Regulatory Developments
State Regulators Launch Multistate Compact for Licensing Money Services Businesses
On February 6, the Conference of State Bank Supervisors announced that seven states (Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington) have agreed to a multistate compact that standardizes key elements of the licensing process for MSBs. According to the compact, if one state reviews key elements of state licensing for a money transmitter – IT, cybersecurity, business plan, background check and compliance with the federal Bank Secrecy Act – then other participating states agree to accept the findings. The result is expected to significantly streamline the MSB licensing process. Additional states are expected to join the compact at a later date. The multistate compact represents the first step among state regulators in moving toward an integrated, 50-state system of licensing and supervision for Fintech companies, as envisioned by the Vision 2020 initiatives.
Fed Releases Annual CCAR Stress Testing Instructions for 2018
On February 1, the Federal Reserve Board released instructions for use in the 2018 annual CCAR stress testing process. CCAR requirements generally apply to the largest domestic financial institutions and to U.S. intermediate holding companies of foreign banking organizations. As discussed in the November 29, 2017, edition of the Roundup, the 2018 process reflects changes in certain transition provisions in capital rules for firms that are not subject to the advanced approaches framework; the application of a 3% supplementary leverage ratio to institutions meeting the advanced approaches thresholds; recent changes in the U.S. tax laws; modifications to the scope of the global market shock component of the stress tests applied to certain institutions; and certain procedural changes. The Federal Reserve Board will provide institutions with an opportunity to make limited adjustments to planned capital actions, such as reducing planned distributions or increasing planned common stock issuances, after completion of the supervisory stress test and before disclosure of final CCAR results. April 5, 2018, is the deadline for submitting 2018 CCAR capital plans to the Federal Reserve Board.
Agencies Seek Comment on Proposed Amendments to Swap Margin Rule
On February 5, the Federal Reserve Board, the Farm Credit Administration, the FDIC, the Federal Housing Finance Agency and the OCC proposed to amend swap margin requirements to conform to recent rule changes that impose new restrictions on certain qualified financial contracts (QFCs) of systemically important banking organizations. Under the proposed amendments, legacy swaps entered into before the applicable compliance date would not become subject to the margin requirements if they are amended solely to comply with the requirements of the QFC Rules. The proposed amendments would also harmonize the definition of “Eligible Master Netting Agreement” in the Swap Margin Rule with recent changes to the definition of “Qualifying Master Netting Agreement” in the respective capital and liquidity regulations of the Federal Reserve Board, FDIC and OCC by recognizing the restrictions that were adopted by these agencies with respect to the QFC Rules. The agencies request comments on the proposed amendments no later than 60 days after the date of their publication in the Federal Register.
CFPB Issues Request for Information on Administrative Adjudications
On January 31, the CFPB issued a Request for Information (RFI) about administrative adjudications. The CFPB is seeking to better understand the benefits and impacts of its use of administrative adjudications, and how its existing process may be improved. This is the second in a series of RFIs announced as part of Acting Director Mulvaney’s call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers. This RFI will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.
CFPB Launches 2018 HMDA LAR Formatting Tool
The CFPB has launched the 2018 Home Mortgage Disclosure Act (HMDA) Loan Application Register formatting tool and HMDA Tools Instructions guide to help banks create a data file that can be submitted electronically. The tool should be used for data collected in 2018 and reported in 2019. The CFPB has also made minor updates to the 2018 filing instructions guide.
FDIC and Fed to Host Community Bank Webinar on CECL Implementation
The FDIC and the Federal Reserve Board – in conjunction with the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC) and the Conference of State Bank Supervisors – will hold a free webinar on February 27, 2018, at 1:00 pm EST examining how smaller, less-complex community banks can implement FASB’s new Current Expected Credit Loss model for loan loss accounting. The webinar will address loan loss rate methods that community banks can use, as well as related data considerations and controls. Participants are urged to invite representatives from both their internal audit units as well as their external auditors.
Client Alert: Long-Awaited Decision in PHH Corp. v. Consumer Financial Protection Bureau
On January 31, the U.S. Court of Appeals for the D.C. Circuit, sitting en banc, issued its long-awaited decision in PHH Corp. v. CFPB, holding that the provision of the Dodd-Frank Act shielding the single director of the CFPB from removal without cause is constitutional. In all, the court published seven separate opinions (the majority, three concurrences and three dissents) that totaled 250 pages. Significantly, although the en banc court reversed the three-judge panel on the constitutional question before the court, it reinstated that panel’s prior opinion with respect to the proper interpretation of Section 8 of the Real Estate Settlement Procedures Act (RESPA). For more information, read the client alert issued by Goodwin’s Financial Industry practice.
Client Alert: Changes to Code Section 162(m) Under the Tax Cuts and Jobs Act
As noted in our alert on December 21, 2017, the Tax Cuts and Jobs Act of 2017 (the Act) makes significant changes to Section 162(m) of the Internal Revenue Code of 1986 (Code), which limits to $1 million the deduction that certain companies may take for compensation paid to any “covered employee,” including expanding the scope of Code Section 162(m) and eliminating the exception to the deduction limit for commission-based compensation and “qualified performance-based compensation.” Because the changes to Code Section 162(m) are likely to have an impact on how public companies design and implement their compensation programs going forward, this alert provides more detail on the changes to Code Section 162(m) set forth in the Act. For more information, read the client alert issued by Goodwin’s ERISA and Executive Compensation practice.
Enforcement & Litigation
DOJ Investigates FHA Loans Issued by Florida-Based Mortgage Subsidiary
On January 25, a Florida-based homebuilder filed its Form 10-K annual report with the SEC, disclosing that its “mortgage subsidiary has been subpoenaed by the United States Department of Justice (DOJ) regarding the adequacy of certain underwriting and quality control processes related to Federal Housing Administration (FHA) loans originated and sold in prior years.” According to the report, the company has “provided information related to these loans and [its] processes to the DOJ,” but the DOJ has “not asserted any claim for damages or penalties.” View the Enforcement Watch blog post.
Goodwin News
Blue Dun: Fintech, Regulation and the Law
Goodwin partner Mike Whalen discusses the firm’s expertise in every area of Fintech, including alternative lending, payments, digital currency and blockchain technology, wealth management, insurance, and bank partnerships and charters. Read the full Blue Dun interview.
ABA National Conference for Community Bankers – February 25 - 28
The American Bankers Association National Conference for Community Bankers (NCCB) is the premier event developed for and by community bank CEOs. Community banks are transforming, and the industry as a whole continues to experience a paradigm shift. With an ever-changing definition of success and survival, the fast road ahead begins with versatility. Join the American Bankers Association as they map out the steps required to get to community banking’s next destination. Learn from experts, network under the palm trees and return refreshed with new ideas. Matt Dyckman and Bill Stern will be speaking on “Financial Regulatory Reform in the Trump Administration” and Samantha Kirby will facilitate a board peer exchange. Goodwin will also sponsor the Pennsylvania Bankers Association dinner at the conference.
Israel’s 4th Annual Foreign Law Firms Conference – February 26
This year’s 4th Annual Foreign Law Firms Conference in Israel will be bigger and better than ever, with +400 of the best attorneys in Israel and around the world. Join us for the largest international networking event in Israel’s legal market in 2018. Goodwin partner Amber Dolman will be speaking on the Fintech panel. For more information, please visit the event website.
This week’s Roundup contributors: Alex Callen and Justin Pierce.