Weekly RoundUp
February 16, 2023

Federal Reserve and OCC Release 2023 Bank Stress Test Scenarios

In this Weekly Roundup Issue. The Federal Reserve Board (Federal Reserve) and the Office of the Comptroller of the Currency (OCC) released 2023 bank stress test scenarios; the Securities and Exchange Commission (SEC) proposes radical transformation of Custody Rule into new Safeguarding Rule; the New York State Department of Financial Services (DFS) finalized commercial financing disclosure regulations; and the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion on RESPA implications for mortgage comparison websites. These and other developments are discussed in more detail below.

Regulatory Developments

Federal Reserve and OCC Release 2023 Bank Stress Test Scenarios

On February 9, the Federal Reserve released its hypothetical scenarios for its 2023 bank stress tests, and on February 10, the OCC also released hypothetical economic and financial market scenarios to be used by covered institutions in their requisite stress tests.

This year, the Federal Reserve will evaluate 23 of the largest banks against scenarios involving a severe global recession, heightened stress in the commercial and residential real estate markets and a hypothetical unemployment rate of 6.5 -10 percent. For the first time, the stress test will feature an additional exploratory market shock to banks with large trading positions. The scenarios run from the first quarter of 2023 to the same three-month span in 2026, and each includes 28 variables, similar to the previous year. The Federal Reserve also will use the results of the exploratory market shock to assess the potential of multiple scenarios to capture a wider array of risks in future stress test exercises. The Federal Reserve has made the 2023 scenarios available on its website.

The OCC released the agency’s scenarios for covered banks and savings associations. The scenarios cover both baseline and severely adverse scenarios. Covered institutions are required to use the scenarios to conduct stress tests and the results provide the OCC with forward-looking information used in bank supervision and assist the agency in assessing a covered institution’s risk profile and capital adequacy. The 2023 scenarios and background information can be found at the OCC’s testing website.

SEC Proposes Radical Transformation of Custody Rule into New Safeguarding Rule

On February 15, the SEC proposed a significant transformation of Rule 206(4)-2 (the “Custody Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”) into a new Rule 223-1 under the Advisers Act (the “Safeguarding Rule”) applicable to SEC-registered investment advisers.

Read more about the new Safeguarding Rule in a recent client alert.

“I support this proposal because, in using important authorities Congress granted us after the financial crisis, it would help ensure that advisers don’t inappropriately use, lose, or abuse investors’ assets.”
- SEC Chair Gary Gensler

New York Finalizes Commercial Financing Disclosure Regulations

On February 1, the DFS adopted final regulations relating to New York’s Commercial Finance Disclosure Law (CFDL), which requires providers of commercial financing, including term loans, revolving lines of credit, leases, merchant/business cash advances, buy-now-pay-later  products, factoring, and general asset-based transactions, to provide recipients with consumer-style cost of credit disclosures. The final regulations became effective immediately and provide for a six-month grace period to comply. 

Read more about these regulations in a recent client alert.

CFPB Advisory Opinion Details RESPA Implications for Mortgage Comparison Websites

On February 7, the CFPB issued an Advisory Opinion detailing potential RESPA implications for companies that operate online mortgage and settlement service comparison platforms, as well as the lenders and service providers who may pay to be featured on such platforms. The purpose of the Advisory Opinion appears to be to warn market participants of specific types of conduct that the CFPB believes may be violating RESPA and, potentially, to preview future CFPB enforcement theories.

Read more about this topic in a recent client alert.

SEC to Enhance Its Regulation of Security-Based Swaps

The SEC’s Fall 2022 “Reg Flex” Agenda charts the agency’s planned rulemaking through Q1 2023. Among this ambitious and wide-reaching agenda are two important final rulemakings concerning the regulation of security-based swaps (SBS) pursuant to Title VII of the Dodd-Frank Act. 

Read more about these final rulemakings here.


Litigation and Enforcement

2022 Year in Review: Digital Currency and Blockchain Litigation and Enforcement Developments

Throughout a tumultuous 2022, the digital currency and blockchain space saw a number of significant investigation, litigation, and enforcement matters as regulators continue their laser focus on the industry. This Year in Review, authored by members of Goodwin’s leading Digital Currency and Blockchain team, recaps the most significant litigation and enforcement developments from the past year.


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Digital Currency + Blockchain Perspectives Blog
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FinReg + Policy Watch Blog
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Editors
Samantha M. Kirby
William McCurdy

Contributors
Nico Ramos