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FinCEN Assesses Penalties Against Texas Bank for AML Violations
On November 1, the Financial Crimes Enforcement Network (FinCEN) announced that it had assessed a $2 million civil money penalty against a Texas bank for “willfully violating” the Bank Secrecy Act (BSA). According to FinCEN, the bank failed to comply with the specific due diligence requirements for correspondent banking relationships as required by section 312 of the USA PATRIOT ACT. In particular, FinCEN found that the bank failed to ask appropriate due diligence questions in connection with the foreign bank account relationship and did not verify the accuracy of responses to questions it did pose. FinCEN further found that the bank did not appropriately establish specific customer risk profiles and assign proper risk ratings, resulting in a failure to identify, review, and escalate potential anti-money laundering (AML) violations.
In 2015, the bank previously resolved alleged BSA/AML deficiencies identified by the OCC and agreed to pay a $1 million civil money penalty. The bank’s payment of the $1 million OCC penalty is credited to the FinCEN penalty. FinCEN also acknowledged the considerable resources the bank invested in its BSA compliance operations and customer due diligence processes.
OCC Presents First National Bank Charter Since the Financial Crisis
On October 27, Acting Comptroller of Currency, Keith A. Noreika, issued the first full-service national bank charter since the financial crisis to a banking institution in Florida. The institution is also the first de novo national bank and de novo approved for federal deposit insurance in Florida since the financial crisis. While presenting the charter, Noreika commented on the rarity of de novo banks and encouraged better efficiency in the process for their establishment in order to, “create more economic opportunity for consumers, businesses, and communities across the nation.”
As previously covered by InfoBytes, the House Financial Services Committee held a hearing in March related to the “de novo drought” and to examine the impact the Dodd-Frank Act has had on the creation of new financial institutions.
OCC Updates Guidance on Federal Branch Supervision and Enforcement Action Policies and Procedures
On October 27, the OCC issued Bulletin 2017-46, updating guidance related to federal bank branch supervision and licensing. The OCC issued a revised version of its “Federal Branches and Agencies” booklet, which clarifies the process for reviewing and evaluating license conversion applications by a state-licensed branch or agency operated by a foreign bank to a federal branch or agency. Bulletin 2017-46 also replaced the 2014 agency paper entitled, The OCC’s Approach to Federal Branch and Agency Supervision. The paper outlines the OCC’s framework and considerations related to (i) the regulatory approach and supervision process for large and complex federal branches and agencies (not community banks), and (ii) the general overview of the filing requirements for applications, notices, and licenses, as well as the review and decision process.
On October 31, the OCC issued Bulletin 2017-48 to update its policies and procedures regarding bank enforcement actions. The updates are designed to provide more clarity and consistency in the implementation, communication and monitoring of enforcement actions. In particular, the updates are intended to, among other things, better describe the relationship between violations, concerns identified in matters requiring attention, and enforcement actions, emphasize communication with bank management and personnel and OCC supervisors, and enhance standard processes for tracking and resolving corrective actions. The updates are effective December 1, and are reflected in its “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies Supervision,” and “Large Bank Supervision” booklets of the Comptroller’s Handbook.
OCC Proposes Changes to Annual Stress Test Rule
On October 27, the Office of the Comptroller of Currency (OCC) issued proposed changes to its “stress test” rules for covered financial institutions required by the Dodd-Frank Act. Specifically, the proposal would, (i) extend the window by three months to allow the OCC to choose an appropriate “as-of” date in the trading and counterparty default component of the stress test (intended to conform with recent rule changes by the Federal Reserve); and (ii) extend the transition process for certain banks and savings associations that cross the $50 billion asset threshold before stress testing requirements are applicable.
Comments for the proposed changes must be received on or before December 26.
In addition to this proposal, on October 6, the Fed, FDIC, and the OCC, issued a joint notice and request for comment, which proposes to combine the agencies’ three separate, identical stress test report forms into a single new Federal Financial Institutional Examination Council (FFIEC) report (FFIEC 016) under the Dodd-Frank Act (previously covered by InfoBytes here).
OCC to Host Workshop for Bank Directors in December; FDIC, CFPB Announce Webinar to Discuss Financial Education Resources
On October 23, the OCC announced it will host a workshop December 4-6 in Albuquerque, New Mexico, for directors, senior management team members, and other key executives of OCC-supervised national community banks and federal savings associations. The “Building Blocks for Directors” workshop will (i) focus on the duties and cores responsibilities of directors and management; (ii) discuss major laws and regulations; and (iii) provide insight on the examination process.
Also on October 23, the FDIC and CFPB announced they will co-host a webinar on November 15 to discuss financial education resources designed to help people with disabilities make informed financial decisions. Topics of discussion will include recent enhancements to the FDIC’s Money Smart curriculum and the CFPB’s Your Money, Your Goals toolkit.
OCC Announces Recent Enforcement Actions and Terminations
On October 19, the OCC released a list of new enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The OCC also released a list of recently terminated enforcement actions. The new enforcement actions include cease and desist orders, civil money penalty orders, personal cease and desist orders, removal/prohibition orders, and notices. The personal cease and desist orders relate to four directors of a Texas bank that were each fined $5,000 for breaches of fiduciary duty and unsafe or unsound practices. These practices allegedly included approving and ratifying loans with “concessionary and liberal terms to unqualified borrowers” in order to “finance the borrower’s purchase of stock in the [b]ank’s holding company to raise capital for the Bank.” (See civil money penalties here, here, here, and here.)
