Weekly RoundUp
January 27, 2016

Financial Services Weekly News

Regulators taking steps to reduce burden for small and new banks. Last week federal banking regulators took two small steps toward reducing the regulatory burden on community banks by extending the on-site exam cycle for banks with up to $1 billion in assets from 12 months to 18 months and when the FDIC revised a proposed rule for assessing deposit insurance premiums on banks with under $10 billion in assets in an effort to more fairly allocate assessments by risk. Across the pond, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) launched a New Bank Start-up Unit designed to build on efforts to reduce the barriers to entry for prospective banks, which has led to 12 new banks being authorized in the UK since April 2013. Previous press reports indicated that the FDIC has met with state regulators to express interest in new applicants and conducted training sessions in preparation for incoming de novo bank applications. UK and US regulators are on record that new bank formations “are a key part of bringing innovation to the sector” and “foster a vibrant community banking sector.” But the compliance burden on community banks remains high. If federal and state banking regulators (as well as Congress) are genuinely serious about reducing barriers to entry and encouraging new bank formations, regulatory relief for community banks beyond a longer exam cycle and reallocated insurance assessments might be a good place to start.

Regulatory Developments

Under Review: Deposit Insurance Assessments for Small Banks

On Jan. 21, the FDIC approved revised proposed rules on risk-based federal deposit insurance assessments for small banks (those with less than $10 billion in assets). The revisions reflect feedback from approximately 480 public comments to an initial rule proposal published in 2015. The revisions primarily (a) incorporate a revised one-year asset growth measure, such that increased assessment rates are triggered once growth exceeds ten percent; (b) apply a brokered deposit ratio comparing brokered deposits to total assets as a measure in the financial ratios method of calculating assessments, such that increased assessment rates are triggered once brokered deposits exceed ten percent; and (c) remove the existing brokered deposit adjustment. Banks can use an online calculator to estimate the impact of the proposed changes. A 30-day comment period will follow the upcoming publication of the proposed revised rules in the Federal Register.

18-Month Exam Cycle Availability Expanded to More Small Banks

On Jan. 21, the FDIC, OCC and Federal Reserve Board approved a joint interim final rule that expands the availability of an 18-month exam cycle, rather than a 12-month cycle, to institutions with less than $1 billion in assets, up from $500 million. The change should both alleviate many small banks’ regulatory burdens and enable regulators to focus more of their energies upon larger institutions.

UK Regulators Launch New Bank Start-Up Unit

On Jan. 20, the PRA and FCA launched the New Bank Start-Up Unit (the Unit). The Unit is a joint initiative from the UK’s financial regulators giving information and support to newly authorized banks and those thinking of becoming a new bank in the United Kingdom. The joint Unit will assist new banks to enter the market and through the early days of the authorization. “The New Bank Start-Up Unit builds on the work we have already done to reduce the barriers to entry for prospective banks, which has led to twelve new banks now authorized since April 2013. These new banks are a key part of bringing innovation to the sector, particularly where there is a gap in the market – whether it is the service they provide, the customers they target, the products they sell or the technology they use,” said Andrew Bailey, Deputy Governor, Prudential Regulation, Bank of England and CEO of the PRA. While U.S. federal regulators have not formally launched a similar effort, previous press reports indicated that the FDIC has met with state regulators to express interest in new applicants and conducted training sessions in preparation for incoming applications.

CFTC Grants Registration to 18 Swap Execution Facilities

On Jan. 22, the CFTC issued Orders granting registration to 18 swap execution facilities (SEFs) that previously were operating under temporary registration status. SEFs are facilities that trade and process swaps and are regulated by the CFTC. SEFs were authorized to be created by the Dodd-Frank Act and are intended to provide greater pre-trade and post-trade transparency to the swaps market. Each registered SEF will be required to demonstrate compliance with all applicable provisions of the Commodity Exchange Act and CFTC regulations. In connection with the registration Orders, Commissioner J. Christopher Giancarlo released a statement supporting the CFTC’s actions but criticizing some of the CFTC’s policy decisions that he believes complicated and delayed the process of SEF registration. Advocating for greater regulatory certainty, he encouraged the CFTC to modify certain of its swap trading rules to come into better alignment with Title VII of the Dodd-Frank Act.

CFTC Launches Whistleblower Program Website

On Jan. 21, the CFTC launched a new website at www.whistleblower.gov. As described in the CTFC’s announcement, the site outlines whistleblower rights and protections and guides users through the process of filing a whistleblower tip and applying for an award. The site also provides users with access to the rules and regulations governing the CFTC’s Whistleblower Program, final award determinations and notices of covered actions

Client Alert: FTC Announces New Thresholds for 2016

Goodwin Procter’s Antitrust & Competition practice released a client alert on the FTC’s recent release, as required by the Hart-Scott-Rodino Act, of its annual adjustments to the reporting thresholds. The key number to remember is now $78.2 million. Generally, transactions valued above $78.2 million must be reported and cleared by the federal antitrust authorities before the transaction may close. The adjustments will become effective 30 days after imminent publication in the Federal Register. The anticipated effective date is therefore on or about Feb. 22, 2016.

Enforcement & Litigation

SEC Fines Mortgage Servicer $2 Million for Inaccurate Financial Reporting

On Jan. 20, Ocwen Financial Corp. (Ocwen), a provider of residential and commercial mortgage loan servicing, consented to pay a civil monetary penalty of $2 million to the Securities and Exchange Commission (SEC) for releasing inaccurate financial statements. Ocwen disclosed to investors in 2013 and 2014 that it independently valued complex mortgage assets at fair value using Generally Accepted Accounting Principles (GAAP) when in reality, Ocwen used a valuation methodology that deviated from GAAP fair value measures. The valuation was performed by a third party to which Ocwen sold the rights to service certain mortgages. Ocwen’s audit committee did not review the third party’s methodology, which turned out to be flawed, with company management or an outside auditor. The SEC settled with Ocwen, finding that the company released inaccurate financial statements and had inadequate internal controls. In addition, the SEC found that Ocwen failed to prevent conflicts of interest, as its recusal policy was flawed, inconsistent, and ad hoc.

Webinar – Antitrust Enforcement Landscape in 2016: Looking Back and Looking Ahead

On Feb. 4 from noon to 1 p.m. EST, Goodwin Procter partner Kirby Lewis will host a complimentary webinar discussion on key enforcement actions at the Federal Trade Commission and the Antitrust Division of the Department of Justice, as well as the international competition law bodies. Goodwin Procter's Antitrust & Competition practice will evaluate what these actions mean for transactions going forward and discuss deal trends and best practices. To register for the webinar please click here.