigan, and previously served as the assistant secretary for financial institutions in the Treasury Department where he had a key role in the creation of the Dodd-Frank Act (covered by InfoBytes here).

    Federal Issues Federal Reserve Supervision

  • FSB releases statement on crypto-asset activities

    Federal Issues

    On July 11, the Financial Stability Board (FSB) released a statement regarding international regulation and supervision of crypto-asset activities following the “recent turmoil in crypto-asset markets.” The FSB called for “an effective regulatory framework” to “ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking account of novel features of crypto-assets and harnessing potential benefits of the technology behind them.” The statement also called for, among other things: (i) crypto-assets and markets to be subjected to effective regulation and oversight relative to their domestic and international risks; (ii) cryptocurrency service providers to ensure compliance with existing legal obligations in the jurisdictions where they operate; and (iii) stablecoins to be subject to “robust” regulations and supervision if they are to be adopted as a widely used means of payment or play an important role in the financial system. The FSB noted the “ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets,” and highlighted that member authorities will implement applicable international standards into national regulatory and supervisory frameworks “to the extent not already reflected and will adopt guidance, recommendations and best practices of international standard-setting bodies.”

    Federal Issues Digital Assets FSB Cryptocurrency Supervision