Weekly RoundUp November 08, 2017

Financial Services Weekly News

Editor's Note

Change at the Fed. As expected, on November 2, President Trump nominated Jerome H. Powell to be Chairman of the Board of Governors of the Federal Reserve System (FRB) for a term of four years beginning February 3, 2018, replacing Janet Yellen who has served as Chair since January 2014. Because Mr. Powell has served on the FRB since December 2011 and has worked closely with Ms. Yellen during that time, his confirmation by the Senate is expected to be swift. 

Mr. Powell differs from most former FRB Chairs in that he has a business and regulatory background and not an academic one. Mr. Powell has three decades of business experience and also previously served as Under Secretary at the Department of Treasury in the administration of President George H.W. Bush. Mr. Powell’s background indicates that he may approach his new post with a different perspective than his predecessors and may be more sympathetic to the concerns of financial industry participants about the effects of regulation. Mr. Powell’s recent comments reinforce this view. In a speech in April, Mr. Powell discussed the key themes of financial services regulations in the post Dodd-Frank regime, stating that:

  • After years of raising capital and liquidity standards, and of stress tests and living wills, our financial system is much stronger now. We should protect these core reforms and avoid a return to the highly vulnerable system that existed before the crisis.
  • In too many cases new regulation has been inappropriately applied to small and medium-sized institutions. We need to go back and broadly raise thresholds of applicability and look for other ways to reduce burden on smaller firms.
  • The new rule book is excessively complex. We need to look for ways to simplify the rules so that they support our goals but also improve the efficiency of regulation. For example, we need to allow boards of directors and management to spend a smaller portion of their time on technical compliance exercises and more time focusing on the activities that support sustainable economic growth.
  • We need to continue to strive to provide an appropriate level of transparency to supervised firms and the public regarding our expectations.
  • Some aspects of the new regulatory program are proving unnecessarily burdensome and should be better tailored to meet our objectives. Some provisions may not be needed at all given the broad scope of what we have put in place. I support adjustments designed to enhance the efficiency and effectiveness of regulation without sacrificing safety and soundness or undermining macro-prudential goals.

Mr. Powell’s support for the FRB’s recent guidance on corporate governance, which was designed to refocus supervisory expectations on a board’s core responsibilities, demonstrates that he is prepared to practice what he preaches. The appointment of Mr. Powell, along with Randal Quarles as the FRB’s first ever Vice-Chair for Supervision, signify that financial industry participants can expect some degree of regulatory relief, with or without help from Congress. But a wholesale rollback of Dodd-Frank or its implementing regulations is not in the cards.

Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

CFPB Arbitration Rule Officially Repealed

On November 1, President Trump signed the Joint Resolution of Congress nullifying the Consumer Financial Protection Bureau’s (CFPB) rule prohibiting the use of a pre-dispute arbitration agreement to prevent a consumer from filing or participating in certain class action suits. The move came despite a personal letter from CFPB Director Richard Cordray asking the president to save the rule. As reported in the October 25 edition of the Roundup, the Senate had previously voted 51-50 to nullify the rule.

OCC Revises “Subsidiary and Equity Investments” Booklet

On October 31, the Office of the Comptroller of the Currency (OCC) released a revised “Subsidiaries and Equity Investments” booklet of the Comptroller’s Licensing Manual (Manual), which supersedes the July 2008 version of the booklet. The revised booklet is the latest in a series of recent updates to the Manual, and it reflects the OCC’s integration of certain functions of the former Office of Thrift Supervision and certain revisions to 12 CFR Part 5, which became effective in 2015. The booklet describes the types of subsidiaries and other entities that national banks and federal savings associations (Banks) may establish or acquire, and the activities in which they may engage, as well as the various equity investments Banks may make. The booklet also describes related notice and application processes, and describes the factors used by the OCC to evaluate such submissions, as applicable. Finally, the booklet contains links, references and other helpful resources for financial institutions interested in establishing subsidiaries or making equity investments.

Federal Banking Agencies Propose Additional Revisions to Call Reports

The OCC, the Federal Deposit Insurance Corporation (FDIC) and the FRB are inviting public comment on additional technical revisions to the Call Report, which will take effect June 30, 2018. The revisions, which are part of the agencies’ ongoing effort to reduce the Call Report burden on banks, will remove or consolidate several data items and add or raise certain existing reporting thresholds in three versions of the Call Report. Comments are due 60 days from publication in The Federal Register.

Enforcement & Litigation

FinCen Penalizes Texas Bank for Violations of Due Diligence Provisions of the Bank Secrecy Act

On November 1, the Financial Crimes Enforcement Network (FinCEN) announced the assessment of a $2 million civil money penalty against Lone Star National Bank (Lone Star) for willfully violating the Bank Secrecy Act (BSA). According to FinCen, “the action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves to manage such business.” As noted in FinCEN’s assessment, among other lapses, Lone Star failed to comply with section 312 of the USA PATRIOT Act, which imposes specific due diligence obligations with respect to correspondent banking. Many of the lapses in Lone Star’s BSA compliance were previously covered in an earlier action by the OCC, but FinCEN’s action focusing on the bank’s 312 violations specifically highlights the need for a financial institution to avoid taking on international business for which it is not prepared.

FTC and Illinois AG Settle With “Phantom” Debt Collectors for $47 Million

On November 1, the Federal Trade Commission (FTC) and Illinois Attorney General’s Office (Illinois AG) announced (here and here) that they had reached a settlement to resolve a joint action brought against affiliated Chicago-based debt collectors that allegedly used false and misleading tactics in attempting to collect on payday or other small-dollar loans. View the Enforcement Watch blog post.

FTC Obtains $6.8 Million Judgment Against Two Individuals in “Free” Credit Report Scheme

On October 30, the FTC announced that it had obtained a stipulated order for a permanent injunction and monetary judgment against two individuals for allegedly using fake rental property ads to lure consumers to visit websites promising “free” credit reports. When consumers visited those websites, the individuals allegedly deceived them into signing up for a negative option seven-day trial credit monitoring service, after which consumers were charged $29.94 monthly without their authorization. The FTC alleged that the scheme violated Section 5 of the FTC Act, generated more than 500 consumer complaints, and caused millions of dollars in consumer loss. View the Enforcement Watch blog post.

Goodwin News

ABA Briefing: Regulators’ Changing Views on Bank Boards of Directors and Governance – November 15

Corporate governance is evolving and is increasingly relevant to complying with regulatory requirements, managing risk and creating a foundation for a bank's success. The Federal Reserve Board has released proposed supervisory expectations for banks and boards of directors, which give hope that regulators will accept a return to the core mission of bank directors, rather than the post-crisis narrow focus on compliance issues. This briefing/webinar will discuss recent and emerging trends in corporate governance and how banks can alter their governance structure in a way that better manages risk and positions the bank for future growth. Bankers can be proactive and use the Federal Reserve’s stated new approach in current examinations. Samantha Kirby and Matthew Dyckman of Goodwin’s Financial Industry practice will be speaking. For more information, please visit the event website.

2017 Banking Symposium – November 30

Join Goodwin on November 30 for the 6th Annual Banking Symposium, a forum for CEOs and senior management to discuss emerging issues in the financial industry. This year’s symposium, Innovation: The Great Equalizer, will feature entrepreneurs and disrupters, and highlight opportunities for innovation across the industry. Our keynote speaker, Brian Forde, is a Senior Lecturer for Bitcoin and Blockchain, MIT Sloan School of Management, and previously served as Senior Advisor for Mobile and Data Innovation for the White House. For more information, please visit www.bankingsymposium.com.

This week’s Roundup contributors: Alex Callen and Levi Swank.