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On June 4, the OCC extended the deadline for national banks and federal savings associations (FSAs) with consolidated assets between $100 billion and $250 billion to comply with the Dodd-Frank stress test (DFAST) requirements to November 25. In December 2018, the OCC issued a letter noting that prior DFAST exams and OCC supervision have indicated that qualifying banks with consolidated assets within these thresholds have adopted effective stress testing programs and integrated them into their general risk management tools, and as such, “requiring DFAST submissions for these banks in 2019 would provide limited supervisory value.” According to the OCC, the extension is consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act’s goal of reducing regulatory burden for applicable national banks and FSAs.
On May 30, the OCC filed a letter with the U.S. District Court for the Southern District of New York notifying the court that it intends to work with NYDFS to issue a proposed final order to the court in the action challenging the OCC’s decision to allow fintech companies to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, in May, the court denied the OCC’s motion to dismiss, concluding that, among other things, the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, and therefore, the challenge “is ripe for adjudication.” In its letter, the OCC states that while it “disagrees with the Court’s decision, and reserves its right to appeal, it believes that the decision renders entry of final judgment in this matter appropriate.” An entry of final judgment, would allow the OCC to challenge the decision with the U.S. Court of Appeals for the 2nd Circuit.
On May 28, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by severe flooding in the south central region of the U.S. “for as long as deemed necessary for bank operation or public safety.” In issuing the proclamation, the OCC noted that only bank offices directly affected by potentially unsafe conditions should close, and that institutions should make every effort to reopen as quickly as possible to address customers’ banking needs. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions.
Find continuing InfoBytes coverage on disaster relief here.
On May 28, the Federal Reserve Board, the FDIC, and the OCC released the current host state loan-to-deposit ratios for each state or U.S. territory, which the agencies use to determine compliance with Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Under the Act, banks are prohibited from establishing or acquiring branches outside of their home state for the primary purpose of deposit production. Branches of banks controlled by out-of-state bank holding companies are also subject to the same restriction. Determining compliance with Section 109 requires a comparison of a bank’s estimated statewide loan-to-deposit ratio to the yearly host state loan-to-deposit ratios. If a bank’s statewide ratio is less than one-half of the yearly published host state ratio, an additional review is required by the appropriate agency, which involves a determination of whether a bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.
OCC issues final rule allowing certain federal savings associations to operate with national bank powers
On May 24, the OCC issued a final rule, which establishes standards permitting federal savings associations with total consolidated assets of $20 billion or less as of December 31, 2017, to elect to operate as “covered savings associations,” with the rights and privileges of national banks. The final rule—issued pursuant to section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended the Home Owners’ Loan Act (HOLA)—provides that associations who choose this election will retain their federal savings association charters and existing governance frameworks, and will generally be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that apply to national banks. Among other things, the final rule also states that “a covered savings association may continue to operate as a covered savings association if, after the effective date of the election, it has total consolidated assets greater than $20 billion.” The final rule takes effect July 1.
On May 21, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Combating Illicit Financing By Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.” The Committee heard from the same panel of witnesses who testified in November on the need for modernization of the Bank Secrecy Act/Anti-Money Laundering regime. (Covered by InfoBytes here.) Committee Chairman Mike Crapo opened the hearing by stressing the need to discuss ways in which beneficial ownership information collected in an effort to deter money laundering and terrorist financing through anonymous shell companies can be made more useful.
Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco emphasized that while the collection of beneficial ownership information occurs when an account is opened at a financial institution, as required under FinCEN’s Customer Due Diligence Final Rule (CDD Rule), “it is but one critical step toward closing this national security gap.” Blanco stressed that “[t]he second critical step in closing this national security gap is collecting beneficial ownership information at the corporate formation stage,” and stated Congress should develop a streamlined solution.
FBI Financial Crimes Section Chief Steven D’Antuono agreed with Blanco and said that, from a law enforcement perspective, a central repository would be “extremely helpful.” D’Antuono emphasized his support for the creation of a regime to collect and consolidate beneficial ownership information, which would enable law enforcement agencies to easily identify the beneficial owners of shell companies and help the agencies address illicit financing activity in a timely fashion. He encouraged Congress to consider other countries’ beneficial ownership disclosure requirements when developing legislation.
OCC Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer also agreed that a standardized approach for beneficial ownership data verification should be established. She highlighted the compliance burden on banks caused by the implementation of the CDD Rule, and suggested that Congress could establish a nationwide requirement, or a centralized database, for legal entities to provide, update and verify beneficial ownership information. In addition, because cross-border transaction activity can present higher risks for money laundering and terrorist financing, she recommended that “foreign legal entities be required to report ownership information either at the time of state registration or upon establishing an account relationship with a U.S. financial institution.”
