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FinCEN Rules Proposed Virtual Currency Exchange, Bitcoin Payment System Subject to BSA
On October 27, FinCEN issued two administrative rulings to companies seeking guidance on whether they must register as MSBs and be subject to the required reporting, recordkeeping, and monitoring obligations. In its first letter, a company queried whether its plans to set up a virtual currency trading and booking platform, similar to a traditional securities or commodities exchange, would make it subject to FinCEN regulations. FinCEN responded that the proposed virtual trading platform would be classified as an MSB. As a result, the company would have to register as an MSB as defined under the BSA. In its second ruling, a company asked whether a bitcoin payment system would be subject to the agency’s regulations. The payment system would accept customers’ credit card payments and transfer the payments to merchants in the form of bitcoin. FinCEN ruled that if the company sets up the payment system, the company would be classified as a money transmitter, and subject to BSA regulations, because “it engages as a business in accepting and converting the customers’ real currency into virtual currency for transmission to the merchant.”
Basel III Releases Final Standard On Net Stable Funding Ratio
On October 31, the Basel III Committee on Banking Supervision released its final standard for the net stable funding ratio (NSFR), which requires that banks maintain stable funding sources to mitigate liquidity risk. The standard will complement the liquidity coverage ratio finalized earlier this year. The NSFR will ensure banks have enough cash or assets that can reliably be converted into cash to cover their expected outflows on a one-year horizon. In 2010, the Basel III Committee established a rigorous review process of the financial market and economy, and revised that standard in January 2014 to “focus on the riskier types of funding profile employed by banks while improving alignment with the LCR and reducing cliff effects in the measurement of available and required stable funding.” The most recent revisions cover the required stable funding for: (i) short-term exposures to financial institutions, including but not limited to banks; (ii) derivatives exposures; and (iii) assets posted as initial margin for derivatives contracts. The NSFR will become a minimum standard by January 1, 2018.
Agencies Propose Flood Insurance Rule
On October 30, five federal agencies - the FCA, FDIC, NCUA, OCC and the Fed - issued a proposed rule regarding flood insurance. The proposed rule will amend regulations relating to loans secured by property located in special flood hazard areas. Specifically, the proposed rule would (i) establish requirements in connection with the escrow of flood insurance payments; (ii) provide certain borrowers with the option to escrow flood insurance premiums and fees; and (iii) eliminate the HFIAA requirement “to purchase flood insurance for a structure that is part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence.” Comments on the proposed rule are due by December 29, 2014.
OCC Shuffles Management, Creates Senior Position to Oversee Risk
On October 27, the OCC announced the appointment of Darrin Benhart as Deputy Comptroller for Supervision Risk Management and Bethany Dugan as Deputy Comptroller for Operational Risk. Mr. Benhart will assume the position of full-time chair of the agency’s National Risk Committee, responding to a recommendation from a peer review that the agency create such a role. Mr. Benhart’s position is intended to strengthen the OCC’s ability to address risk in the national banking system. Prior to his appointment, Mr. Benhart served as the Deputy Comptroller for Credit and Market Risk. In her new role, Ms. Dugan will oversee the policy and examination procedures developments, specifically those that address operational risk issues.
Fed Ends QE3
On October 29, the FOMC released its policy statement announcing an end to the Fed’s mortgage and treasury bond purchase program used to boost the economy. Quantitative Easing 3 (QE3) was the third in a series of subsequent monetary policy tools used to spur investing and spending in part by keeping long-term interest rates low. The end of QE3 marks a significant milestone in the post-crisis era. Regarding the end of QE3, the FOMC noted that it had seen “a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.”
CFTC Holds Open Meeting to "Fine-Tune" Derivatives Rules
On October 27, the CFTC announced that it will hold an open meeting on November 3 to clarify: (i) when residual interest must be posted by futures merchants; (ii) record keeping requirements of commodity interest and related cash or forward transactions; and (iii) the interpretation of when an agreement, contract, or transaction that contains embedded volumetric optionality falls outside the exception of being considered a swap. The November 3 meeting will be held at the CFTC headquarters in Washington, DC and will be available via webcast or conference call.
Fed Issues Final Rule Affecting Financial Market Utilities, Updates Policy on Payment System Risk
On October 28, the Federal Reserve announced its final rule to amend Regulation HH, standards for financial market utilities (FMUs) that have been designated as systemically important by the FSOC. The new rule will implement a common set of risk-management standards for all designated FMUs and revise certain definitions. Further, the Fed also announced final revisions to part 1 of its Federal Reserve Policy on Payment System Risk. The final rule and revisions to the policy are based on the Principles for Financial Market Infrastructures, which were developed jointly by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions. Specifically, the amendments and revisions will establish (i) separate standards to address credit risk and liquidity risk; (ii) new plans for recovery and orderly wind-down; (iii) new standards on general business risk and on tiered participation arrangements; and (iv) increased requirements on transparency and disclosure. The final rule will be effective on December 31, 2014. FMUs have until December 31, 2015 to comply with specific additional requirements set forth in the rule.
FINRA Announces Director Of Dispute Resolution
On October 30, FINRA announced that, effective December 1, Richard Berry will assume the positions of Executive Vice President and Director of Dispute Resolution. FINRA Dispute Resolution is the arbitration and mediation process between two or more parties, most notably investors. Currently, Mr. Berry is the Senior Vice President and oversees four regional Dispute Resolution offices in New York, Boca Raton, Chicago, and Los Angeles. Mr. Berry will replace Linda Fienberg, who is scheduled to retire on November 1. Mr. Berry will report directly to FINRA’s chairman and CEO, Richard Ketchum.
SEC Promotes Agency Official to Lead Regional Office Investment Adviser/Investment Company Exam Program
On October 28, the SEC announced Steven Levine as the Associate Director for the Investment Adviser/Investment Company examination program in its Chicago office. Levine, who joined the agency in 2010, had served as one of its two acting Associate Directors since March 2013. Levine will oversee the IA/IC exam program spanning nine Midwestern states, including a staff of approximately 65 examiner, accountants, and attorneys.
FCC Joins Global Privacy Enforcement Network
On October 28, amid growing threats to consumer privacy, the FCC announced that it has joined the Global Privacy Enforcement Network (GPEN), an international group of privacy regulators and enforcers. The move will allow the FCC to more easily collect and share data among approximately 50 privacy and data protection authorities from around the world. The FCC joins the FTC as the only two agencies representing the United States in cross-border GPEN proceedings.