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Top Story Compliance Related

05/19/2022

FDIC guide on simplified coverage rules for trusts and MSAs

The FDIC has issued FIL-23-2022 to announce the addition of a Small Entity Compliance Guide to its website to assist insured depository institutions and community banking organizations in understanding and preparing for the changes in deposit insurance coverage made by its January 28, 2022, final rule amending the deposit insurance regulations for trust accounts and mortgage servicing accounts.

05/18/2022

SEC issues charges in multibillion dollar securities fraud

The Securities and Exchange Commission yesterday announced charges against Allianz Global Investors U.S. LLC (AGI US) and three former senior portfolio managers with a massive fraudulent scheme that concealed the immense downside risks of a complex options trading strategy they called “Structured Alpha.”

AGI US marketed and sold the strategy to approximately 114 institutional investors, including pension funds for teachers, clergy, bus drivers, engineers, and other individuals. After the COVID-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AGI US and the portfolio managers’ misconduct.

AGI US has agreed to pay billions of dollars as part of an integrated, global resolution, including more than $1 billion to settle SEC charges and together with its parent, Allianz SE, over $5 billion in restitution to victims.

The SEC’s complaint, filed in the federal district court in Manhattan, alleges that Structured Alpha’s Lead Portfolio Manager, Gregoire P. Tournant, orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha, and paid the defendants over $550 million in fees. It further alleges that, with assistance from Co-Lead Portfolio Manager Trevor L. Taylor and Portfolio Manager Stephen G. Bond-Nelson, Tournant manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alpha’s true risk and the funds’ actual performance.

05/18/2022

FDIC adopts appeals guidelines

The FDIC has issued FIL-22-2022 to announce its Board has adopted Guidelines for Appeals of Material Supervisory Determinations that restore the Supervision Appeals Review Committee (SARC) as the final level of review in the agency’s supervisory appeals process. The revised Guidelines take effect May 17, 2022. The FDIC is soliciting comment on the revised Guidelines with a comment period of 30 days.

  • Under the revised Guidelines, the SARC generally replaces the Office of Supervisory Appeals as the final level of review in the FDIC’s supervisory appeals process.
  • Consistent with the composition of the SARC as it stood in 2021, the SARC will include: one inside member of the FDIC’s Board of Directors (serving as Chairperson); a deputy or special assistant to each of the other inside Board members; and the General Counsel as a non-voting member.
  • Aside from the substitution of the SARC as the final level of review, most aspects of the supervisory appeals process remain unchanged.
  • The revised Guidelines continue to encourage institutions to make good-faith efforts to resolve disputes with on-site examiners and/or the appropriate Regional Office. The Guidelines also continue to provide for review by the appropriate Division Director before submission of an appeal to the SARC.
  • The revised Guidelines expressly permit electronic submission of appeals and provide e-mail addresses that institutions may use to submit a request for review to the appropriate Division Director or an appeal to the SARC.

05/18/2022

CFPB issues circular supporting FDIC's rule

The CFPB announced on Tuesday it has issued Consumer Financial Protection Circular 2022-02, "Deceptive representations involving the FDIC's name or logo or deposit insurance" to address the question of when representations involving the name or logo of the Federal Deposit Insurance Corporation (FDIC) or about deposit insurance constitute a deceptive act or practice in violation of the Consumer Financial Protection Act (CFPA).

The Bureau's guidance is that "Covered persons or service providers likely violate the CFPA’s prohibition on deception if they misuse the name or logo of the FDIC or engage in false advertising or make misrepresentations to consumers about deposit insurance, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. Representations about deposit insurance may be particularly relevant with respect to new financial products or services, especially those involving new technologies such as digital assets, including crypto-assets."

05/18/2022

FDIC final rule on advertising and misuse of FDIC name or logo

On Tuesday, the FDIC its approval of a final rule implementing its statutory authority to prohibit any person or organization from making misrepresentations about FDIC deposit insurance or misusing the FDIC’s name or logo.

In recent years, the FDIC has observed an increasing number of instances where individuals or entities have misused the FDIC’s name or logo, or have made false or misleading representations about deposit insurance. To provide transparency into how the FDIC will address these and similar concerns, the final rule clarifies the FDIC’s procedures for identifying, investigating, and where necessary, taking formal and informal enforcement actions against individuals or entities to address violations.

The rule, which will amend the FDIC's regulation on Advertisement of Membership at 12 CFR Part 328, will take effect 30 days after its publication in the Federal Register.


SAVE THE DATE! BankersOnline's John Burnett will present a special one-hour webinar on the FDIC's revised "Advertisement of Membership, False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC's Name or Logo" regulation on June 29, 2022, at 2:30 p.m. EDT.


05/17/2022

CFPB wants consistent enforcement of consumer financial protections

CFPB Director Rohit Chopra yesterday posted a CFPB Blog article to announce a new system for promoting consistent enforcement of consumer financial protections. The CFPB will issue Consumer Financial Protection Circulars to the broad set of government agencies responsible for enforcing federal consumer financial law, with guidance on how the CFPB intends to enforce federal consumer financial law.

The enforcers of federal consumer financial law include, most notably, state attorneys general and state regulators, as well as federal financial regulators such as the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration. Some federal consumer financial laws are also enforceable by other federal agencies, including the Department of Justice, the Federal Trade Commission, the Farm Credit Administration, the Department of Transportation, and the Department of Agriculture. In addition, some of these laws provide for private enforcement.

The CFPB will also release Consumer Financial Protection Circulars publicly to increase transparency for the benefit of the public and regulated entities.

