Regulators took a number of actions last week that may have particular importance for community banks.  The CFPB took its first cybersecurity enforcement action through a consent order with Dwolla.  The most significant message of the order is that the remedial actions effectively lay the CFPB's floor for satisfactory cybersecurity practices.  We discuss the Dwolla order in detail in a forthcoming client alert. Please check our website, www.nelsonmullins.com/newsletters

Other notable developments include the OCC's announcement of an enforcement process for non-compliance with BSA/AML requirements, an interagency advisory on the use of evaluations rather than appraisal in real estate-related transactions, warnings from the CFPB about online lending and prepaid products, and a new consumer guide on cybersecurity from the FDIC.

The full set of developments over the last week includes:

The Economy

  • February jobs report shows unemployment remains at 4.9% (Mar. 4).

Community Banks

  • House Financial Services Committee approves H.R. 2896, the "Taking Account of Institutions with Low Operation Risk Act of 2015" (Mar. 2).
    • Bill requires federal banking agencies, NCUA, and CFPB to take into account different business models and operational risk of different banks before taking a regulatory action.
    • Bill introduces additional factors for agencies explicitly to take into account in rulemaking proceedings.
    • Annual reports and appearances before House and Senate banking committees by agency heads.
    • Look-back required for all regulations adopted in the period beginning 5 years before introduction of bill in House.
    • H.R. 2896 available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=400396.

Alternative Lending

Appraisals

  • Banking agencies issue Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions (Mar. 4).

Bank Secrecy Act

  • OCC issues bulletin on enforcement process for BSA compliance matters (Feb. 29).
    • OCC required by statute to issue cease-and-desist order for BSA compliance program violations or violations for repeat or uncorrected BSA compliance problems.
    • Bulletin outlines process for notice and opportunity to be heard before OCC issues order.
    • Bulletin 2016-6 available at http://www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-6.html.
  • Comptroller Curry discusses "de-risking" in remarks before the Institute of International Bankers (Mar. 7).
    • De-risking is the termination of account or other relationships with foreign correspondent banks or others based on concerns about BSA/AML compliance.
    • OCC reviewing bank policies on correspondent or client terminations and nature of decision-making process.
    • Guidance from OCC may be forthcoming.
    • Remarks available at http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-25.html.
  • Federal Reserve and NY Dep't of Financial Services enter into written agreement with Industrial Bank of Korea and its New York branch correcting BSA/AML and OFAC issues (Mar. 1).

Cybersecurity

Federal Reserve

Funds Transfer Pricing

  • Banking agencies issue Interagency Guidance on Funds Transfer Pricing Related to Funding and Contingent Liquidity Risks (Mar. 1).
    • Guidance applies only to U.S. banking organizations with $250 billion or more in total consolidated assets or $10 billion in more in on-balance-sheet foreign exposures and to FBOs with U.S. assets of $250 billion or more.
    • Guidance addresses appropriate allocation of costs and benefits associated with funding and contingent liquidity risks.
    • Four principles:
      • A firm should allocate FTP costs and benefits based on funding risk and contingent liquidity risk.
      • A firm should have a consistent and transparent FTP framework for identifying and allocating FTP costs and benefits on a timely basis and at a sufficiently granular level, commensurate with the firm' size, complexity, business activities, and overall risk profile.
      • A firm should have a robust governance structure for FTP, including the production of a report on FTP and oversight from a senior management group and central management function.
      • A firm should align business incentives with risk management and strategic objectives by incorporating FTP costs and benefits into product pricing, business metrics, and new product approval.
    • OCC Bulletin 2016-7 available at http://www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-7.html.

Mortgage Lending – Abandoned Foreclosures

Mortgage Lending – "Rural" Designation

Prepaid Products

Too Big to Fail

  • Federal Reserve re-proposes single-party credit exposures rule for large U.S. bank holding companies (Mar. 4).
    • Rule required by section 165(e) of Dodd-Frank.
    • Three limits on exposures of large U.S. bank holding companies to another party, depending on size of banking organization.
      • Bank holding companies with $50 billion or more in assets: 25% of total capital.
      • Bank holding companies with $250 billion or more in assets or $10 billion or more in on-balance-sheet credit exposures: 25% of tier 1 capital.
      • G-SIBs: 15% of tier 1 capital on exposures to another systemically important financial firm and 25% of tier 1 on exposures to another party.
    • Proposal includes comparable rules for large foreign banking organizations.
    • Third proposed limit comparable to Large Exposures standard for internationally active banks issued in 2014 by Basel Committee on Banking Supervision.
    • Proposal and other material available at http://www.federalreserve.gov/newsevents/press/bcreg/20160304b.htm.
    • Comment deadline: June 3.
  • Banking agencies issue Interagency Guidance on Funds Transfer Pricing Related to Funding and Contingent Liquidity Risks (Mar. 1).
    • See Funds Transfer Pricing above.

