On April 3, the Financial Crimes Enforcement Network published frequently asked questions (FAQs) regarding the Customer Due Diligence Requirements for Financial Institutions rule, published on May 11, 2016, as amended on September 29, 2017 (the Rule), including the Rule’s requirement for banks to identify and verify legal entities’ “beneficial owners” when accounts are opened. The Rule’s mandatory compliance date is May 11, 2018. The FAQs supplement FAQs issued in 2016 and respond to questions that have been raised by the industry since the Rule was adopted. The federal banking agencies are expected to update their examination procedures in response to the FAQs in the near future.
On March 28, the Federal Housing Finance Agency (FHFA) announced that, on June 3, 2019, Fannie Mae and Freddie Mac (GSEs) will begin to issue a new, common security, the Uniform Mortgage-Backed Security (UMBS), in place of their current offerings of TBA-eligible mortgage-backed securities. The UMBS will be issued through the GSEs’ joint venture, Common Securitization Solutions (CSS), using the Common Securitization Platform. FHFA is providing certainty on the timing of the transition to UMBS to enable market participants to make the preparations necessary to ensure a smooth transition. Since November 2016, Freddie Mac has been using CSS operations for data acceptance, issuance support, and bond administration activities related to current single-class, fixed-rate, mortgage-backed securities. Upon the launch of UMBS, Fannie Mae will also use CSS for these functions, and the operational capabilities of CSS will be expanded to include the administration of multi-class securities and commingled enterprise UMBS and the production of UMBS disclosures.
On April 3, the Federal Reserve Bank of New York, in cooperation with the U.S. Office of Financial Research, began publishing three reference rates based on overnight repurchase agreement (repo) transactions collateralized by Treasury securities. These rates are the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR), and the Tri-Party General Collateral Rate (TGCR). The SOFR was identified by the Alternative Reference Rates Committee in June 2017 as its recommended alternative to U.S. dollar LIBOR for use in certain new U.S. dollar derivatives and other financial contracts.Federal Banking Agencies Finalize Technical Revisions to Call Reports
On March 30, the Federal Reserve Board, the OCC, and the FDIC (the Agencies) finalized additional technical revisions to streamline the Call Report, which will take effect as of the June 30, 2018, report date. The revisions, which were proposed in November 2017 as part of the Agencies’ ongoing effort to reduce data reporting and other burdens for financial institutions, will remove or consolidate a number of data items and add or raise certain existing reporting thresholds in three versions of the report. The Agencies will conduct a webinar for bankers on April 5, 2018, to discuss the Call Report revisions and other reporting changes.
On April 2, the Federal Reserve Board and the OCC approved a final rule raising the appraisal thresholds for commercial real estate (CRE) transactions from $250,000 to $500,000, an increase from the original proposal which called for the appraisal threshold to be raised to $400,000. The threshold for loans secured by one-to-four family residential properties will remain at $250,000; however, residential construction loans secured by multiple one-to-four family residential properties would be considered CRE transactions. The FDIC board approved the final rule last month, and it will take effect upon publication in the Federal Register.
On February 27, the Federal Reserve Board issued a proposed policy statement, inviting public comments on potential amendments to its guidelines on an internal appeals process for institutions wishing to appeal an adverse material supervisory determination and to its policy regarding the Ombudsman for the Federal Reserve System. The comment period for these amendments ends April 30. The proposal reduces the levels of appeal from three to two and enhances independent review of a matter by providing that System and Board experts not affiliated with the affected Federal Reserve Bank review the matter at both appeals levels. The amendments also address a timing conflict between the Prompt Corrective Action framework under the Federal Deposit Insurance Act and the Federal Reserve Board’s existing appeals process, and establish a specific standard of review to be used at each appeal level. Additionally, the amendments would allow the Ombudsman to attend hearings or deliberations relating to the appeal as an observer, if requested by the institution or Federal Reserve personnel, and would specify that the Ombudsman is to be the decision-maker with respect to claims of retaliation.
