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OCC allows institutions affected by severe flooding in Gulf Coast to temporarily close
On July 12, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by severe weather along the Gulf Coast “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.
Agencies adopt final rules excluding community banks from the Volcker Rule; simplify regulatory capital rules
On July 9, the Federal Reserve Board (Fed), CFTC, FDIC, OCC, and SEC adopted a final rule implementing sections of the Economic Growth, Regulatory Relief, and Consumer Protection Act to grant an exclusion for community banks from the Volcker Rule, which generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds. Qualifying financial institutions must have fewer than $10 billion in total consolidated assets and total trading assets, as well as liabilities that are equal to or less than five percent of their total consolidated assets. The rule also permits, under certain circumstances, a hedge fund or private equity fund organized and offered by a banking entity to share a name with a banking entity that is its investment advisor that is not an insured bank or bank holding company. The rule will take effect upon publication in the Federal Register.
The same day, the Fed, FDIC, and OCC also finalized a rule “intended to simplify and clarify a number of the more complex aspects of the agencies’ existing regulatory capital rules” for banks with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. Among other changes, the rule alters the capital treatment for mortgage servicing assets, certain deferred tax assets, as well as investments in the capital instruments of unconsolidated financial institutions. The final rule will be effective as of April 1, 2020, for the amendments to simplify capital rules, and as of October 1, 2019 for revisions to the pre-approval requirements for the redemption of common stock and other technical amendments.
OCC releases guidance documents for final rule implementing HOLA amendments
On July 1, the OCC issued Bulletin 2019-31, which describes the process for federal savings associations to make an election to operate as “covered savings associations,” with the rights and privileges of national banks under the May 24 Home Owners’ Loan Act (HOLA) final rule. As previously covered by InfoBytes, the OCC issued a final rule—pursuant to section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, amending the Home Owners’ Loan Act (HOLA)—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 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.
Bulletin 2019-31 reminds entities of the July 1 effective date of the final rule and provides details on the process for making an election pursuant to the rule. Additionally, along with the Bulletin, the OCC released a set of Frequently Asked Questions covering the final rule.
House Fintech Task Force holds first hearing
On June 25, the House Financial Services Committee’s Task Force on Financial Technology held its first-ever hearing, entitled “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation.” As previously covered by InfoBytes, the Committee created the task force to explore the use of alternative data in loan underwriting, payments, big data, and data privacy challenges. The hearing’s witness panel consisted of high-ranking innovation officials across various agencies and associations, including the CFPB, OCC, SEC, CSBS, and the U.K.’s Financial Conduct Authority. Among other things, the hearing discussed whether digital currency is considered a security, the OCC’s special purpose national bank charter, and the U.K.’s regulatory sandbox approach.
SEC representative, Valerie Szczepanik, stated that she believes the SEC has been “quite clear” with regard to initial coin offerings, noting that “[e]ach digital asset is its own animal. It has to be examined on its facts and circumstances to determine what in fact it is. It could be a security, it could be a commodity, it could be something else. So we stand ready to provide kind of guidance to folks if they want to come and talk to us. We encourage them to come talk to us before they do anything so they can get the benefit of our guidance.”
While much of the OCC special purpose bank charter discussion focused on a social media’s plan to launch its own virtual currency, CSBS representative, Charles Clark, emphasized that “[s]tate regulators oppose the special purpose charter because it lacks statutory authority” and that it should be up to Congress to decide whether the OCC can regulate non-bank entities. Clark noted that a federal system would create an unlevel playing field compared to a state system where “a small company can enter the system, scale up, and be competitive with an innovative idea.”
Lastly, the FCA representative, Christopher Woolard, emphasized that fintech firms participating in the country’s sandbox program are “fully regulated” and probably the U.K.’s “most heavily supervised,” noting that the FCA believes “sandbox firms have to work in the real world from day one.” Additionally, Woolard asserted that the sandbox program is making a difference in the market stating that of their 110 tests, 80 percent of the firms that enter the program go on to fully operate in the market. He concluded asserting, “we believe that around millions of consumers have [] access to new products [] geared around better value or greater convenience.”
Japanese bank pays $33 million to settle NYDFS claims of weak BSA/AML controls
On June 24, the New York Department of Financial Services (NYDFS), together with the New York Attorney General, announced a $33 million settlement with a Japanese bank resolving allegations the bank’s internal controls—specifically, its anti-money laundering (AML), Bank Secrecy Act (BSA), and Office of Foreign Assets Control (OFAC) sanctions compliance programs—at its New York Branch were “systematically deficient” between November 2014 and November 2018. This allegedly resulted in violations of state and federal laws and regulations, as well as two previous NYDFS consent orders from 2013 and 2014. The settlement resolves an action that was commenced by the bank against NYDFS in connection with a 2017 application with the OCC to convert its state-licensed branches in New York, Illinois, and California and its state-licensed agency offices in Texas to federally licensed branches and agency offices. The action sought to block a NYDFS order that would keep the bank under its supervisory purview notwithstanding the OCC’s granting of the federal charter. The settlement indicates that neither NYDFS, NYAG, or the bank admit any wrongdoing, but have agreed to dismiss all outstanding claims, upon the bank’s monetary payment. The settlement states that NYDFS releases the bank of any further obligations related to the previous consent orders and notes that it “will not attempt to exercise any visitorial power or other supervisory, regulatory, or enforcement authority over [the bank] or its branches or agencies.”
Agencies release 2019 list of distressed, underserved communities
On June 17, the OCC, together with the Federal Reserve and the FDIC, released the 2019 list of distressed or underserved communities where revitalization or stabilization efforts by financial institutions are eligible for Community Reinvestment Act (CRA) consideration. According to the joint release from the agencies, the list of distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies pursuant to their CRA regulations and reflect local economic conditions, including changes in unemployment, poverty, and population. For any geographies that were designated by the agencies in 2018 but not in 2019, the agencies apply a one-year lag period, so such geographies remain eligible for CRA consideration for another 12 months.
Similar announcements from the Federal Reserve and the FDIC are available here and here.
Agencies finalize streamlined small-institution reporting
On June 17, the FDIC, the OCC, and Federal Reserve issued the final rule to streamline regulatory reporting for qualifying small institutions to implement Section 205 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The agencies adopted the final rule as proposed in November 2018 (covered by InfoBytes here). The final rule permits depository institutions with less than $5 billion in assets—previously set at $1 billion—that do not engage in certain complex or international activities to file the FFIEC 051 Call Report, the most streamlined version of the Call Reports. Additionally, the rule reduces the existing reportable data items in the FFIEC 051 Call Report by approximately 37 percent for the first and third calendar quarters. The rule also includes similar provisions for uninsured institutions with less than $5 billion in total consolidated assets that are supervised by the Federal Reserve and the OCC. The rule notes that the agencies are also committed to “exploring further burden reduction and are actively evaluating further revisions to the FFIEC 051 Call Report, consistent with guiding principles developed by the FFIEC.” The rule will take effect 30 days after it is published in the Federal Register.
OCC extends Dodd-Frank stress test compliance date
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.
OCC wants final judgment in NYDFS fintech charter challenge
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.
OCC allows institutions affected by severe flooding in south central U.S. to temporarily close
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.