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An OCC press release has reported the agency's publication of its Semiannual Risk Perspective for Spring 2020, listing the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry.

Banks entered the national health emergency related to COVID-19 in sound condition but face weak economic conditions resulting from the economic shutdown in response to the pandemic that will stress financial performance in 2020. The OCC reported weak financial performance, and increasing credit, operational, and compliance risks, among the key risk themes in the report.

Highlights from the report include:

• Financial performance will be affected by higher credit losses, overhead expenses, and lower net interest income.
• The onset of the national health emergency created an uncertain credit environment that will test the resiliency of commercial and retail loan portfolios. Credit risk management practices will need to be flexible and proactive to meet the challenges of the current environment.
• Operational risk is heightened as banks amended business processes and engaged third parties to support widespread remote work capabilities, increased technological capacity, and solutions to maintain operations under elevated operational volumes.
• Compliance risk is elevated because of a combination of altered operations, employees working remotely, and several new federal and state programs designed to support consumers such as the CARES Act, Paycheck Protection Program, and a variety of forbearance and deferred payment programs. Among other challenges, these conditions complicate the compliance responsibilities associated with managing high volumes and various programs of consumer and business lending in a weakened economy.
  

The Federal Reserve Board announced Monday it will resume examination activities for all banks. The Board had announced in March a reduced focus on exam activity due to the COVID-19 pandemic. However, the Board said banks have had time to implement contingency operating plans and adapt their operations, and exam activity will therefore resume. It will continue to be conducted offsite "until conditions improve."

On Thursday, the Office of the Comptroller of the Currency announced it has published a Notice of Proposed Rulemaking (NPR) [85 FR 40794, 7/7/2020] for public comment to update its rules for national bank and federal savings association activities and operations. The agency also released an Advance Notice of Proposed Rulemaking (ANPR) [85 FR 40827, 7/7/2020] seeking comment on rules on those institutions' digital activities.

The NPR would make various changes to 12 CFR 7 to update or eliminate outdated regulatory requirements that no longer reflect the modern financial system and clarify and codify recent OCC interpretations. Among the significant proposed changes are:

• incorporating and streamlining OCC interpretations addressing permissible derivatives activities for national banks;
• codifying OCC interpretations to permit national banks and federal savings associations to engage in certain tax equity finance transactions;
• codifying OCC interpretations regarding national bank membership in payment systems and clarifying that federal savings associations are subject to the same requirements as national banks;
• expanding the ability of national banks to choose corporate governance provisions under state law;
• clarifying the extent to which a national bank may adopt anti-takeover provisions permissible under state corporate governance law;
• clarifying when national bank participation in a financial literacy program on the premises of, or a facility used by, a school or other organization would not be a branch; and
• codifying OCC interpretations of the National Bank Act relating to capital stock issuances and repurchases.

The ANPR invites comment on OCC regulations at 12 CFR part 7, subpart E and part 155, and any other banking issues related to digital technology and innovation, including:

• whether the legal standards in 12 CFR 7, subpart E, and 12 CFR 155 are sufficiently flexible and clear in light of the technological advances that have transformed the financial industry over the past two decades;
• whether these legal standards create unnecessary hurdles or burdens to innovation by banks;
• whether there are digital banking activities or issues that are not covered by these rules that the OCC should address (e.g., digital finders’ activities, certain software, and correspondent services);
• what activities related to cryptocurrencies or cryptoassets are financial services companies or bank customers engaged in and what are the barriers or obstacles to further adoption of crypto-related activities in the banking industry;
• how is distributed ledger technology used or potentially used in activities related to banking;
• how are artificial intelligence and machine learning techniques used or potentially used in activities related to banking;
• what new payments technologies and processes should the OCC be aware of and what are the potential implications of these technologies and processes for the banking industry;
• what new or innovative tools do financial services companies use to comply with regulations and supervisory expectations (i.e., “regtech”);
• what issues are unique to smaller institutions regarding the use and implementation of innovative products, services, or processes that the OCC should consider;
• what other changes to the development and delivery of banking products and services should the OCC be aware of and consider; and
• whether there are issues the OCC should consider in light of changes in the banking system that have occurred in response to the COVID-19 pandemic.