Circular 2022-01, issued yesterday, describes the circulars as policy statements under the Administrative Procedures Act that will provide background information about applicable law, articulate considerations relevant to the CFPB's exercise of its authorities, and advise other parties with authority to enforce federal consumer financial law. The Director of the CFPB will authorize issuance of each Consumer Financial Protection Circular, and the CFPB will publish them on its website and in the Federal Register.

05/17/2022

CFPB mortgage metric report - COVID 19 responses

The CFPB yesterday announced its second mortgage metrics report providing the CFPB’s observations of data obtained from 16 large mortgage servicers to identify areas of risk in the servicers’ COVID-19 pandemic response. The report addresses similar topics covered in the first report (which covered the period from December 2020 through April 2021), including call center data, COVID-19 hardship forbearance exits, delinquency, and borrower profiles for the period May through December 2021.

In summary, the CFPB's key observations are:

  • Call center hold time variability. Some servicers were outliers in the reported call metrics data, including relatively high average hold times exceeding ten minutes and call abandonment rates exceeding 30%. Borrowers may be at higher risk of obtaining untimely assistance from these servicers.
  • Delinquency and exits from forbearance. The number and rate of delinquent exits from COVID-19 hardship forbearances increased during the reporting period. Overall, 15% of loans exited forbearance in a delinquent status, with no loss mitigation in place, with some servicers reporting significantly higher figures. While servicers have made progress in working through these delinquent loans, large numbers of borrowers – over 330,000 at the 16 servicers – remained delinquent as of the end of 2021. These borrowers continue to face a risk of harm, underscoring the importance of prioritizing borrower outreach and transitions into loss mitigation solutions and the related regulatory requirements.
  • Servicer data challenges. Some servicers did not track, or were otherwise unable to provide, data for key metrics, such as the amount of time borrowers spend on Interactive Voice Response (IVR) systems before connecting to the queue to speak with a live call center agent. Some servicers also reported inconsistent data. These issues raise questions about the servicers’ ability to track and to report high-quality data and to monitor their responsiveness and compliance.
  • Borrower demographics. The collection, categorization, and maintenance of information about borrowers’ race, ethnicity and language preference varied widely among servicers in clarity and completeness. The significant variances in the level of detail and amount of available information did not allow for comparisons across servicers.
  • Borrowers with Limited English Proficiency (LEP borrowers). The number of LEP borrowers whose loans were delinquent without a loss mitigation option after exiting forbearance increased between October and December 2021, while the number of nonLEP borrowers who were delinquent without a loss mitigation option after forbearance decreased during the same period.

05/16/2022

Fed Board amends rates in Regs A and D

The Federal Reserve Board has published final rules in today's Federal Register amending Regulation A (Extensions of Credit by Federal Reserve Banks) and Regulation D (Reserve Requirements of Depository Institutions) to increase certain interest rates.

  • The amendment to Regulation A, published at 87 FR 29649, reflects the Board's approval of a 0.5 percent increase (to 1.00 percent) in the rate for primary credit at each Federal Reserve Bank. The interest rate for secondary credit automatically increases by formula to 1.50 percent.
  • The amendment to Regulation D, published at 87 FR 29650, revises the rate of interest paid on reserve balances (“IORB”) maintained at Federal Reserve Banks by or on behalf of eligible institutions. The final amendments specify that IORB is 0.90 percent, a 0.50 percentage point increase from its prior level. The amendment is intended to enhance the role of IORB in maintaining the federal funds rate in the target range established by the Federal Open Market Committee.

Both amendments are effective today, May 16, 2022, and applicable as of May 5, 2022.

05/16/2022

National illicit finance strategy for 2022

The Treasury Department on Friday issued the 2022 National Strategy for Combatting Terrorist and Other Illicit Financing (2022 Strategy), which identifies measures to increase transparency in the U.S. financial system and strengthen the U.S. anti-money laundering/counter the financing of terrorism (AML/CFT) framework. The 2022 Strategy, prepared pursuant to Sections 261 and 262 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), addresses the key risks from the 2022 National Money Laundering, Terrorist Financing, and Proliferation Financing risk assessments and reflects the complex challenges posed by a world remade by the Covid-19 pandemic, the increasing digitization of financial services, and rising levels of corruption and fraud.

The 2022 risk assessments highlighted the illicit finance risk posed by the abuse of legal entities, the complicity of professionals that misuse their positions or businesses, small-sum funding of domestic violent extremism networks, the effective use of front and shell companies in proliferation finance, and the exploitation of the digital economy.

The four priority recommendations:

  • Close legal and regulatory gaps in the U.S. AML/CFT framework that illicit actors exploit to anonymously access the U.S. financial system through the use of shell companies and all-cash real estate purchases
  • Continue to make the U.S. AML/CFT regulatory framework for financial institutions more efficient and effective by providing clear compliance guidance, sharing information appropriately, and fully funding supervision and enforcement
  • Enhance the operational effectiveness of law enforcement, other U.S. government agencies, and international partnerships in combating illicit finance so illicit actors can’t find safe havens for their operations
  • Enable the benefits of technological innovation while mitigating risks, staying ahead of new avenues for abuse presented by virtual assets and other new financial products, services, and activities

05/13/2022

FDIC Board to meet May 17

The FDIC has published [87 FR 29314] a notice of a meeting of its Board to be held at 10 a.m. on Tuesday, May 17, 2022. The meeting will be open to the public by webcast only, and available on-demand about one week later. Matters to be considered include:

  • a memorandum and resolution regarding amendments to the Guidelines for Appeals of Material Supervisory Determinations
  • a memorandum and resolution regarding a final rule on False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC's Name or Logo

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