Volcker Rule

  • Agencies add new entry to FAQs regarding treatment of qualifying trust preferred CDOs (Mar. 4).
    • Banking entity not required to deduct such CDOs from tier 1 capital.
    • Qualifying CDO is one issued before May 19, 2010, by a bank or thrift holding company with less than $15 billion in total consolidated assets.
    • Full FAQs, including latest entry, available at http://www.federalreserve.gov/bankinforeg/volcker-rule/faq.htm.

Congressional Activity – Recent

  • House Financial Services Committee hearing.
  • House Financial Services Committee markup of ten bills (Mar. 2).
    • Committee approves H.R. 2896, the "Taking Account of Institutions with Low Operation Risk Act of 2015."
      • For details, see Community Banking above.
    • Other bills cover:
      • Securities law issues, including extension of five-year exemption from SOX 404(b) for emerging growth companies, new provisions for angel investors, creation of venture exchanges, and removal of enforcement actions to federal district court.
      • Easing of risk retention requirements for qualifying collateralized loan obligations and for single asset single borrower market.
      • SAFE licensing.
      • Volcker Rule amendment to allow covered fund to use name of sponsor.
      • Flood insurance.
    • Bills and Committee Memorandum available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=400396.
  • Senate Banking Committee hearing.

Upcoming Events

  • Mar. 9
    • FDIC webinar, "Cybersecurity Resources for Financial Institution Customers."
  • Mar. 15
    • OCC Director Workshop, "Risk Governance – Improving Director Effectiveness," Atlanta GA.
  • Mar. 15-16
    • FOMC meeting.
  • Mar. 16
    • OCC Director Workshop, "Compliance Risk: What Directors Need to Know," Atlanta GA.
  • Mar. 22
    • OCC Director Workshop, "Credit Risk: Directors Can Make A Difference," Santa Ana CA.
  • Mar. 23
    • OCC Director Workshop, "Compliance Risk: What Directors Need to Know," Santa Ana CA
  • Apr. 4
    • Federal Reserve Bank of Minneapolis, first "Ending Too Big to Fail" policy symposium.
  • Apr. 4-6
    • OCC Director Workshop, "Building Blocks for Directors: Keys to Success," Omaha NE.
  • Apr. 6
    • FDIC Community Banking Conference, "Strategies for Long-Term Success," Arlington VA.
    • FDIC Comprehensive Deposit Insurance Seminar.
  • Apr. 19
    • OCC Director Workshop, "Risk Governance – Improving Director Effectiveness," Williamsburg VA.
  • Apr. 20
    • OCC Director Workshop, "Credit Risk: Directors Can Make A Difference," Williamsburg VA.
  • May 2-4
    • OCC Director Workshop, "Building Blocks for Directors: Keys to Success," Wilmington DE.
  • May 3
    • OCC Director Workshop, "Risk Governance – Improving Director Effectiveness," Springfield IL.
  • May 4
    • OCC Director Workshop, "Compliance Risk: What Directors Need to Know," Springfield IL.
  • May 17
    • OCC Director Workshop, "Credit Risk: Directors Can Make A Difference," Corpus Christi TX.
  • May 18
    • OCC Director Workshop, "Operational Risk – Navigating Rapid Changes," Corpus Christi TX.

Regulatory Comment Deadlines

  • Mar. 11 – Basel Committee: second consultative report on "Revisions to the Standardized Approach for Credit Risk."
  • Mar. 14 – CFPB: changes to HMDA resubmission guidelines.
  • Mar. 21 – Federal Reserve: policy statement on framework for setting countercyclical capital buffer.
  • Mar. 23 – Federal Reserve, OCC, FDIC: EGRPRA categories of rules of procedure, safety and soundness, and securities, as well as Dodd-Frank rules and capital and liquidity rules.
  • Mar. 28 – SEC: derivatives rules for BDCs and registered funds.
  • Apr. 29 – Federal Reserve: reduction in dividend rate on Reserve Bank stock held by member banks with total assets of more than $10 billion.
  • Apr. 29 – Federal Reserve, OCC, FDIC: ceiling on eligibility for 18-month examination cycle increased from $500 million to $1 billion.
  • May 2 – SEC/FDIC: application of orderly liquidation authority to broker-dealers.
  • May 26 – FDIC: recordkeeping requirements for banks with more than 2 million deposit accounts.
  • June 3 – Federal Reserve: single party credit exposures.