Top Story Compliance Related

FinCEN has announced it has joined the Securities and Exchange Commission (SEC) in jointly proposing a new rule that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs). The proposal is designed to prevent illicit finance activity involving the customers of investment advisers by strengthening the anti-money laundering and countering the financing of terrorism (AML/CFT) framework for the investment adviser sector.

This proposed rulemaking complements a separate FinCEN proposal in February 2024 to designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA) and subject them to AML/CFT program requirements and suspicious activity report (SAR) filing obligations, among other requirements. That proposal cites a Treasury risk assessment that identified that the investment adviser industry has served as an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, tax evasion, and other criminal activities. Together, these proposals aim to prevent illicit finance activity in the investment adviser sector and further safeguard the U.S. financial system.

The rule, if adopted, would require RIAs and ERAs to, among other things, implement a CIP that includes procedures for verifying the identity of each customer to the extent reasonable and practicable and maintaining records of the information used to verify a customer’s identity, among other requirements. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds. Comments on the proposal will be accepted for 60 days following publication in the Federal Register.

• Fact Sheet on proposal

The FDIC has sent email notices announcing that it will host four seminars in 2024 (the first on May 30, from 2:00 to 3:30 pm ET) on the final rule governing use of Official Signs and Advertising Statement, Misrepresentations of Insured Status, and Misuse of FDIC’s Name or Logo for bank staff, bank officers, and other stakeholders. The first seminar will be held via Microsoft (MS) Teams on May 30, 2024. The dates for the remaining three seminars will be announced at a later date.

The sessions will offer a broad overview of the final rule that amended Part 328 of the FDIC’s regulations. The FDIC amended its regulations governing use of the official FDIC sign and advertisement statements to reflect how depositors do business with banks today, including through digital and mobile channels. The rule also clarified the FDIC’s regulations on misrepresentations of deposit insurance coverage. The final rule is intended to help consumers understand when they are interacting with an FDIC-insured bank and when their funds are protected by the FDIC’s deposit insurance coverage.

The rule became effective on April 1, 2024, and has a compliance date of January 1, 2025. The sessions are ideal for bank employees and other Part 328 stakeholders looking for further information and guidance on the new final rule.

During the presentation on the final rule, FDIC staff will cover:

• Requirements for all FDIC-insured institutions’ use of FDIC official signs. This includes a new FDIC official digital sign for bank websites, apps, and ATMs, as well as updates to the advertising statement.
• Clarifications on the prohibitions against misrepresentations of deposit insurance coverage and misuse of the FDIC’s name and logo, which apply to any person, including banks and non-bank entities.

During the seminar, FDIC staff will also discuss some of the questions that have been raised by bankers, trade associations, technology companies, vendors, and others.

The CFPB has announced its release of a new Issue Spotlight report, "Credit Card Rewards" finding consumers encounter numerous frustrations with credit card rewards programs.

The report indicates that consumer complaints include that rewards are often devalued or denied even after program terms are met and that credit card companies focus marketing efforts on rewards, like cash back and travel, instead of on low interest rates and fees. Consumers who carry revolving balances complain they often pay far more in interest and fees than they get back on rewards and credit card companies often use rewards programs as a “bait and switch” by burying terms in vague language or fine print and changing the value of rewards after people sign up and earn them. New problems have been created by the growth of co-brand credit cards and rewards programs where consumers can transfer miles or points to merchants.

OFAC has released and will publish on May 10 an interim final rule to amend the Reporting, Procedures and Penalties Regulations (the “Regulations”), to require electronic filing of certain submissions to OFAC and to describe and modify certain reporting requirements related to blocked property and rejected transactions. In particular, the rule would require use of the electronic OFAC Reporting System for submission of reports related to blocked property and rejected transactions, remove the mail option for certain other types of OFAC submissions, describe reports OFAC may require from financial institutions for transactions that meet specified criteria, and add a reporting requirement for any blocked property that is unblocked or transferred.

Additionally, OFAC is clarifying the scope of the reporting requirement for rejected transactions, in part to respond to comments received on the interim final rule OFAC published on June 21, 2019 to amend the Regulations. The interim final rule also modifies the procedures for requests relating to property that is blocked in error and updating the Regulations with respect to the availability of information under the Freedom of Information Act (FOIA) for certain categories of records.

The rule also clarifies that persons may submit a petition for administrative reconsideration to seek removal of a person or property from the List of Specially Designated Nationals and Blocked Persons or any other list of sanctioned persons maintained by OFAC. OFAC is also adding a description of reports OFAC may require financial institutions to provide about transactions that meet specified criteria to aid in the identification of blocked property. Finally, OFAC is making several technical and
conforming edits.

The rule will become effective 90 days after publication (August 8, 2024). Comments on the interim final rule will be accepted for 31 days after publication (through June 10, 2024).

Yesterday, FinCEN issued an Advisory to assist financial institutions in detecting potentially illicit transactions related to Islamic Republic of Iran-backed terrorist organizations. The Advisory highlights the means by which certain terrorist organizations receive support from Iran and describes several typologies these terrorist organizations use to illicitly access or circumvent the international financial system to raise, move, and spend funds. It also provides red flags that may assist financial institutions in identifying related suspicious activity.

