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FATF highlights financial crime risks related to Covid-19 pandemic
On May 4, the Financial Action Task Force (FATF) released a report identifying challenges, good practices, and policy responses to new money laundering and financing threats arising from the Covid-19 pandemic. The report notes that the global response to the Covid-19 pandemic is limiting the ability of the government and public sector to implement oversight of anti-money laundering and countering the financing of terrorism (AML/CFT) obligations. Among other things, FATF noted that Covid-19 threats and corresponding vulnerabilities could result in the following: (i) increased misuse of online financial services and virtual assets to move illicit funds; (ii) the bypassing of customer due diligence measures; and (iii) the misuse and misappropriation of domestic and international financial aid. Additionally, FATF noted that the increased use of online platforms for social interaction, consumer shopping, and banking measures may also lead to increased fraud by criminal actors, such as impersonation of officials, counterfeiting essential goods, and fundraising for fake charities. To address these concerns, FATF emphasized that domestic coordination assessing the impact of Covid-19 on AML/CFT risks, the use of a risk-based approach to customer due diligence, and strengthened communication with the private sector may help support the implementation of measures to manage the new risks and vulnerabilities.
SEC's temporary amendments to expedite capital raises through securities offerings
On May 4, the SEC announced it plans to make temporary amendments to Regulation Crowdfunding to enable small businesses impacted by Covid-19 to expeditiously “meet their funding needs through the offer and sale of securities.” After receiving feedback from its Small Business Capital Formation Advisory Committee, the SEC decided that small businesses may have difficulty in quickly raising urgently needed capital in short time frames due to current requirements. The temporary final rule provides relief to these small business issuers by, among other things, easing some Regulation Crowdfunding requirements—provided the issuers meet certain criteria—so that they can measure investor interest in the offering before committing the time and taking on the expense of creating “full offering materials” including financial statements. Further, in addition to other time saving measures pursuant to the temporary final rule, the offering does not need to remain open for 21 days or longer, but rather can close once sufficient binding commitments are received to meet its target, allowing the small business issuers to access the funds from the offering faster than they could under existing rules. The amendments are effective as of May 4 and terminate on March 1 for offerings made between May 4 and August 31.
Lawsuit claims Treasury, SBA PPP loan eligibility guidance is contrary to CARES Act
On May 4, a group of businesses filed a lawsuit in the U.S. District Court for the Central District of California against the Small Business Administration (SBA) and the U.S. Department of Treasury (defendants) challenging guidance issued by the defendants in April that they claim “directly contradicts and changes the CARES Act.” The guidance, issued in the form of FAQs #31 and 37 (covered by InfoBytes here and here), addresses whether businesses owned by large companies or private companies with adequate sources of liquidity are eligible for a Paycheck Protection Program (PPP) loan. Among other things, the guidance instructs borrowers to consider other sources of liquidity other than PPP funds, and states that while lenders may rely on the borrower certification of need, a borrower must still certify in good faith that their PPP loan request is necessary.
The plaintiffs argue that the guidance is contrary to the CARES Act because it imposes a requirement that borrowers must be unable to get credit elsewhere before they can qualify, and suggests that businesses may be ineligible for PPP loans if they qualify for “other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” The consequences of the guidance, they argue, is that they may now be required to repay PPP funds with money they either do not have or must borrow since they could have obtained “credit elsewhere,” thus damaging their financial stability. The plaintiffs seek injunctive relief enjoining the defendants from enforcing the guidance, as well as a declaration that the guidance is contrary to law and must be withdrawn.
Treasury, SBA report on second round of PPP loan processing
On May 3, the Department of Treasury (Treasury) and the Small Business Administration (SBA) released a joint statement detailing the performance of the second round of the Paycheck Protection Program (PPP) thus far. The statement shares that PPP loans made during the first week of round two loan processing—beginning on April 27—reached 2.2 million totaling more than $175 billion. This brings the total since the program began on April 3, to more than 3.8 million loans with a value of more than $.5 trillion. According to the second round report accompanying the joint statement, of the nearly 5,450 lenders, just over 4,450 were lenders with less than $1 billion in assets as well as non-bank lenders—which “include Community Development Financial Institutions, Certified Development Companies, Microlenders, Farm Credit lending institutions, and FinTechs.” The average loan size during the first week of round two was $79,000.
