Top Story Compliance Related

The FDIC has issued FIL-35-2024 with steps intended to provide regulatory relief to financial institutions and facilitate recovery in areas of Oklahoma — Blaine, Caddo, Custer, Delaware, Jackson, Mayes, Muskogee, and Rogers Counties — affected by severe storms, straight-line winds, tornadoes, and flooding from May 19, 2024, to May 28, 2024.

The FDIC and Federal Reserve Board have jointly announced that, following their joint review of the July 2023 resolution plan submissions of the eight largest and most complex banks, they identified a weakness in the plans from Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase. The agencies did not identify any weaknesses in the plans from the other banks.

The agencies jointly identified a weakness in the 2023 plan submitted by Citigroup, but reached different conclusions on its severity. The FDIC determined that the Citigroup plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code and considers the weakness to be a "deficiency." A deficiency is a weakness that could undermine the feasibility of the plan. The Board concluded that the weakness is only a shortcoming. Under the resolution planning rule of the agencies, when one agency finds a shortcoming in a resolution plan and the other agency finds a deficiency, the plan is deemed to have a shortcoming. As a result, Citigroup's 2023 plan is considered to have a shortcoming. The agencies also previously identified a shortcoming in Citigroup's 2021 plan related to data quality and data management, and that shortcoming remains outstanding.

The agencies provided feedback letters to each of the eight banks that identify areas for continued development of banks' resolution strategies and capabilities. For the four banks with an identified shortcoming, the letters describe the specific weaknesses resulting in the shortcoming and the remedial actions required by the agencies. The shortcomings are to be addressed in the next resolution plans due by July 1, 2025. The feedback letters also specify that each bank, in its 2025 resolution plan submission, should address the topics of contingency planning and obtaining foreign government actions necessary to execute the resolution strategy.

2023 Resolution Plan Feedback Letters:

• Bank of America Corporation
• Bank of New York Mellon Corporation
• Citigroup Inc.
• The Goldman Sachs Group
• JPMorgan Chase & Co.
• Morgan Stanley
• State Street Corporation
• Wells Fargo & Company

Yesterday, the IRS announced it has issued Notice 2024-55, which provides guidance on exceptions to the additional tax when taking early permissible retirement plan distributions for emergency personal expenses and for victims of domestic abuse.

The notice also provides guidance to applicable eligible retirement plans on the plan requirements relating to emergency personal expense distributions and domestic abuse victim distributions, including that it is optional for a plan to permit these types of distributions.

In addition, the notice provides that the Department of the Treasury and the IRS anticipate issuing regulations on the 10% additional tax (including the exceptions to the 10% additional tax) and request comments relating to the notice. Comments are specifically requested on repayments of certain distributions permitted under section 72(t)(2).

Yesterday, Treasury Secretary Janet L. Yellen announced that OFAC had sanctioned eight Mexico-based targets affiliated with La Nueva Familia Michoacana drug cartel for trafficking fentanyl, cocaine, and methamphetamine into the United States. In addition to narcotics trafficking, La Nueva Familia Michoacana smuggles migrants from Mexico into the United States.

Concurrently, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Supplemental Advisory to highlight critical new information to help U.S. banks and other financial institutions guard against activity associated with the illicit fentanyl supply chain. The advisory includes new trends and red flags that can be indicators of activity associated with the procurement of precursor chemicals and manufacturing equipment used for the synthesis of illicit fentanyl and other synthetic opioids. Reporting from financial institutions of suspected financial transactions involving illicit fentanyl and narcotics trafficking plays a key role in law enforcement investigations and Treasury’s sanctions efforts globally.

For the names and identification information of the designated parties, see the June 20, 2024, BankersOnline OFAC Update.

FinCEN has issued a FIN-2024-A002) to alert U.S. financial institutions to new trends in the illicit fentanyl supply chain and urge vigilance in identifying and reporting suspicious activity associated with Mexico-based transnational criminal organizations and their illicit procurement of fentanyl precursor chemicals and manufacturing equipment from People’s Republic of China-based suppliers. The supplemental advisory builds off FinCEN’s 2019 advisory with new typologies and red flags to identify and report suspicious transactions, and fulfills the requirement in Section 3202 of the recently enacted FEND Off Fentanyl Act.

• FinCEN news release
• Treasury Department news release
• Remarks by Treasury Secretary Janet L. Yellen

The OCC yesterday announced its approval of a final rule to implement quality control standards for automated valuation models used by mortgage originators and secondary market issuers in valuing residential real estate collateral securing mortgage loans.

The rule was reportedly also approved yesterday by the Board of the FDIC. It is to be jointly issued by the OCC, Federal Reserve Board, FDIC, NCUA, CFPB, and the Federal Housing Finance Agency following approval by each of the agencies. It will be effective at the start of the first calendar quarter following the date that is 12 months after the rule is published in the Federal Register

The FDIC has updated its Consumer Compliance Examination Manual. The June 2024 updates were made to sections II-14.1 (Violations Codes), IV-1.1 (Truth in Lending Act), and XI-1.1 (Community Reinvestment Act).

FinCEN recently issued a report of efforts through May 2024 to educate small businesses and other key stakeholders about new beneficial ownership reporting requirements. The report also included a list of upcoming events at which FinCEN representatives will provide information on the regulation.

The OCC has reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2024.

The OCC reported that the overall condition of the federal banking system remains sound. However, the maturing economic cycle may cause consumer headwinds. It is important for banks to continue identifying material risks and their interconnected impacts. Continuous risk management improvement remains appropriate as this allows banks to guard against complacency.

The OCC highlighted credit, market, operational, and compliance risks as the key risk themes in the report.

The CFPB on Tuesday announced it had filed a proposed stipulated order, which, if entered by the court, would impose injunctive relief designed to prevent Freedom Mortgage from violating the law in the future, including requirements to regularly audit, test, and correct the company’s HMDA data. It would also require Freedom to pay a $3.95 million civil money penalty.

In October 2023, the CFPB sued Freedom Mortgage, a nonbank mortgage company headquartered in Boca Raton, Florida, for violating both the Home Mortgage Disclosure Act (HMDA) and a 2019 CFPB order.The CFPB proposed the order because Freedom Mortgage has submitted incorrect mortgage data in violation of HMDA, the 2019 order, and the Consumer Financial Protection Act. Freedom Mortgage’s HMDA data submission for 2020 contained widespread errors across numerous data fields because of systemic problems with its compliance management systems. The company’s HMDA violations occurred while Freedom Mortgage was subject to the 2019 law enforcement order.