On September 27, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (Agencies) issued a notice of proposed rulemaking (NPR) that would simplify certain regulatory capital rules for non-advanced approaches banking organizations, although proposed changes to the treatment of acquisition, development, or construction loans would apply to all banking organizations. Key changes include:
- Replacing the complex definition of high volatility commercial real estate (HVCRE) exposures with a simpler definition for high volatility acquisition, development, or construction (HVADC) exposures, which would receive a 130% risk weight.
- Simplifying the treatment for exposures subject to the common equity tier 1 threshold deductions, including increasing the limit on mortgage servicing assets; increasing the limit on temporary difference deferred tax assets (DTAs) not realizable through carryback; and removing the distinction between significant and non-significant investments in the capital of unconsolidated institutions by applying a limit to all such investments.
- Simplifying the limitations on minority interest includable in regulatory capital.
The Agencies have prepared a community bank summary of the proposal, and the FDIC has prepared a tool for estimating the impact of the proposed changes. Comments on the NPR must be received within 60 days of its publication in the Federal Register.
The OCC today released its bank supervision operating plan for fiscal year 2018. The plan provides the foundation for policy initiatives and for supervisory strategies as applied to individual banks. OCC staff members use this plan to guide their supervisory priorities, planning and resource allocations. The plan outlines the supervisory priorities for the National Risk Committee, Large Bank Supervision, Midsize and Community Bank Supervision, Compliance and Community Affairs, the Office of the Chief National Bank Examiner and the supervision of technology service providers. Supervisory strategies for 2018 focus on:
- Cybersecurity and operational resiliency;
- Commercial and retail credit loan underwriting, concentration risk management, and the allowance for loan and lease losses;
- Business model sustainability and viability and strategy changes;
- Bank Secrecy Act/anti-money laundering (BSA/AML) compliance management; and
- Addressing new regulatory requirements.
The OCC will provide periodic updates about supervisory priorities through the Semiannual Risk Perspective in the fall and spring.
On September 27, the FDIC adopted a final rule to enhance the resilience and safety and soundness of state savings associations and banks supervised by the FDIC that are affiliated with systemically important U.S. and foreign banking organizations (“covered FDIC-supervised institutions”). Under the final rule, qualified financial contracts (QFCs):
- May not allow for immediate cancellation or termination under certain circumstances;
- Must clearly state that they are subject to temporary stays under U.S. resolution regimes; and
- Must prohibit the exercise of default rights against, or imposing transfer restrictions on, the covered FDIC-supervised institution based on the entry of an affiliate of the covered FDIC-supervised institution into bankruptcy.
The final rule also amends the definitions of “qualifying master netting agreement” and related terms in the FDIC’s capital and liquidity rules to account for the final rule.
The Conference of State Bank Supervisors (CSBS) has released a tool to help financial institutions prepare for Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), commonly referred to as the Current Expected Credit Losses (CECL). The tool, known as the Current Expected Credit Losses Readiness Tool, was developed to provide a framework that a financial institution could use to plan for the eventual implementation of the accounting changes required by CECL. According to the CSBS, the tool is being offered as an optional resource to plan and prepare for the implementation of CECL; there is no regulatory expectation that the tool, or its suggested implementation dates, be used; and the tool does not replace or revise any agency guidance related to CECL.
Recently, the U.S. Commodity Futures Trading Commission (CFTC) granted LedgerX, LLC registration as a derivatives clearing organization (DCO) under the Commodity Exchange Act, and with it, the right to clear fully collateralized digital currency swaps, subject to applicable law. It became the “first federally regulated Bitcoin options exchange and clearinghouse to list and clear fully collateralized, physically settled Bitcoin options for the institutional market.” LedgerX announced stringent trading rules on its website, embracing the CFTC regulations. Yet, right before its planned launch later this month, the CFTC announced another first — an anti-fraud enforcement action against alleged Bitcoin fund fraudsters. View the Digital Currency and Blockchain Perspectives blog post.
The new SEC Enforcement Cyber Unit will target cyber-related misconduct, including violations involving distributed ledger technology, initial coin offerings and misconduct perpetrated using the dark web. For more information, read the client alert issued by Goodwin’s Financial Industry and Digital Currency and Blockchain Technology practices.
Enforcement & Litigation
On September 19, the Consumer Financial Protection Bureau (CFPB) announced a simultaneous complaint and proposed consent order with a loan brokerage company and two associated individuals (the “Defendants”). The Defendants are alleged to have made misrepresentations concerning the brokerage and the loan terms they offered to potential borrowers. According to the CFPB, the Defendants focused their efforts on the recipients of legal settlements or victim-compensations funds, such as former National Football League players suffering from neurological disorders, victims of the Deepwater Horizon oil-rig disaster, and 9/11 first responders. View the Enforcement Watch blog post.
On September 18, the CFPB announced that it had entered into a settlement and proposed consent judgment with a student loan owner and securitizer, and a separate consent judgment with the securitizer’s debt collector. The securitizer has a loan portfolio of approximately 800,000 student loans. According to the CFPB, the securitizer—a collection of Delaware statutory trusts—has no employees of its own, but contracts with third-parties such as the debt collector to interact with borrowers. The debt collector allegedly hired a network of law firms around the country to prosecute collections lawsuits on behalf of the securitizer. View the Enforcement Watch blog post.
Goodwin will co-host a webinar with the Mortgage Bankers Association on recent developments under the Fair Credit Reporting Act. The webinar, “Recent FCRA Regulation, Enforcement & Litigation Updates” will feature Margaret Crockett and Joseph Yenouskas. For additional information, please visit the event website.
Goodwin is a sponsor of what may be the largest blockchain conference ever: BlockCon 2017. Grant Fondo, Chair of Goodwin’s Digital Currency and Blockchain Technology practice, will moderate a panel discussing the legal and regulatory aspects of initial coin offerings (ICOs). For additional information, please visit the event website.
The Money 20/20 Conference, one of the largest global events focused on payments and financial services innovation, attracts more than 1,500 CEOs from over 4,500 companies and 85 countries. Goodwin is a sponsor and is speaking on the panel, “Privacy & Data Security: Why It Matters & What To Do About It” on Sunday, October 22. For more information, please visit the event website.
Earlier this year, the SEC Division of Investment Management released and provided a new custody rule guidance under the Investment Advisers Act of 1940. The new guidance addresses the three areas under the Custody Rule, which are the standing letters of authorization, client’s grant of authority to an adviser, and the provisions in a separate custodial agreement. In this live webcast, a seasoned panel of thought leaders, professionals and advisers assembled by The Knowledge Group will provide and present to the audience the recent trends and developments related to the latest SEC Custody Rule guidance. Speakers will also identify how the new guidance impacts investment advisers. Jason Monfort is speaking at this webinar. For additional information, please visit the event website.
Goodwin’s Enforcement Watch and Digital Currency + Blockchain Perspectives blogs were recently nominated for The Expert Institute’s Best Legal Blogs Hall of Fame. We want to thank all of our Roundup readers who participated in the nomination process. Each blog will now compete for rank within its category, while the three blogs that receive the most votes in any category will be designated overall winners. Voting will remain open until 12:00 am on November 3, at which point the votes will be tallied and the winners announced. Please note that you can only cast one vote in this competition. To vote for Enforcement Watch, please click here. To vote for Digital Currency + Blockchain Perspectives, please click here.