Weekly RoundUp March 04, 2020

Financial Services Weekly News: Banking Agencies Finalize CECL Policy Statement

Editor's Note

In This Issue. Federal banking agencies finalized an Interagency Policy Statement on Allowance for Credit Losses, which is intended to promote consistency in the interpretation and application of the current expected credit losses (CECL) methodology; the Securities and Exchange Commission (SEC) adopted final rules amending the financial disclosure requirements for registered debt offerings in order to make registered debt offerings more attractive to issuers by reducing current disclosure burdens that apply to subsidiary guarantees, pledges of affiliate securities as collateral, and other credit enhancements; the Consumer Financial Protection Bureau (CFPB) updated its TRID FAQs relating to lender credits; and the CFPB and several state regulators filed suit against a group of defendants alleged to have brokered contracts offering high-interest credit to consumers, primarily disabled veterans. These and other items are covered in more detail below.

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

Regulatory Developments

Federal Banking Agencies Finalize CECL Policy Statement

On March 2, the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and National Credit Union Administration (collectively, the Agencies) finalized an Interagency Policy Statement on Allowances for Credit Losses (Policy Statement), which is intended to promote consistency in the interpretation and application of CECL methodology. The final Policy Statement does not prescribe requirements for estimating expected credit losses but rather describes the measurement of expected credit losses in accordance with FASB ASC Topic 326; the design, documentation, and validation of expected credit loss estimation processes, including the internal controls over these processes; the maintenance of appropriate accounting for credit losses; the responsibilities of boards of directors and management; and examiner reviews of accounting for credit losses.

As previously covered in the October 23 edition of the Roundup, the Agencies previously had sought comment on the proposed Policy Statement. In response to public comments on the October proposal, the Agencies revised the Final Policy Statement to:

  • indicate that the list of qualitative factor adjustments that maybe considered for debt securities are specific to held-to-maturity debt securities;
  • align the terminology of the Policy Statement with FASB ASC Topic 326 to clarify that accounting policy elections related to accrued interest receivable may be made by class of financing receivable or major security-type; and
  • clarify that external auditor independence may be impaired if the external auditor performs validation activities for management when the external auditor also conducts the institution's independent financial statement audit.

The Agencies also noted that the Federal Financial Institutions Examination Council will reconsider whether to modify the instructions for the Consolidated Reports of Condition and Income (Call Report) regarding the reporting of expected credit losses on off-balance sheet exposures to ensure consistency with U.S. Generally Accepted Accounting Principles (GAAP). The Policy Statement will become effective upon publication in the Federal Register.

SEC Amends Rules to Improve Disclosure and Encourage Issuers to Conduct Debt Offerings on a Registered Basis

On March 2, the SEC adopted final rules amending the financial disclosure requirements for registered debt offerings that include subsidiary guarantees, collateralization and other credit enhancements. The amendments, which affect Rule 3-10 and Rule 3-16 of Regulation S-X, are intended to reduce current disclosure burdens that apply to subsidiary guarantees, pledges of affiliate securities as collateral, and other credit enhancements in registered debt offerings, thereby making registered debt offerings more attractive to issuers. The amendments will be effective on January 4, 2021, but the SEC will accept voluntary compliance with the amendments in advance of the effective date. In its announcement of the final rules, the SEC included a fact sheet summarizing the final rules.

CFPB Updates TRID FAQs on Lender Credits

On February 26, the CFPB released an update to its TILA-RESPA Integrated Disclosure Rule FAQs. The updates relate to lender credits, which the FAQs define as (1) payments, such as credits, rebates, and reimbursements, that a creditor provides to a consumer to offset closing costs the consumer will pay as part of the mortgage loan transaction and (2) premiums in the form of cash that a creditor provides to a consumer in exchange for specific acts, such as for accepting a specific interest rate, or as an incentive, such as to attract consumers away from competing creditors.

Goodwin Alert: Practical Considerations When Contemplating the Community Bank Leverage Ratio Framework

The community bank leverage ratio framework (CBLR Framework) is available for use beginning with the March 31, 2020 Call Report and Form FR Y-9C (consolidated financial statements for holding companies). A qualifying community banking organization may elect to opt in or out of the CBLR Framework at any time and for any reason through the organization’s Call Report or Form FR Y-9C. Opting into the CBLR Framework alleviates the burdens of periodically calculating and reporting risk-weighted measures of capital. On the other hand, the CBLR Framework could require more capital, given that the minimum required capital under the CBLR Framework will often be greater than the minimum that would be required to satisfy the generally applicable risk-based and leverage capital requirements. For more information, read the client alert issued by Goodwin’s Banking practice.

Enforcement & Litigation

On February 20, the CFPB, South Carolina Department of Consumer Affairs, and Arkansas Attorney General’s Office announced that they had filed a lawsuit in the U.S. District Court for the District of South Carolina against a group of defendants who brokered contracts offering high-interest credit to consumers, primarily disabled veterans. The agencies allege that these credit offers violate the Consumer Financial Protection Act (CFPA) and South Carolina state law. Read the Enforcement Watch blog post.

Goodwin News

2020 AIG Winter Summit — March 10-13

The AIG Winter Summit is a highly anticipated event that brings together insurance and risk management professionals for an action-packed program of ski and snowboard races, insightful business sessions, networking receptions, and more. Experience the giving, competing, and education of this one-of-a-kind industry event. Goodwin will be sponsoring at the "freestyle friend" level. Please contact Sean Hayes for more information.

IAPP Data Protection Intensive: UK 2020 - Workshop — March 10

Gretchen Scott and Curtis McCluskey will be attending the IAPP Data Protection Intensive: UK 2020 workshop. This year’s program features workshops and breakout sessions on subjects including artificial intelligence, adtech, children’s privacy rights, the details of GDPR compliance, the finer points of privacy impact statements and more. To register, please click here.

SIFMA C&L Annual Seminar — March 15

Goodwin is a sponsor of the Securities Industry and Financial Markets' C&L Seminar, an annual event for compliance and legal professionals working in financial services. Throughout the three-day program, participants hear directly from industry leaders and regulators on the latest developments and trends and build professional relationships to collaborate better. Please contact Olivia Labau or Sean Hayes for more information.

ICI Mutual Funds and Investment Management Conference — March 22-25

Today’s funds face more challenges and opportunities than ever before. At the 2020 Mutual Funds and Investment Management Conference, attendees will hear directly from regulators and other experts about how asset managers can navigate today’s changing landscape. Taking place in Palm Desert, California, this event will enable you to learn about key regulatory and other issues and to connect with colleagues. Goodwin's Investment Management team will be attending this conference. To register, please click here.

ICI Mutual Funds Conference Client Dinner — March 22

Goodwin will host a client dinner in conjunction with ICI’s Mutual Funds Investment Management Conference. Please contact Olivia Labau or Sean Hayes for more information.

Good Run: Annual 5K in Conjunction with ICI Mutual Funds and Investment Management Conference — March 23

Goodwin's Investment Management practice is hosting its 12th Annual Good Run in conjunction with the Investment Company Institute’s 2020 Mutual Funds and Investment Management Conference. In recognition of the participants, Goodwin will make a donation to Expect Miracles, a leading advocate in the fight against cancer within the financial services industry. Please contact Olivia LaBau for more information.

This week’s Roundup contributors: Alex Callen and Patrice Hendriksen.