On May 22, the FDIC announced it resolved a 2014 lawsuit brought by payday lenders that alleged that the FDIC, the OCC and the Federal Reserve abused their supervisory authority during Operation Chokepoint, an Obama Administration DOJ initiative that formally ended in August 2017 (covered by InfoBytes here) and was designed to target fraud by investigating U.S. banks and certain of their clients perceived to be a higher risk for fraud and money laundering. As previously covered by InfoBytes, in 2014, payday lenders filed a lawsuit against the federal banking agencies alleging that they participated in Operation Chokepoint “to drive [the payday lenders] out of business by exerting back-room pressure on banks and other regulated financial institutions to terminate their relationships” with such lenders. The payday lenders argued, among other things, that the initiative resulted in over 80 banking institutions terminating their business relationships with law-abiding companies.
Along with the announcement of the tentative settlement between the parties, the FDIC released a statement summarizing the FDIC’s internal policies and guidance for FDIC recommendations to financial institutions to terminate customer deposit accounts. The statement also included a letter written to the plaintiffs’ counsel acknowledging that “certain employees acted in a manner inconsistent with FDIC policies with respect to payday lenders in what has been generically described as ‘Operation Choke Point,’ and that this conduct created misperceptions about the FDIC’s policies.” In the press announcement regarding the resolution of the case, the FDIC emphasized that neither the statement nor the letter represent a change in the FDIC’s policy and guidance, and that all “existing applicable regulations and guidance documents remain in full force and effect.” Further, while the May 21 joint status report filed in the case noted that FDIC senior leadership had not yet reviewed the agreement, the report noted that the FDIC does “not anticipate any objections.”
Additionally, on May 23, the OCC acknowledged it had been dismissed from the litigation as part of the lawsuit’s resolution.
On May 20, the OCC released its Semiannual Risk Perspective for Spring 2019, identifying and reiterating key risk areas that pose a threat to the safety and soundness of the federal banking system, focusing on the following risk areas: credit, operational, compliance, and interest rate. The OCC noted that rapid growth within the fintech and regulatory technology space impacts each of these risk areas, which the agency is monitoring closely in order to implement necessary actions to address concerns. Overall, although the OCC acknowledged that the health of the federal banking system remains strong, specific risk areas of concern include (i) the need to have in place appropriate risk management practices as well as methods for assessing “the quality and timeliness of credit risk identification, risk mitigation, and loan loss reserve methodology”; (ii) elevated operational risk as banks adapt to a changing and increasingly complex operating environment, including cybersecurity threats, fintech innovation, and a reliance on third-party providers; (iii) high compliance risk related to Bank Secrecy Act/anti-money laundering (BSA/AML), as well as challenges facing banks to “effectively manage money-laundering risks in a complex, dynamic global operating and regulatory environment”; and (iv) potential challenges to earnings due to interest rate risk and liquidity risk, which lead to increased difficulties when forecasting liability costs.
Concerning BSA/AML risk, the OCC specifically noted that AML-related deficiencies “stem from three primary causes: inadequate customer due diligence and enhanced due diligence, insufficient customer risk identification, and ineffective processes related to suspicious activity monitoring and reporting, including the timeliness and accuracy of Suspicious Activity Report filings. Talent acquisition and staff retention to manage BSA/AML compliance programs and associated operations present ongoing challenges, particularly at smaller regional and community banks.” The report reminded banks that necessary training, quality assurance, independent testing, and control updates are expected to be implemented during the FY 2019 examination cycle as required under the Financial Crimes Enforcement Network’s customer due diligence rule (previously covered by InfoBytes here).
“Innovation can enhance a bank’s ability to compete by introducing new ways to meet customer product and service needs, improve operating efficiencies, and increase revenue,” the OCC noted, but changing business models or offering new products and services can “elevate strategic risk when pursued without appropriate corporate governance and risk management.”
On May 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include personal cease-and-desist orders, removal and prohibition orders, notice of charges against an individual, and terminations of existing enforcement actions against individuals and banks. The release also includes two civil money penalty orders discussed below.
On April 9, the OCC assessed $35,000 in civil money penalties against an Oklahoma-based bank for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations. Additionally, on April 24, the OCC assessed $136,000 in civil money penalties against a Texas-based bank for an alleged pattern or practice of failing to ensure timely notification and force-placement of flood insurance on property in special flood hazard areas, in violation of the National Flood Insurance Act.
On May 7, the OCC announced an update to the RESPA booklet of the Comptroller’s Handbook. Among other things, the revisions to the booklet reflect updates to Regulation X made by the CFPB in recent years, including (i) the establishment and implementation of a definition of “successor in interest;” (ii) compliance with certain servicing requirements when a person is a debtor in bankruptcy; and (iii) clarifications and revisions to the provisions regarding force-placed insurance notices, policy and procedure requirements, and early intervention and loss mitigation requirements.
- APPROVED Webcast: Introducing Mogy — APPROVED’s licensing technology solution
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Christopher M. Witeck and Moorari K. Shah to discuss "The latest in vendor management regulations" at a Mortgage Bankers Association webinar
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference