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Top Story Compliance Related


OCC report on key risks and effect of pandemic

The OCC has released a report on the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry in its Semiannual Risk Perspective for Spring 2021. Highlights from the report include:

  • Credit risk is elevated and transitioning as the economic downturn continues to affect some borrowers’ ability to service debts. Assistance programs and federal, state, and local stimulus programs have suppressed past-due levels.
  • Strategic risks associated with banks’ management of Net Interest Margin compression and efforts to improve earnings is elevated. Banks attempting to improve earnings may implement measures including cost cutting, increasing credit risk (both credit and investments) or extending duration.
  • Operational risk is elevated due to a complex operating environment and increasing cybersecurity threats.
  • Compliance risk is elevated as banks’ expedited efforts to implement assistance programs continue to challenge established change management, product, and service risk management practices.

The report also highlights the low interest rate environment as a special topic in emerging risks.


FDIC seeks info on digital assets activities

The FDIC has issued a Request for Information and comments regarding insured depository institutions’ current and potential digital assets activities. In FIL-35-2021, the agency reported that—

  • Banks are increasingly exploring several roles in the emerging digital asset ecosystem, and consumers are beginning to seek access to digital assets products and services, such as being custodians, reserve holders, issuers, and exchange or redemption agents; performing node functions; and holding digital asset issuers’ money deposits.
  • The FDIC recognizes there are novel and unique considerations related to digital assets. This Request for Information is intended to help inform the FDIC’s understanding and any potential policymaking in this area.
  • Part 362 of the FDIC’s Rules and Regulations may apply to certain digital asset activities or investments. FDIC-supervised institutions are encouraged to engage in discussions with FDIC supervisors, as appropriate, before engaging in such activities or investments.
  • Comments will be accepted through July 16, 2021.


Agencies extend comment period for info gathering on uses of AI

The Fed, CFPB, FDIC, NCUA, and OCC have announced they are extending the comment period on their request for information on financial institutions' use of artificial intelligence (AI) until July 1, 2021.

The agencies are seeking information from the public on how financial institutions use AI in their activities, including fraud prevention, personalization of customer services, credit underwriting, and other operations. More specifically, the RFI seeks comments to better understand the use of AI, including machine learning, by financial institutions; appropriate governance, risk management, and controls over AI; and challenges in developing, adopting, and managing AI.

  • PUBLICATION UPDATE: Published at 86 FR 27960 on 5/24/2021


CFPB proposes settlement with DMB Financial

The CFPB has requested a federal district court to enter a final judgment and order that, if entered by the court, would require DMB Financial, LLC to pay consumers at least $5.4 million for charging unlawful fees and failing to provide required disclosures to its customers, and a civil penalty. The CFPB alleges that DMB’s actions violated the Federal Trade Commission's Telemarketing Sales Rule and the Consumer Financial Protection Act.

DMB Financial is a Beverly, Massachusetts-based debt-settlement company that operates in at least 24 states. DMB offers and provides services to settle or renegotiate unsecured debt on behalf of consumers. In December 2020 the CFPB filed a lawsuit against DMB Financial in federal district court in Massachusetts alleging that the company had charged unlawful upfront frees before it performed its promised services, and before consumers began making payments under any debt settlement.

The CFPB alleges that DMB Financial violated the TSR and CFPA. DMB’s violations center around:

  • Unlawful fees: DMB Financial allegedly charged fees before some consumers had made at least one payment to a creditor under a settlement agreement and charged some consumers fees even though it did not negotiate a settlement. The company also allegedly collected fees that were calculated on the consumer’s debt amount after their time of enrollment in one of DMB’s debt-settlement programs.
  • Improper disclosures: DMB Financial allegedly failed to disclose the amount that a consumer must save before making a settlement offer and the time by which it would make a settlement offer. The company also allegedly deceived consumers about settlement fees, including by charging settlement fees greater than what was disclosed in the enrollment agreement.

The proposed judgment and order, if entered by the court, would require DMB Financial to:

  • Refund harmed consumers: The order, if entered by the court, would impose a judgment of $7.7 million against DMB Financial, LLC, which would be suspended upon its paying consumers $5.4 million.
  • Stop deceptive practices: DMB Financial would be prohibited from engaging in the unlawful and deceptive practices alleged by the CFPB.
  • Pay a civil penalty: The order would also impose a penalty of $1 to be paid to the Bureau and deposited into the CFPB’s Civil Penalty Fund. By requiring the DMB Financial to pay a penalty of $1, the order may make consumers eligible for additional relief from the CFPB Civil Penalty Fund in the future, although that determination has not yet been made.


OFAC targets ISIS facilitators and Burmese military officials

The Treasury Department has announced that OFAC has designated three individuals — Alaa Khanfurah, Idris Ali Awad al-Fay, and Ibrahim Ali Awad al-Fay — and one entity — Al-Fay Company — in connection with the Islamic State of Iraq and Syria (ISIS). The individuals and company played a crucial role connecting ISIS with a network of international donors and enabled ISIS to access the financial system in the Middle East. This action coincides with the fourteenth meeting of the Counter ISIS Finance Group (CIFG), which includes nearly 70 countries and international organizations, and plays a fundamental role in coordinating efforts to deny ISIS access to the international financial system and eliminate its sources of revenue.

