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On September 16, the FDIC issued FIL-67-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Pennsylvania affected by Hurricane Ida. The FDIC acknowledged the unusual circumstances faced by institutions in affected areas, and suggested institutions take certain steps to meet the needs of their communities and keep the FDIC informed of business impacts. These steps include (i) working with borrowers to adjust or alter loan terms in a safe and sound manner; (ii) identifying potential community development activities to revitalize or stabilize the disaster area (which the FDIC noted may receive favorable CRA consideration); (iii) monitoring potentially impacted municipal securities and loans; (iv) notifying the FDIC of delays in meeting filing and publishing requirements, or in the event temporary banking facilities are needed; and (v) processing consumer requests under Regulation Z for a waiver or modification of the three-day rescission period for dwelling-secured loans in the event of a “bona fide personal financial emergency.”
On September 16, the FDIC announced the launch of a new capital investment vehicle to support insured Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) that provide capital and financial services to low- and moderate-income, minority, and rural communities. The Mission-Driven Bank Fund supports the FDIC’s commitment to preserving and promoting mission-driven institutions, and provides investors with an opportunity to support these institutions, enabling MDIs and CDFIs to provide affordable financial products and services, stimulate economic and community development, and build opportunity and prosperity. Among other things, the fund’s collaborative investment framework will channel private capital and other resources to allow institutions to (i) raise the necessary capital to better serve their communities; (ii) weather economic downturns and recover faster; (iii) attract technical expertise to grow operations and expand services; (iv) “acquire, deploy, and maintain technology solutions”; and (v) “build capacity and scale.” The FDIC notes that it “will retain an advisory role to support the fund’s mission, but will not contribute capital to, manage, or be involved in investment decisions of, the fund.”
On September 10, the OCC, Federal Reserve Board, and FDIC extended the comment period on the regulators’ proposed interagency guidance designed to aid banking organizations in managing risks related to third-party relationships, including relationships with fintech-focused entities. The deadline has been extended to October 18 and interested parties may submit comments until the deadline.
As previously covered by InfoBytes, the proposed guidance addresses key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Coupled with the release of a Federal Reserve Board paper describing community bank and fintech partnerships, as well as interagency guidance to help community banks evaluate fintech relationships (covered by InfoBytes here), the federal bank regulators are demonstrating continued and increased focus on third-party risk management issues.
On September 8, the FDIC updated its brokered deposits FAQs by adding an FAQ to illustrate an example of when a broker is “proposing deposit allocations” under the “matchmaking” definition. According to the FAQ, if an individual identifies at which banks to place the funds of individual customers of a broker dealer as part of a broker dealer sweep program, the person is “proposing deposit allocations” for purposes of the “matchmaking” definition. The new FAQ explains that this is true even if the broker dealer determines the group of banks, or the order of banks, at which the person can propose placing individual depositor's funds or the maximum amount that can be placed at each bank. In addition, the guidance explains that a person that is “proposing deposit allocations” at, or between, more than one bank, also satisfies the other criteria in the matchmaking definition.
The FDIC also provided a public list of all entities that have submitted public notices for the primary purpose exception as of August 31, 2021. Of the two exceptions that require notice filing, the majority of the filers so far claimed an exception based on “enabling transactions” business relationships whereby 100 percent of depositors’ funds that an agent or nominee places, or assists in placing, at depository institutions are placed into transactional accounts that do not pay any fees, interest, or other remuneration to the depositor.
On September 9, the Federal Reserve Board published a paper describing the landscape of community banks and fintech partnerships. The paper, Community Bank Access to Innovation through Partnerships, is not guidance but is intended to promote and support “responsible innovation” through access and understanding to financial technology, as well as appropriate third-party risk management and compliance guardrails. The paper follows interagency guidance released last month by the Fed, OCC, and FDIC, which addressed several key due diligence topics for community banks considering relationships with prospective fintech companies, as well as interagency proposed guidance on third party risk management—signals of the regulators’ continued and increased focus on third-party relationships. (Covered by InfoBytes here and here.) The paper provides anecdotal observations shared with the Fed by outreach participants and discusses the benefits and risks of different broad partnership types (operational technology partnerships, customer-oriented partnerships, and front-end fintech partnerships), and key considerations for engaging in such partnerships. According to the report, outreach participants presented a general belief that “fintech partnerships were most effective when three elements were present: a commitment to innovation across the community bank; alignment of priorities and objectives of the community bank and its fintech partner; and a thoughtful approach to establishing technical connections between key parties, including the bank, fintech, and the bank’s core services provider.”
