Financial Services Alert - April 1, 2014 April 01, 2014
In This Issue

FinCEN Issues Advisory Regarding the FATF’s Updated List of Jurisdictions with AML/CTF Strategic Deficiencies

FinCEN issued an advisory (the “Advisory”) regarding the issuance by the Financial Action Task Force (the “FATF”) of an updated list of jurisdictions that the FATF has identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing (“AML/CTF”) regimes.  In its updated categorization of jurisdictions, the FATF has issued two documents:

  1. a statement regarding those jurisdictions that are subject to the FATF’s call for countermeasures or are subject to enhanced due diligence (“EDD” ) due to their AML/CTF deficiencies; and
  2. a list of jurisdictions that have improved their AML/CTF compliance process, but continue to have AML/CTF deficiencies. 

The FATF is an intergovernmental policy-making body with 36 member nations (including the U.S.) that “establishes international standards to combat money laundering and counter the financing of terrorism and proliferation of weapons of mass destruction.” 

In the Advisory, FinCEN reminds financial institutions that they are expected to consider the changes reflected in the FATF’s updated lists “when reviewing their obligations and risk-based approaches with respect to [those] jurisdictions.”

JURISDICTIONS SUBJECT TO THE FATF’S CALL FOR COUNTERMEASURES OR SUBJECT TO EDD BECAUSE OF THEIR AML/CTF DEFICIENCIES

As updated, the FATF calls upon its member nations (and urges all jurisdictions) to impose countermeasures on (1) Iran and (2) the Democratic People’s Republic of Korea.

The FATF lists nine additional jurisdictions as posing significant AML/CTF compliance risk because they have failed to make sufficient progress in addressing their AML/CTF deficiencies.  These jurisdictions are:

  • Algeria
  • Ecuador
  • Ethiopia
  • Indonesia
  • Myanmar
  • Pakistan
  • Syria
  • Turkey
  • Yemen

FinCEN states in the Advisory that it expects U.S. banks and other U.S. financial institutions to apply EDD with respect to these nine jurisdictions.

In updating the list, the FATF removed Kenya and Tanzania from the group of jurisdictions requiring EDD, because the FATF has concluded that Kenya and Tanzania (although they still have AML/CTF deficiencies) have made significant progress in addressing those deficiencies.

JURISDICTIONS IDENTIFIED BY THE FAFT FATF AS HAVING AML/CTF DEFICIENCIES, BUT WHICH HAVE DEVELOPED ACTION PLANS WITH THE FATF

As noted in the Advisory, the FATF has identified 21 jurisdictions which have deficiencies in their AML/CTF compliance regime, but which have developed an action plan with the FATF to address those deficiencies.  The jurisdictions named under this Section II cause the FATF a lower level of AML/CTF concern than those identified in Section I.  The 21 jurisdictions are:

  • Afghanistan
  • Albania
  • Angola
  • Argentina
  • Cambodia
  • Cuba
  • Iraq
  • Kenya
  • Kuwait
  • Kyrgyzstan
  • Lao PDR
  • Mongolia
  • Namibia
  • Nepal
  • Nicaragua
  • Papua New Guinea
  • Sudan
  • Tajikistan
  • Tanzania
  • Uganda
  • Zimbabwe

Because the FATF has concluded that Kenya and Tanzania each made significant progress in addressing their strategic AML/CTF deficiencies, they have been moved from Section I to Section II.  Moreover, the FATF concluded that Antigua and Barbuda, Bangladesh and Vietnam (which were formerly listed in Section II) have made significant progress “in addressing all or nearly all of their strategic AML/CTF deficiencies,” and the FATF has removed those jurisdictions from the FATF’s listing and monitoring process.

FRB Approves Capital Plans of 25 Large Banking Holding Companies, but Rejects Capital Plans of Five Other Large Banking Organizations

The FRB released the results of its annual large bank holding company capital assessment exercise known as the Comprehensive Capital Analysis and Review (“CCAR”). The FRB evaluated the capital adequacy and planning processes of the 30 largest bank holding companies, each of which has $50 billion or more of total consolidated assets. These 30 institutions have a combined $13.5 trillion in assets and hold roughly 80% of all U.S. bank holding company assets. The two primary gauges of the FRB’s stress test were the Tier 1 common ratio and the leverage ratio.

In its review, the FRB approved the individual capital plans of 25 large bank holdings companies, but rejected the capital plans of five major firms:  Citigroup, HSBC North America Holdings, Inc., RBS Citizens Financial Group Inc., Santander Holdings USA Inc. and Zions Bancorporation. The FRB stated that the first four were rejected for qualitative reasons, but Zions was rejected on the ground that it did not meet the minimum, post-stress Tier 1 common ratio of 5%.

The FRB stated that its objections to the capital plans of Citigroup, HSBC, RBS Citizens and Santander were chiefly based upon the FRB’s determination that these plans were deficient with respect to their ability to project revenue and losses under stress scenarios. Citigroup, which failed the same test in 2012, was cited by the FRB for, among other things, failure to correct certain previously identified issues in its capital planning processes.

As a result of the FRB’s determinations, each of these five institutions is required to resubmit its capital plan to the FRB following substantial remediation of the identified issues.

SEC Staff Posts Analyses of Money Market Fund Reform Literature for Public Comment

The SEC staff  has made available as a supplement to its June 2013 money market fund reform proposal (discussed in the June 11, 2013 Financial Services Alert) the following analyses of data and academic literature related to money market fund reform conducted by the staff of the SEC’s Division of Economic and Risk Analysis: 

The analyses are being made available for public consideration in connection with the money market fund reform proposal.  Comments on the analyses may be submitted on or before April 23, 2014 to the comment file for the money market reform proposal.  The press release announcing the availability of the analyses noted that the SEC or its staff may make available additional studies, memoranda, or other substantive items during the rulemaking.

SEC Extends Re-Opened Comment Periods for Asset-Backed Securities Proposals Until April 28

The SEC extended until April 28, 2014 the comment periods previously re-opened on its rule proposals regarding asset-backed securities described in the releases entitled “Asset-Backed Securities” (the “2010 Release”) and “Re-Proposal of Shelf Eligibility Conditions for Asset-Backed Securities” (the “2011 Release” and, collectively with the 2010 Release, the “Releases”).  The re-opened comment periods were originally scheduled to close on March 28, 2014.  The 2010 Release, which was discussed in the April 13, 2010 Financial Services Alert, proposed significant revisions to Regulation AB including increased disclosure and reporting requirements.  The 2011 Release, which was discussed in the August 2, 2011 Financial Services Alert, re-proposed portions of the 2010 Release in light of the mandates of the Dodd-Frank Act.  The Releases’ comment periods were re-opened to allow public comment on a memorandum prepared by the SEC’s Division of Corporation Finance describing an alternative to making certain potentially sensitive asset-level information publicly available on EDGAR as proposed in the 2010 Release.  Under the alternative approach discussed in the staff memorandum, potentially sensitive asset-level information would be disclosed to investors and potential investors through an issuer’s website where it could be subject to appropriate safeguards on access.