Treasury also reported that OFAC sanctioned designated 16 individuals and one entity connected to Burma’s military regime. Thirteen of the individuals are key members of Burma’s military regime. The other three individuals are adult children of previously designated senior Burmese military officials. The entity is the State Administration Council (SAC), the body created by the military to support its unlawful overthrow of the democratically elected civilian government. These designations were made under the authority of Executive Order 14014, “Blocking Property with Respect to the Situation in Burma.” These sanctions are not directed at the people of Burma. In concurrent actions, the U.K. and Canada also sanctioned persons and/or entities in relation to the on-going coup in Burma.

Identification information on the individuals and entities added to OFAC's SDN List in these two actions can be found in this BankersOnline OFAC Update.


Fed extends Reg O PPP rule again

The Federal Reserve Board has announced the third extension of a rule amending Regulation O to bolster the effectiveness of the Small Business Administration's (SBA) Paycheck Protection Program (PPP). Like the earlier extensions, this one will temporarily modify the Board's rules so that certain bank directors and shareholders can apply to their banks for PPP loans for their small businesses.

The rule extension, which is effective immediately, applies to PPP loans made from March 31 through June 30, 2021. The rule change will continue to apply if the PPP is extended, with the change ultimately sunsetting on March 31, 2022. Comments will be accepted for 45 days after publication in the Federal Register.


Narcotics Trafficking and Kingpin Sanctions Regs amended

OFAC has announced it is amending the Narcotics Trafficking Sanctions Regulations and the Foreign Narcotics Kingpin Sanctions Regulations to add or amend general licenses with respect to payments for legal services, certain transactions for personal maintenance, certain transactions for maintenance of blocked tangible property, and emergency medical services, among other things.

The amendments were published in a final rule at 86 FR 26661 in this morning's Federal Register, and became effective today.


State Street to pay $115M for overcharging clients

State Street Corporation, Boston, Massachusetts, has entered into a deferred prosecution agreement and agreed to pay a $115 million criminal penalty to resolve charges that it engaged in a scheme to defraud a number of the bank’s clients by secretly overcharging for expenses related to the bank’s custody of client assets, according to a May 13 press release from the U.S. Attorney's Office for the District of Massachusetts.

According to State Street’s admissions, between 1998 and 2015, bank executives conspired to add secret markups to “out-of-pocket” (OOP) expenses charged to the bank’s clients while letting clients believe that State Street was billing OOP expenses as pass-through charges on which the bank was not earning a profit. These markups were charged on top of fees that the clients had agreed to pay the bank, and despite written agreements that caused clients to believe the expenses would be passed through to them without a mark-up. State Street executives also took steps to conceal the mark-ups from clients, including by not disclosing the details underlying OOP expenses on invoices and by misleading clients when they inquired about what they were being charged for OOP-related activities. Through this scheme, State Street defrauded its clients out of more than $290 million.

State Street also agreed to fully reimburse the victims of the overcharges, and the Deferred Prosecution Agreement states that State Street had paid about $88 million in connection with a settlement with the SEC, and paid civil penalties to state regulators in the amount of $8.575 million. For further information and links to court documents in the case, see "State Street to pay $115M in overcharge case," in BankersOnline's Penalties pages.


Broker-dealer charged with failure to file SARs

The SEC has settled charges against GWFS Equities Inc., a Colorado-based registered broker-dealer and affiliate of Great-West Life & Annuity Insurance Company, for violating the federal securities laws governing the filing of suspicious activity reports. GWFS provides services to employer-sponsored retirement plans.

According to the order filed by the SEC, from September 2015 through October 2018, GWFS was aware of increasing attempts by external bad actors to gain access to the retirement accounts of individual plan participants. The order further finds that GWFS was aware that the bad actors attempted or gained access by, among other things, using improperly obtained personal identifying information of the plan participants, and that the bad actors frequently were in possession of electronic login information such as user names, email addresses, and passwords.

The order stated that GWFS failed to file approximately 130 SARs, including in cases when it had detected external bad actors gaining, or attempting to gain, access to the retirement accounts of participants in the employer-sponsored retirement plans it serviced. Further, for nearly 300 SARs that GWFS did file, the order finds that GWFS did not include the “five essential elements” of information it knew and was required to report about the suspicious activity and suspicious actors, including cyber-related data such as URL addresses and IP addresses.

Without admitting or denying the SEC’s findings, GWFS agreed to a settlement that imposes a $1.5 million penalty, a censure, and an order to cease and desist from future violations.


Indiana housing providers charged by HUD

HUD has charged Bloomington, Indiana’s Burnham Rentals, LLC, Burnham Place Apartments, LLC, two of their employees, and others with violating the Fair Housing Act’s bar on disability discrimination. HUD’s charge alleges that the housing providers refused to permit a rising Indiana University graduate student, who has depression and post-traumatic stress disorder, to keep an assistance animal in an apartment. In addition, HUD’s charge alleges that the housing providers used the building’s “no pets” policy as justification to deny the student’s request to live with her assistance animal, effectively denying her access to the housing.


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