OCC Issues Updates to Risk Management Principles
On October 20, the OCC released modifications to its risk management principles for new, modified, or expanded financial products and services (collectively, new activities). Bulletin 2017-43 rescinds OCC Bulletin 2004-20 and section 760 of the Office of Thrift Supervision Examination Handbook. The Bulletin provides guidance on risks in the following categories: strategic, reputational, credit, operational, compliance, and liquidity. The Bulletin also outlines the main components of an effective risk management system, such as the need for:
- “adequate due diligence and approvals before introducing a new activity”;
- “policies and procedures to properly identify, measure, monitor, report, and control risks”;
- “effective change management for new activities or affected processes and technologies”; and
- “ongoing performance monitoring and review systems.”
According to the OCC, the sophistication of a bank’s risk management system should be commensurate with the bank’s size, complexity, and risk profile. Further, “bank management and boards of directors should understand the impact of new activities on banks’ financial performance, strategic planning process, risk profiles, traditional banking models, and ability to remain competitive.”
OCC Acting Comptroller Discusses Innovation and Technology in the Financial Services Industry
On October 19, OCC Acting Comptroller of the Currency Keith A. Noreika spoke at Georgetown University’s Institute of International Economic Law’s Fintech Week to discuss innovation within the financial technology sector and its impact on the evolution of the financial services marketplace. “[W]hat has allowed the business of banking to evolve so successfully is that we have remained open to change and created a framework of laws and regulation over time that allows banking activities to evolve,” Noreika remarked. “[W]e have to be careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from taking advantage of responsible advances in technology and commerce.”
Noreika spoke about the OCC’s Office of Innovation (Office), which was created earlier this year to facilitate discussions related to fintech and financial innovation. A pilot framework is currently being developed by the Office to create a “controlled environment” for banks to develop and test products to provide insight into a “proposed product’s controls and risks” and how it might possibly impact OCC policies in the future.
Noreika also discussed the OCC’s position on issuing special purpose national bank charters to non-depository fintech companies seeking to expand into the banking sector—a concept currently being contested by both the Conference of State Bank Supervisors (CSBS) and the New York Department of Financial Services (NYDFS), and one which the OCC has not yet made a decision (See previous InfoBytes coverage of CSBS’ and NYDFS’ challenges here and here.) Addressing claims that fintech charters would inappropriately mix banking and commerce, Noreika refuted the argument and stated that his suggestion was to “talk to any company interested in becoming a bank and that commercial companies should not be prohibited from applying—if they meet the criteria for doing so.” Further, a “chartered entity, regulated by the OCC, would be a bank, engaged in at least one of the core activities of banking” as defined by the Bank Holding Company Act.
CFPB Updates HMDA Implementation Materials; Federal Regulatory Agencies Release Key Data Fields
On October 17, the CFPB published a new reference chart titled “Reportable HMDA Data: A Regulatory and Reporting Overview Reference” designed to be used as a reference tool for required data points to be collected, recorded, and reported under Regulation C. The chart takes into account HMDA rules issued on August 24, which generally take effect January 1, 2018. (See previous InfoBytes coverage here.) The CFPB noted that the reporting reference chart “does not itself establish any binding obligations” and is not intended to be viewed as a “substitute for the regulation or its official commentary.”
Separately that same day, in a measure to promote efficiency and consistency, the Board of Governors of the Federal Reserve, FDIC, and OCC identified 37 key data fields that examiners will typically use to test and validate the accuracy and reliability of data collected under the new HMDA requirements beginning in 2018. In certain circumstances, however, examiners may find it necessary to review additional HMDA data fields as appropriate. OCC Acting Comptroller of the Currency Keith Noreika noted in a statement that these actions should help ensure the accurate collection of HMDA data without creating “needless burden” on community banks surrounding the full resubmission of data “simply because of a few minor errors.”
Federal Agencies Offer Consumer Relief Measures Following Recent Natural Disasters
On October 13, the Department of Veterans Affairs (VA) released two circulars (here and here) describing measures mortgagees may employ to provide relief to VA home loan borrowers affected by recent California wildfires and Hurricane Nate. Referencing the VA’s guidance on natural disasters, the VA’s recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
Separately, on October 17, the Federal Reserve Board, FDIC, National Credit Union Administration, and OCC released a joint notice under the Financial Institutions Reform, Recovery, and Enforcement Act that temporarily eases appraisal requirements for real estate-related financial transactions in areas impacted by recent hurricane disasters. The four agencies will allow appraisal exceptions, provided that financial institutions determine, and obtain documentation related to, the following: (i) the property involved is located in a major disaster area; (ii) there exists a binding commitment to fund the transaction within 36 months of the date the area was declared a major disaster; and (iii) “the value of the real property supports the institution’s decision to enter into the transaction.” The expiration date for exceptions in each area covered by the notice is three years after the date the President declared the area to be a major disaster area.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.