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.
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.”
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.”
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
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.
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.
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.
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.