Weekly RoundUp December 10, 2021

FinCEN Issues Proposed Rule for Beneficial Ownership Information Reporting Requirements

Editor's Note
In This Issue. The Financial Crimes Enforcement Network (FinCEN) announced (1) a notice of proposed rulemaking for beneficial ownership information reporting requirements and (2) a regulatory process for new real estate sector reporting; the Office of the Comptroller of the Currency (OCC) released its Semiannual Risk Perspective for Fall 2021, reporting key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry; the Consumer Financial Protection Bureau (CFPB) issued a final rule to address the anticipated sunset of LIBOR; the U.S. Securities and Exchange Commission (SEC) adopted amendments to the Holding Foreign Companies Accountable Act; and the Federal Financial Institutions Examination Council (FFIEC) released a new section and updated three chapters of the Bank Secrecy Act/Anti-Money Laundering Examination Manual. These and other developments are discussed in more detail below. 
Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

FinCEN Issues Proposed Rule for Beneficial Ownership Information Reporting Requirements 

On December 7, FinCEN issued a notice of proposed rulemaking regarding a proposal to implement part of Section 6403 of the Corporate Transparency Act by requiring domestic and foreign entities, such as corporations, limited liability companies, and other entities created by or registered by filing a document with a secretary of state or similar state or tribal office, to file reports with FinCEN that identify the beneficial owners of the entity and the individuals who have filed applications with specified governmental authorities to form the entity or register it to do business. As proposed, a beneficial owner is an individual who either exercises substantial control over the entity or who owns or controls at least 25% of the ownership interest of the entity. The proposed rule addresses who must file (and who is exempt), when they must file, and what information they must file about themselves and their respective beneficial owners and individual applicants. These information submission requirements are intended to help prevent and combat money laundering, terrorist financing, tax fraud and other illicit activity. FinCEN intends to issue separate rulemakings to implement other aspects of Section 6403 of the Corporate Transparency Act, including protocols for access to and disclosure of information and revisions to FinCEN’s existing customer due diligence requirements. Comments on the proposed rule must be submitted by February 7, 2022.

FinCEN Launches Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance

On December 8, FinCEN announced an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on a potential rule on potential requirements under the Bank Secrecy Act (BSA) for certain persons involved in real estate transactions to collect, report and retain information. The rule release notes that systemic money laundering vulnerabilities presented by the U.S. real estate sector and, consequently, the ability of illicit actors to launder criminal proceeds through the purchase of real estate, threatens U.S. national security and the integrity of the country’s financial system. The proposed rule would seek to impose nationwide recordkeeping and reporting requirements on certain persons participating in transactions involving non-financed purchases of real estate. FinCEN seeks comment on the potential scope of any such regulations, including, among other things: (1) the persons who should be subject to the requirements, (2) which types of real estate purchases should be covered, (3) what information should be reported and retained, (4) the geographic scope of such a requirement, (5) and the appropriate reporting dollar-value threshold. FinCEN also invites general comments regarding the risk of money laundering and other illicit financial activities in the real estate market and the extent to which any reporting requirements would address that risk. Comments must be received on or before February 7, 2022.

OCC Reports on Risks, Effects of COVID-19 Pandemic on Federal Banking System

On December 6, the OCC released its Semiannual Risk Perspective for Fall 2021, reporting key issues facing the federal banking system and the impact of the COVID-19 pandemic on the federal banking industry, including elevated operational and cyber risk from an increasingly complex operating environment, heightened compliance risk driven by regulatory changes and policy initiatives, credit risk and weak loan demand, climate change risk, and the risk of actions by banks to offset earnings impacts from low yields and net interest margin compression. In addition, the report presents information on the operating environment for national banks and federal savings associations, bank performance, community banking, key risk trends and recent supervisory concerns.

“FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing.” 
- Acting FinCEN Director Himamauli Das

FDIC Launches Office of Supervisory Appeals

On December 6, the Financial Deposit Insurance Company’s (FDIC) Financial and Banking Information Infrastructure Committee’s new Office of Supervisory Appeals (Office) became fully operational and replaces the Supervision Appeals Review Committee. The Office will review and decide repeals of material supervisory determinations and was created in connection with the FDIC revising the Guidelines for Appeals of Material Supervisory Determinations. The Office aims to improve consistency, accountability and independence of the FDIC’s supervisory appeals process by moving the appeals process to an independent entity.