On March 28, the Consumer Financial Protection Bureau (CFPB) issued a request for information (RFI) seeking comments and information regarding the CFPB’s guidance and implementation support. The CFPB is currently reviewing the overall effectiveness and accessibility of its guidance materials and activities, including implementation support. The CFPB is also considering making changes to the formats, processes, and delivery methods for providing this guidance. The CFPB will accept comments after the RFI’s April 2 printing date. Additional RFIs are expected in the coming weeks that will address consumer education and consumer inquiries.
On March 29, the CFPB released version 3.1 of the Small Entity Compliance Guide (Guide), which provides a summary of the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Rules in effect as of April 19, 2018. The revised Guide supersedes version 3.0, which was released on October 18, 2017. The Guide has been updated to reflect changes made by the Mortgage Servicing final rule relating to a single-statement exemption for the next periodic statement or coupon book that a servicer would otherwise have to provide to consumers in connection with bankruptcy proceedings. The CFPB also released a mortgage servicing coverage chart.
Enforcement & Litigation
On February 26, the Supreme Court granted certiorari in New Prime, Inc. v. Oliviera, 17-340, a First Circuit case arising from the District of Massachusetts. The case is posed to resolve a split among the circuit courts as to who – the court or the arbitrator – decides whether a case should go to arbitration under the Federal Arbitration Act (FAA). The case also raises interesting FAA exception and preemption issues. View the LenderLaw Watch blog post.
LendIt USA is the world’s largest marketplace lending event, bringing together over 4,000 members of the global online lending ecosystem. Goodwin is a sponsor. For more information, please visit the event website.
American Conference Institute’s National Legal, Regulatory & Compliance Forum on Cyber Risk & Data Security presents insights and the latest developments from representatives from leading government agencies, in-house counsel, insurance professionals, and top litigators who work in the area of data breach and cyber risk. Counsel Brian Mukherjee will be a speaker on the topic of “Exploring the Link Between Cyber Risk, Data Breach and D&O Liability.” For more information, please visit the event website.
Directors, C-Suites, and General Counsel are increasingly focusing on compliance – a critical aspect to every business operation. Mistakes can seriously heighten corporate and personal liability. Not only do the DOJ and SEC have an impact on compliance, but state and local regulators – particularly in New York – are also intensely overseeing compliance initiatives and ethics of financial services institutions and other industries. Goodwin partner Richard Strassberg joins Alexander Vasilescu, New York Head of Litigation at the United States Securities and Exchange Commission, and Yan Cao, Principal at Cornerstone Research, as the panel for this program. Goodwin is also pleased to announce that partner James Gatta, who recently rejoined the firm following his tenure as Chief of the Criminal Division of the U.S. Attorney’s Office for the Eastern Division of New York, will also join the panel discussion. The panel will provide an overview of key federal and state regulatory and compliance issues in financial services and other industries. For more information, please visit the event website.
Join NRS at its Spring 2018 Conference - Compliance Agility: Risk, Resources & Technology, where industry experts will address how investment adviser and broker-dealer firms can successfully navigate the disruptive currents of regulatory change and adapt agile procedures to compliance programs.
Hosted by the American Bar Association, this special program is dedicated to an in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like bitcoin, and blockchain technology. Grant Fondo, partner and chair of Goodwin’s Digital Currency & Blockchain Technology practice, will be a featured speaker.
Consero’s 2018 Financial Services & Insurance Litigation Forum will address current and looming legal and business challenges faced by today’s chief litigation officers, providing a one-of-a-kind opportunity to share best practices and strategies that will help lead their departments and companies in the right direction. Goodwin is a sponsor. For more information, please visit the event website.
MBA’s Legal Issues and Regulatory Compliance Conference gathers industry leaders to consider best practices, organizational changes needed to assimilate to final rules and knowledge to educate staff. Goodwin is a sponsor.