Recent events have underscored Iran’s involvement in and financing of terrorist activity in the region. Iran seeks, among other goals, to project power by exporting terrorism throughout the Middle East and beyond by financing a range of regional armed groups, some of which are U.S.-designated Foreign Terrorist Organizations or Specially Designated Global Terrorist organizations. These terrorist organizations include Lebanese Hizballah, Hamas, the Palestinian Islamic Jihad, the Houthis, and several Iran-aligned militia groups in Iraq and Syria.

FinCEN requests that financial institutions reference this advisory in SAR field 2 and the narrative by including "IRANTF-2024-A001" and selecting SAR field 33(a) when filing SARs related to matters discussed in the Advisory.

• Advisory FIN-2024-A001

Our monthly check of the Federal Reserve Board's archive of Community Reinvestment Act evaluations shows that the Reserve Banks issued 15 evaluations in April 2024. Twelve of those evaluations were rated "Satisfactory." We congratulate Cedar Rapids Bank and Trust Company, Cedar Rapids, Iowa; Manufacturers and Traders Trust Company, Buffalo, New York; and Opportunity Bank of Montana, Helena, Montana, on their CRA evaluations, which were rated "Outstanding."

The CFPB has announced it has taken action against Chime Financial for failing to give consumers timely refunds when their accounts were closed. Thousands of consumers waited for weeks or even months for balance refunds after closing their accounts — a failure that inflicted significant financial harm on consumers who did not have access to critical funds to help make ends meet. In some cases, consumers had to seek expensive forms of credit to cover bills that were due. The CFPB’s order requires Chime to provide at least $1.3 million in redress to consumers it harmed, and pay a $3.25 million penalty into the CFPB’s victims relief fund.

Chime Financial is a nonbank company headquartered in San Francisco. The company partners with banks to offer financial products, including checking accounts, savings accounts, and credit cards. Chime has $1.5 billion in annualized revenue. Approximately seven million consumers make $8 billion in transactions using Chime cards each month. It is not publicly owned, and relies, in large part, on investments through venture capital firms.

In most instances, when consumers’ checking and savings accounts are closed, Chime automatically refunds remaining balances by check. Until 2021, Chime’s policy, reflected in consumer account agreements, was to process and mail refund checks within 14 days of an account’s closure. But the CFPB found that Chime:

• Failed to timely provide consumer refunds: Chime failed to issue consumer refunds within the 14 days promised by its policy, including thousands of instances in which Chime did not get refunds to consumers within 90 days.
• Deprived consumers of needed funds to meet their responsibilities: Chime’s slow response in returning consumer funds prevented thousands of consumers from accessing their money – sometimes for months on end. Consumers who did not have access to their funds were often unable to pay for basic living expenses, and likely had to use or search for expensive credit alternatives, such as credit cards or payday loans.

Under the CFPB’s order (click HERE), Chime must:

• Pay at least $1.3 million in redress: Chime must pay at least $1.3 million in redress to harmed consumers. Generally, a harmed consumer will receive at least $150 in redress if, after 14 days from account closure, they still had a minimum unrefunded balance of $10.
• Pay $3.25 million in penalties: Chime will pay $3.25 million in penalties to the CFPB’s victims relief fund.
• Provide timely refunds: Chime must come into compliance with the law, including providing refund checks on closed accounts within a reasonable period.

The Federal Reserve Board has reported that First Citizens Bank of Butte, Butte, Montana, has entered into a formal agreement with the Federal Reserve Bank of Minneapolis and the Montana Division of Banking and Financial Institutions, to address deficiencies identified in the most recent examination of the bank conducted by the Division and the Reserve Bank relating to the bank's risk management and compliance with applicable federal laws, rules, and regulations relating to BSA/AML compliance.

On Tuesday, the United States designated Dmitry Yuryevich Khoroshev, a Russian national and a leader of the Russia-based LockBit group, for his role in developing and distributing LockBit ransomware. This designation is the result of a collaborative effort with the U.S. Department of Justice, Federal Bureau of Investigation, the United Kingdom’s National Crime Agency, the Australian Federal Police, and other international partners.

Concurrently, the Department of Justice is unsealing an indictment and the Department of State is announcing a reward offer for information leading to the arrest and/or conviction of Khoroshev. The United Kingdom and Australia are also announcing the designation of Khoroshev.

For identification information on Khoroshev, see BankersOnline’s May 7, 2024, OFAC Update.

The U.S. Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), has announced it has extended its foreclosure moratorium for borrowers with FHA-insured mortgages in Maui County, HI, through January 1, 2025. FHA took this action due to the extent of the devastation from the wildfires, the reduced capacity for borrowers to access needed resources, and the unique challenges associated with the geographic location of Maui. The extension will provide affected borrowers more time to obtain federal, state, and local assistance, to work with a HUD-certified housing counselor, and/or to rebuild without the added burden of dealing with foreclosure actions. FHA’s foreclosure moratorium for Maui County has been in place for eight months and was set to expire on May 6, 2024.

With this extension, FHA is instructing mortgage servicers that they must not initiate new, or continue with existing, foreclosure actions on FHA-insured single family forward mortgages and Home Equity Conversion Mortgages for properties located in Maui County.