LIBOR Index Transition

On December 7, the CFPB issued a final rule to address the anticipated sunset of LIBOR, which is set to be discontinued for most U.S. Dollar (USD) tenors in June 2023. Some creditors currently use USD LIBOR as an index for calculating rates for open-end and closed-end products (e.g., funds). The CFPB’s final rule amends the open-end and closed-end provisions to provide examples of replacement indices for LIBOR indices that meet certain Regulation Z standards. The final rule amends Regulation Z to permit creditors for home equity lines of credit (HELOCs) and card issuers for credit card accounts to transition existing accounts that use a LIBOR index to a replacement index on or after April 1, 2022, if certain conditions are met. This final rule also addresses change-in-terms notice provisions for HELOCs and credit card accounts and how they apply to accounts transitioning away from using a LIBOR index. Lastly, the final rule amends Regulation Z to address how the rate reevaluation provisions applicable to credit card accounts apply to the transition from using a LIBOR index to a replacement index. The final rule is effective on April 1, 2022. For HELOCs and credit card accounts, the updated requirements in the final rule related to disclosing a reduction in a margin in the change-in-terms notices are effective on April 1, 2022, with a mandatory compliance date of October 1, 2022. The CFPB is seeking comments on whether to include references to a one-year USD LIBOR index and its replacement index and will consider whether to finalize comments proposed on that issue in a supplemental final rule once it obtains additional information.

CFTC’s Interest Rate Benchmark Reform Subcommittee Selects December 13 for SOFR First for Additional Cross-Currency Derivatives

On December 2, the Interest Rate Benchmark Reform Subcommittee, a subcommittee of the Commodity Futures Trading Commission’s Market Risk Advisory Committee (MRAC), announced that it has selected December 13 as the compliance date to switch interdealer trading conventions from the London Inter-Bank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) for the U.S. dollar (USD) leg of newly-executed cross-currency derivatives under the MRAC’s SOFR First initiative.

SEC Adopts Amendments to Finalize Rules Relating to the Holding Foreign Companies Accountable Act

On December 2, the SEC adopted amendments to the Holding Foreign Companies Accountable Act (the HFCAA). The HFCAA requires the SEC to identify certain issuers that filed annual reports accompanied by audit reports issued by registered public accounting firms located in foreign jurisdictions that the Public Company Accounting Oversight Board are unable to investigate completely (the Foreign Issuers) due to the Foreign Issuers’ foreign jurisdiction. The amendments require the Foreign Issuers to (1) submit certain documentation on or before their annual report due date that establish that they are not owned or controlled by a governmental entity in that foreign jurisdiction, and (2) provide additional specified disclosures in their annual report, including information about the audit arrangements of, and governmental influence on, such Foreign Issuers. 

Bank Secrecy Act/Anti-Money Laundering Examination Manual Update

On December 1, the FFIEC released a new section and updated three chapters of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual). 

The new section, entitled “Introduction-Customers,” provides that no specific customer type is automatically assumed to present a higher risk of money laundering, terrorist financing or other illicit forms of financial activity. Additionally, the new section encourages banks to manage relationships with customers and mitigate risks associated with those customers as opposed to declining banking services for entire categories of customers.

The updates affect the following chapters of the Manual: Charities and Non-Profit Organizations, Independent Automated Teller Machine Owners or Operators and Politically Exposed Persons. The section updates provide information and consideration regarding certain customers that may indicate a need for bank policies, procedures and processes to address potential money laundering, terrorist financing, other illicit financial activity risks and provide further transparency into the BSA/AML examination process. The FFIEC has clarified that these updates should not be interpreted as new requirements or an increased focus on certain areas within the financial sector.

FINRA Extends the Registration Qualification Window From Two to Five Years After Termination

In response to outcomes caused by the Form U5 filing time lapse that persons registered with a broker-dealer experience, the Financial Industry Regulatory Authority (FINRA) has amended Rules 1210 and 1240 governing registration and continuing education (CE) requirements. Among other changes, new FINRA Rule 1240(c) implements the Maintaining Qualifications Program (MQP), which provides eligible individuals who terminate any of their representative or principal registrations the option of maintaining their qualifications for up to five years, instead of the current two-year window, by completing the annual CE. An individual whose registration is terminated on or after March 15, 2022 will have up to two years to elect to participate in the MQP (the election can be made through the Financial Professional Gateway). Beginning March 15, 2022, individuals who elect to participate in the MQP must complete their annual CE through the new MQP and generally must do so by December 31, 2022.

Read the client alert to learn more about the new MQP.

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Editors
Nicole Griffin
Samantha M. Kirby
William E. Stern

Contributors
Josh Burlingham
Alex Callen
Brennan Meier
Rose Phipps
Nico Ramos