Comments on both the NPR and the ANPR are due by August 3, 2020.

The OCC has issued Bulletin 2020-55 announcing an interim final rule that amends 12 CFR parts 5 and 7 to clarify that national banks and federal savings associations may permit telephonic and electronic participation at all board of directors, shareholder, and, as applicable, member meetings. The interim final rule, published at 85 FR 31943, is effective May 28, 2020, and:

• permits banks to provide for telephonic or electronic participation of members and shareholders, as applicable, at both annual and special meetings.
• requires banks that permit telephonic and electronic participation at member or shareholder meetings to have procedures for this remote participation and provides banks with a choice of procedures to follow based on elected state corporate governance procedures, the Delaware General Corporation Law, or the Model Business Corporation Act.
• codifies an OCC interpretation that permits national banks to provide for telephonic or electronic participation at board of directors meetings.
• updates OCC rules to clarify that all federal savings associations may provide for telephonic or electronic participation at board of directors meetings.

The amendments made by the interim final rule are permanent and will not expire after the COVID-19 emergency has ended. Comments on the rule are due by July 13, 2020.

The Employment Benefits Security Administration of the Department of Labor has approved and submitted for Federal Register publication on May 27, a final rule adopting a new, additional safe harbor for employee benefit plan administrators to use electronic media, as a default, to furnish information to participants and beneficiaries of plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The rule allows plan administrators who satisfy specified conditions to provide participants and beneficiaries with a notice that certain disclosures will be made available on a website, or to furnish disclosures via email.

Individuals who prefer to receive disclosures on paper can request paper copies of disclosures and opt out of electronic delivery entirely. The rule will become effective July 27, 2020. The rule was published 5/27/2020 at 85 FR 31884.

The Fderal Trade Commission has posted information regarding scams involving COVID-19 tracing, the process of identifying people who have come into contact with someone who has tested positive for COVID-19, instructing them to quarantine and monitoring their symptoms daily. Contact tracing plays a vital role in helping to stop the spread of COVID-19; however scammers pretending to be contact tracers are taking advantage of how the process works, and also are sending text messages. But theirs are spam text that ask the recipient to click a link which will download software onto the recipient's device, giving scammers access to personal and financial information.

The Federal Reserve Board has posted an update of its Commercial Bank Examination Manual, which presents examination objectives and procedures that Federal Reserve System examiners follow in evaluating the safety and soundness of state member banks. The Manual is intended as guidance for planning and conducting bank examinations.

The latest issue of FED 360° provides status reports on several of the Federal Reserve's multi-year product and technology updates:

• Account Management Information and Daylight Overdraft Reports application changes
• FedACH platform modernization
• Enhancements to Fedwire® Securities Automated Claim Adjustment Process (ACAP)
• Payment services modifications to support Same Day ACH
• Fedwire Funds Service’s ISO® 20022 migration
• FedNow Service development

FRB Servcies has updated its COVID-19 Resources webpage, which lists in detail the following types of assistance available from the agency:

• Customer Assistance Package
• Access to services
• Financial services processing
• Currency
• Forms guidance
• Employee safety
• Economic impact payments
• Communications

The Customer Assistance Package was announced on Friday and is available May 1 through at least July 31. The package includes information on:

• Check Adjustments and ACH Exceptions
• FedPayments Reporter for Check and ACH
• Fed ACH RDFI Batch Alert
• FedLine Solutions

Financial institutions may choose to take advantage of any or all of the services available in this package. Interested customers should contact their FRB Services account executive to discuss which components might be beneficial for them and begin the setup process.

The Federal Financial Institutions Examination Council members have announced they have issued a "Joint Statement on Security in a Cloud Computing Environment" in the financial services sector.. Security breaches involving cloud computing services highlight the importance of bank management's understanding of the shared responsibilities between cloud service providers and bank clients.

The statement—

• reminds management about the importance of understanding the division of responsibilities for implementing and managing controls over cloud computing operations that can result in operational failures or security breaches.
• highlights risk management practices and controls for the safe and sound use of cloud computing services.
• provides a list of government and industry resources and references to assist financial institutions using cloud computing services.