Since the release of the joint statement, the SBA has provided updated PPP loan processing numbers on its website, which can be accessed here.
Louisiana Office of Financial Institutions, Securities Division, issues update on operations
On May 1, the Louisiana Office of Financial Institutions, Securities Division, issued an update regarding its current operations during the statewide “stay at home” order. In particular, (i) paper copies of registration documents and payment of related fees can be mailed to the LOFI, and certain filings can be submitted electronically; (ii) examinations are being conducted remotely using phone and email correspondence in lieu of traditional on-site examinations; (iii) licensing staff continue to process licensing and registration applications through the CRD/IARD systems; and (iv) enforcement staff are limiting in-person contacts with witnesses and regulatory partners, and are using telecommunications technology to complete tasks remotely.
Louisiana Office of Financial Institutions issues emergency declarations to non-depository entities
On May 1, the Louisiana Office of Financial Institutions issued emergency declarations for residential mortgage lenders, brokers and originators, check cashers, lenders or brokers licensed pursuant to the Louisiana Consumer Credit Law and the Louisiana Deferred Presentment and Small Loan Act, pawnbrokers, and repossession agents and bond for deed escrow agents. Such entities are granted the authority to temporarily close licensed locations within Louisiana or to temporarily close and/or relocate to another location within the state. Mortgage loan originators are permitted to work from home, whether located in Louisiana or another state, even if the home is not registered with the LOFI. The declarations also provide instructions for notifying the LOFI of a temporary location change. The declarations expire on May 15, 2020, unless renewed by further declaration of the commissioner.
Illinois Department of Financial and Professional Regulation issues guidance to credit unions regarding deferral of an appraisal or written estimate of market value
On May 1, the Illinois Department of Financial and Professional Regulation issued guidance to credit unions regarding the deferral of an appraisal or written estimate of market value to allow credit unions to continue to extend loans to households and businesses during the Covid-19 crisis. The guidance notes that the National Credit Union Administration (NCUA) Board promulgated an interim final rule allowing a federal credit union to temporarily defer certain appraisals and written estimates of market value for up to 120 days after closing when other alternatives are not available and when the appraisal or evaluation would delay the closing of the transaction, and states its intention to promulgate a substantially similar rule. Until the rule has been promulgated and finalized, the department does not intend to take adverse supervisory or enforcement action against an Illinois state-chartered credit union for deferring the appraisal or written estimate of market value for appropriate transactions up to 120 days from the date of closing, subject to certain exceptions. The guidance provides additional requirements for credit unions to follow when seeking to take advantage of this exemption.
Illinois Department of Financial and Professional Regulation announces initiative to facilitate cashing of stimulus checks
On May 1, 2020, the Illinois Department of Financial and Professional Regulation announced plans to provide new options for unbanked Illinoisans to cash their stimulus checks for free. The announcement highlights some of the banks that are willing to offer such services and provides resources that consumers can consult in connection with receiving their economic impact payments.
OCC and Federal Reserve issue joint response to question regarding market risk capital rule
On May 1, the OCC and the Federal Reserve Board issued a joint response to a public question about a capital implication under the market risk capital rule in light of current market conditions arising from the Covid-19 pandemic. The joint response notes that, in March and April of 2020, the agencies took supervisory action giving certain banks the option to apply the multiplication factor that applied as of December 31, 2019, rather than applying a higher multiplier based on the most recent exceptions.
Maine Real Estate Commission adopt emergency rule regarding sales agent examinations
On May 1, the Maine Department of Professional and Financial Regulation, Real Estate Commission, adopted an emergency rule extending the time period during which applicants for a sales agent license have to pass the sales agent examination after they successfully complete the sales agent course. The time is extended from one year to 180 days after testing sites fully reopen.