Weekly RoundUp January 30, 2019

Financial Services Weekly News

Editor's Note

The Legacy of the Government Shutdown Lives On. The federal government shutdown is finally over, at least temporarily. However, its legacy lives on as federal financial regulators must now deal with the backlog of registration statements, applications and rulemakings delayed by the shutdown. For instance, during the shutdown, the Securities and Exchange Commission (SEC) generally was not reviewing or declaring effective Securities Act registration statements, processing other filings or submissions, or responding to requests for staff action. While the SEC has returned to normal operations, the staff must now address this backlog. The SEC’s Division of Corporation Finance has posted an announcement regarding recommencement of operations in which it indicated that such filings, submissions, and requests for staff action would be addressed in the order they were submitted, but it is unclear exactly how long it will take the SEC staff to work through the backlog. Similarly, the shutdown stalled federal banking agency rulemaking activities, as well as a number of applications activities, because the publication of public notices required by law to appear in the Federal Register before a regulation may become effective or an application may be approved could not occur during the shutdown. During an appropriations lapse, the Office of the Federal Register (OFR) does not publish documents related to normal or routine activities of federal agencies. As a result, federal banking agencies’ rulemaking activities have been hampered. For example, the Federal Deposit Insurance Corporation’s (FDIC) final rule on the treatment of reciprocal deposits, previously reported in the January 9 edition of the Roundup, has been unable to commence the 30-day window that must expire prior to its effective date. Similarly, the public comment periods for applications under Section 3(a)(1) of the Bank Holding Company Act of 1956 have been unable to commence, stymieing transaction timelines nationwide. Due to the unprecedented duration of the shutdown, it is unclear how long the OFR will need to publish the accumulated backlog of Federal Register publications, of which the foregoing are but only a couple examples. Agencies other than the SEC and FDIC are working through similar backlogs. While the shutdown may be over for now, it will be a while yet before the federal government truly returns to regular order.

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

Regulatory Developments

FINRA Releases 2019 Risk Monitoring and Examination Priorities

On January 22, the Financial Industry Regulatory Authority (FINRA) released its 2019 Risk Monitoring and Examination Priorities Letter, detailing new and ongoing areas of focus for the coming year. In his cover letter, FINRA President and CEO Robert Cook stated that the Priorities Letter would take a different approach, focusing on new areas of emphasis, including risk monitoring, rather than reiterating areas of concern covered in the 2018 Report on FINRA Examination Findings. The Priorities Letter highlights, among other items: the distribution of securities through online platforms; mark-up disclosure obligations on fixed-income transactions; regulatory technology; suitability issues, including determinations that lack adequate quantitative support, overconcentration in illiquid securities and improper share class purchase recommendations; protecting senior investors from fraud, sales practice abuses, and financial exploitation; supervising firms’ digital asset businesses; firms’ policies and procedures for identifying, measuring, and managing credit risk; and firms’ liquidity planning and stress test assumptions. In addition to the highlighted priorities, FINRA re-emphasized its ongoing examination focuses, including suitability determinations relating to complex products, mutual fund and variable annuities share classes, outside business activities and private securities transactions, private placements, communications with the public, anti-money laundering, best execution, fraud, insider trading and market manipulation, trade and reporting data, recordkeeping, risk management and supervision, and firms’ cybersecurity programs, among others.

Final Rule on Private Flood Insurance Accepted

On January 25, the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, FDIC, Farm Credit Administration, and the National Credit Union Administration issued their final rule (the Rule) regarding loans in areas having special food hazards, which implements the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. The Rule, which becomes effective on July 1, 2019, requires that regulated lending institutions accept policies that meet the statutory definition of “private flood insurance.” Lenders may also accept private policies that do not meet the statutory criteria, but that do offer sufficient protection for a designated loan as determined by the lender. Policies are considered to offer sufficient protection if the policy is consistent with general safety and soundness principles, and such a determination is documented in writing. The Rule also provides that regulated lending institutions may exercise their discretion to accept certain plans providing flood coverage by “mutual aid societies.”

CFPB Asks Congress for Clear Authority to Supervise for Compliance with the Military Lending Act

On January 17, the Consumer Financial Protection Bureau (CFPB) sent a draft legislative proposal to the Speaker of the U.S. House of Representatives and the Vice President, in his capacity as President of the U.S. Senate, which aims to clarify the CFPB’s authority with respect to supervision for compliance with the Military Lending Act (MLA). The proposal requests a clear grant of authority from Congress for the CFPB to conduct examinations to review compliance with the MLA. In support of the proposal, CFPB Director Kathy Kraninger affirmed the CFPB’s commitment to “the financial well-being of America’s service members” and stated that the authority requested in the proposal “would complement the work the [CFPB] currently does to enforce the MLA.”

FDIC Updates Consumer Compliance Examination Manual

On January 18, the FDIC updated its Consumer Compliance Examination Manual. Recently updated sections include those covering communicating examination findings, investigations and visitations, enforcement actions, and determining whether Truth-in-Lending restitution is required.

Enforcement & Litigation

NYDFS Fines Loan Servicer $100,000 for Violations of Vacant and Abandoned Property Law

On January 16, the New York Department of Financial Services announced that it fined a New York state-registered mortgage loan servicer $100,000 for failing to maintain two properties in New York under New York’s Abandoned Property Relief Act, which requires banks and mortgage services to fulfill certain maintenance obligations at “zombie” properties. View the Enforcement Watch blog post.

CFPB Announces $11 Million Settlement with National Jewelry Retailer

On January 16, the CFPB  and the State of New York announced that they had filed a consent order in the U.S. District Court for the Southern District of New York to settle allegations that a jewelry retailer enrolled customers in credit cards and related products without their consent. View the Enforcement Watch blog post.

Goodwin News

Post-Midterm Election Financial Regulatory Update – February 13

Join Goodwin and EY for a timely post-midterm election financial regulatory update. With a newly divided Congress and increasingly aggressive state regulators, the years ahead may see broader regulatory enforcement emanating from Washington, D.C., and across the country.

Our speakers will provide unique insight into this changing regulatory environment, including business and legal perspectives from former federal and state financial regulators, industry professionals, and “DC insiders.” We will engage in a dynamic discussion focusing on current trends in federal and state regulations, including consumer financial services, securities regulatory and litigation risks, and the critical opportunities for financial and other institutions to proactively address the compliance risks of doing business in this new environment. Please find the registration link here.

American Bankers Association Conference for Community Bankers – February 10-12

The ABA Conference for Community Bankers is the premier event developed for — and by — community bank CEOs. Goodwin is a sponsor and will appear on two peer exchanges. Partner and Chairman Emeritus Regina Pisa will facilitate the Board Member session on February 11 and Partner Samantha Kirby will facilitate the Board Management and Strategic Planning session on February 12. Please find the registration link here.

This week’s Roundup contributors: Alex Callen, Jessica Craig and Tierney Smith.