On Feb. 11, the Federal Reserve Board took steps towards transferring some of its rulemaking authority to the CFPB pursuant to the Dodd-Frank Act. First, the Board repealed Regulation AA, which the Board had promulgated under the Federal Trade Commission Act (FTC Act) to address unfair or deceptive acts or practices. The Dodd-Frank Act eliminated the Board’s rulemaking authority under the FTC Act, instead vesting in the CFPB separate rulemaking authority to address unfair, deceptive, or abusive acts or practices. Second, the Board proposed the repeal of Regulation C, which the Board had promulgated under the Home Mortgage Disclosure Act (HMDA) to address certain consumer financial protection matters. The Dodd-Frank Act transferred to the CFPB the Board’s rulemaking authority under the HMDA concerning mortgage loan transactions, including transactions with motor vehicle dealers (“motor vehicle” includes motor homes and recreational vehicles) involving services related to residential or commercial mortgages or self-financing transactions involving real property. Comments must be received by the Board by April 22, 2016.
On Feb. 9, the FDIC released the economic scenarios to be used by certain financial institutions with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Act. The results of the company-run stress tests are intended to provide the FDIC with forward-looking information used in market supervision and will assist the FDIC in assessing the companies’ risk profiles and capital adequacy. This follows the Federal Reserve Board and the OCC’s releases of their supervisory scenarios, as reported in our Feb. 3 Roundup.
On Feb. 10, the SEC adopted amendments to Rule 3a71-3 and 3a71-5 under the Securities Exchange Act of 1934 that address the application of the de minimis exception to security-based swap transactions connected with a non-U.S. person’s security-based swap dealing activity that are arranged, negotiated or executed by personnel of the person located in a U.S. branch or office, or by personnel of such person’s agent located in a U.S. branch or office. The de minimis exception provides a $3 billion notional threshold with respect to single-name credit default swaps, subject to a phase-in level of $8 billion, and a $150 million notional threshold for other types of security-based swaps, subject to a $400 million phase-in level. Non-U.S. persons dealing with U.S. persons must include those transactions toward the de minimis amount but are allowed to exclude transactions with non-U.S. persons. The amendments clarify circumstances under which transactions must be treated as transactions with U.S. persons. The amendments will be effective 60 days after publication in the Federal Register. The compliance date will be the later of 12 months after publication in the Federal Register or the SBS Entity Counting Date, as defined in Section VII (two months before the date, not yet established, by which security-based swap dealers and major security-based swap participants must be registered). Persons engaged in security-based swap transactions will not be required to include transactions entered into prior to the compliance date.
On Feb. 10, after years of negotiation, the CFTC and the European Commission (EC) announced their “common approach” to harmonize regulations with respect to the central clearing of swaps. Under the common approach, the EC will adopt equivalence decisions to recognize U.S. central clearinghouses as equivalent to EC clearinghouses, which will permit U.S. central clearinghouses to do business with European counterparties while complying with CFTC requirements. For its part, the CFTC staff will propose a determination of comparability, which will conclude that a majority of European Markets Infrastructure Regulation (EMIR) requirements are comparable to CFTC requirements, thereby permitting European central clearinghouses to do business with U.S. counterparties while complying with EMIR. These parallel steps are intended to prevent any disruption in cross-border business. Additionally, the plan will alleviate the additional capital burden placed upon European banks doing business with U.S. central clearinghouses, and should create more certainty for U.S.-based central clearinghouses.
On Feb. 12, the OCC released the revised “Country Risk Management” booklet of the Comptroller’s Handbook. The booklet is prepared for use by OCC examiners in assessing a bank’s exposure to country risk and includes procedures to evaluate the adequacy of the bank’s country risk management framework. The new version replaces the March 2008 version, and changes include providing updated and expanded guidance and examination procedures to examiners concerning country risk management, reflecting lessons learned from the 2008 financial crisis and the European banking and debt crises, as well as providing updates on the risks associated with international activities.
On Feb. 12, the OCC released the revised “Installment Lending” booklet of the Comptroller’s Handbook. The new version provides updated guidance to OCC examiners on the following: assessing the quantity of risk associated with installment lending activities; assessing the quality of installment lending risk management; and the administration of installment lending practices and the controls and processes necessary to effectively manage the associated risks, including underwriting or account eligibility criteria, charge-off, risk management and control systems, and third-party management. The new booklet replaces a number of documents from the 1990s and early 2000s, including rescinding a 2004 OCC Bulletin on retail lending.
On Feb. 16, FINRA announced that it had filed a proposed rule change to delay the implementation date of new Rule 2242 (Debt Research Analysts and Debt Research Reports) until Apr. 22, 2016. Rule 2242 is a companion to current Rule 2241 applicable to research reports and research analysts with respect to equity securities, but with a greater emphasis on conflicts of interest more likely to affect the debt securities markets, including perceived conflicts of interest that may arise as a result of contacts with and influence by a firm’s trading desk. The rule change was filed for immediate effectiveness.
FINRA has provided information and resources on its Funding Portals page for crowdfunding intermediaries that intend to register with the SEC as funding portals and become funding portal members of FINRA. The Funding Portals page has information about regulatory oversight and reporting requirements for funding portals, and how to: register as a new funding portal, pay a funding portal’s annual assessment and update or withdraw a funding portal registration.
On Feb. 10, the New York State Department of Financial Services (DFS) extended the comment period for its proposed new anti-money laundering (AML) regulations. The proposed regulations would apply to banking institutions chartered under New York’s Banking Law and to check cashers and money transmitters licensed pursuant to the Banking Law. The regulations do not mention application to DFS-regulated virtual currency or insurance companies. Under the new rules, financial institutions would have to maintain transaction monitoring and watch list filtering programs that go beyond federal AML requirements. For example, these programs must have sufficient funding, must maintain policies and procedures specific to their implementation, and must record and identify data sources for relevant data. In addition, a “certifying senior officer” will have to annually certify compliance with the new rules. The failure to file an annual certification may subject the senior officer to criminal penalties. Comments on the proposal must be submitted to email@example.com by Mar. 31, 2016.