On September 13, the FDIC issued FIL-65-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of North Carolina affected by remnants of Tropical Storm Fred. The FDIC acknowledged the unusual circumstances faced by institutions in affected areas, and suggested institutions take certain steps to meet the needs of their communities and keep the FDIC informed of business impacts. These steps include (i) working with borrowers to adjust or alter loan terms in a safe and sound manner; (ii) identifying potential community development activities to revitalize or stabilize the disaster area (which the FDIC noted may receive favorable CRA consideration); (iii) monitoring potentially impacted municipal securities and loans; (iv) notifying the FDIC of delays in meeting filing and publishing requirements, or in the event temporary banking facilities are needed; and (v) processing consumer requests under Regulation Z for a waiver or modification of the three-day rescission period for dwelling-secured loans in the event of a “bona fide personal financial emergency.”
Recently, the FDIC, Federal Reserve Board, NCUA, OCC, and the Conference of State Bank Supervisors issued joint statements covering supervisory practices for financial institutions affected by Hurricane Ida and the California wildfires (see here and here). Among other things, the agencies informed institutions facing operational challenges that the regulators will expedite requests for temporary facilities, noting that in most cases, “a telephone notice to the primary federal and/or state regulator will suffice initially to start the approval process, with necessary written notification being submitted shortly thereafter.” The agencies also called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by Hurricane Ida and the California wildfires.
On August 27, the FDIC released a list of administrative enforcement actions and one Notice of Charges taken against banks and individuals in July. During the month, the FDIC issued nine orders consisting of “three Orders to Pay Civil Money Penalties, two Orders of Prohibition from Further Participation, three Section 19 Orders, and one Order Terminating Consent Order.” Among the orders is a civil money penalty imposed against a Kansas-based bank concerning alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “made, increased, extended, renewed, sold, or transferred a loan secured by a building or mobile home located or to be located in a special flood hazard area without properly notifying the Administrator of FEMA or their designee.” The order requires the payment of a $9,500 civil money penalty.
The FDIC also imposed a civil money penalty against a Missouri-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank (i) “[m]ade, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “[m]ade, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral”; and (iii) “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $4,000 civil money penalty.
On August 27, the FDIC, OCC, and Federal Reserve Board released a guide as part of its efforts to promote and support the adoption of new technologies by financial institutions. (See also FIL-59-2021 and OCC Bulletin 2021-40.) The Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks is intended to help community banks conduct due diligence when considering relationships with prospective fintech companies. Among other things, the guide addresses six key due diligence topics for community banks to consider, including (i) business experience, strategic goals, and qualifications; (ii) financial conditions and market information; (iii) legal and regulatory compliance; (iv) risk management policies, processes, and controls; (v) information security programs; and (vi) operational resilience, such as business continuity planning, incident response, service level agreements, and reliance on subcontractors. The guide also provides practical sources of information that may be useful when evaluating fintech companies. The agencies note that use of the guide, which is consistent with the FDIC’s Guidance for Managing Third-Party Risk, is voluntary and that the guide does not anticipate all types of fintech relationships and risks. Consistent with risk-based programs, a community bank may tailor how it uses the information “based on specific circumstances, the risks posed by each third-party relationship, and the related product, service, or activity. . . offered by the fintech company.”
On August 26, the FDIC issued FIL-58-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Tennessee affected by severe storms and flooding. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
- Jonice Gray Tucker to discuss “Updates on Artificial Intelligence Regulations - the U.S. and EU” at the American Bar Association Busines Law Section Meeting
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- APPROVED Webcast: California debt collection license requirement: Overview and analysis
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- Jeffrey P. Naimon to discuss “Regulators are gearing up: Are you ready?” at HousingWire Annual
- Amanda R. Lawrence and Elizabeth E. McGinn discuss “U.S. state privacy legislation – Are you compliant?” at the Privacy+Security Forum
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker and Kari K. Hall to discuss “Consumer Protection Priorities in the Biden Administration and Beyond" at the SWABC and TBA 2021 Legal Conference
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek