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06/13/2023

OCC workshops scheduled for Minneapolis

The OCC has announced it will host two workshops July 18–19 in Minneapolis for directors, senior management, and other key executives of national community banks and federal savings associations.

The Credit Risk: Recognizing and Responding to Risk workshop on July 18 covers the roles of the board and management, credit risk within the loan portfolio, and how to stay informed of changes in credit risk.

The Operational Risk: Navigating Rapid Changes workshop on July 19 covers key risk management processes, oversight roles and governance responsibilities, fraud, risk-based audit programs, third-party vendor oversight, establishing a strong ethical culture, and regulatory expectations to address cyber threats.

The fee for each workshop is $99. Participants receive course materials, supervisory materials, and lunch.

To register online and view the schedule and locations of other workshops, visit the OCC's website.

06/12/2023

OFAC to retire its FTP server in a year

OFAC has announced it intends to retire its FTP server on or about June 10, 2024.

In order to comply with updated Treasury security policies, OFAC will retire this FTP capability associated with the file transfer protocol. OFAC is aware that many users utilize ofacftp.treas.gov to automate their sanctions list data downloads. OFAC will maintain this server for one additional calendar year to allow users sufficient time to develop automation that utilizes the list content hosted on the agency's website at the following URLs:

06/12/2023

Agencies issue guidance on Iran's UAV-related activities

The U.S. Departments of Commerce, Justice, State, and the Treasury have issued "Guidance to Industry on Iran's UAV-Related Activities" concerning the increasing threat to international peace and security posed by Iran's procurement, development, and proliferation of unmanned aerial vehicles, and the need to take appropriate steps to avoid or prevent any activities that would support the further development of Iran's UAV program.

06/07/2023

SEC charges Coinbase for failure to register

On Tuesday, the Securities and Exchange Commission announced charges against Coinbase, Inc., for operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.

According to the SEC’s complaint, since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law. Through these unregistered services, Coinbase allegedly:

  • Provides a marketplace and brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact;
  • Engages in the business of effecting securities transactions for the accounts of Coinbase customers; and
  • Provides facilities for comparison of data respecting the terms of settlement of crypto asset securities transactions, serves as an intermediary in settling transactions in crypto asset securities by Coinbase customers, and acts as a securities depository.

As alleged in the SEC’s complaint, Coinbase’s failure to register has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.

The SEC’s complaint also alleges that Coinbase’s holding company, Coinbase Global Inc. (CGI), is a control person of Coinbase and is thus also liable for certain of Coinbase’s violations.

The complaint also alleges that, since 2019, Coinbase has been engaging in an unregistered securities offering through its staking-as-a-service program, which allows customers to earn profits from the “proof of stake” mechanisms of certain blockchains and Coinbase’s efforts. Through this staking program, Coinbase allegedly pools each type of customers’ stakeable crypto assets, stakes the pool to perform blockchain transaction validation services, and provides a portion of the rewards generated from this work to its customers whose assets were part of the pool. Coinbase failed to register its offers and sales of this staking program as required by law.

06/07/2023

CFPB spotlight on AI chatbots in banking

The CFPB yesterday released a new issue spotlight on the expansive adoption and use of chatbots by financial institutions. Chatbots are intended to simulate human-like responses using computer programming and help institutions reduce the costs of customer service agents. These chatbots sometimes have human names and use popup features to encourage engagement. Some chatbots use more complex technologies marketed as “artificial intelligence,” to generate responses to customers.

The CFPB said it has received numerous complaints from frustrated customers trying to receive timely, straightforward answers from their financial institutions or raise a concern or dispute, and that working with customers to resolve a problem or answer a question is an essential function for financial institutions – and is the basis of relationship banking.

Financial institutions advertise that their chatbots offer a variety of features to consumers like retrieving account balances, looking up recent transactions, and paying bills. Much of the industry uses simple rule-based chatbots with either decision tree logic or databases of keywords or emojis that trigger preset, limited responses or route customers to Frequently Asked Questions (FAQs). Other institutions have built their own chatbots by training algorithms with real customer conversations and chat logs, like Capital One’s Eno and Bank of America’s Erica. More recently, the banking industry has begun adopting advanced technologies, such as generative chatbots, to support customer service needs.

The spotlight found the use of chatbots raised several risks, including:

  • Noncompliance with federal consumer financial protection laws. Financial institutions run the risk that when chatbots ingest customer communications and provide responses, the information chatbots provide may not be accurate, the technology may fail to recognize that a consumer is invoking their federal rights, or it may fail to protect their privacy and data.
  • Diminished customer service and trust. When consumers require assistance from their financial institution, the circumstances could be dire and urgent. Instead of finding help, consumers can face repetitive loops of unhelpful jargon. Consumers also can struggle to get the response they need, including an inability to access a human customer service representative. Overall, their chatbot interactions can diminish their confidence and trust in their financial institutions.
  • Harm to consumers. When chatbots provide inaccurate information regarding a consumer financial product or service, there is potential to cause considerable harm. It could lead the consumer to select the wrong product or service that they need. There could also be an assessment of fees or other penalties should consumers receive inaccurate information on making payments.

The CFPB is actively monitoring the market, and expects institutions using chatbots to do so in a manner consistent with their customer and legal obligations. The CFPB also encourages people who are experiencing issues getting answers to their questions due to a lack of human interaction, to submit a consumer complaint with the CFPB.

06/07/2023

Agencies: Final guidance on 3rd-party risk management

The Federal Reserve Board, FDIC, and OCC yesterday issued final joint guidance designed to help banking organizations manage risks associated with third-party relationships, including relationships with financial technology companies.

Interagency Guidance on Third-Party Relationships: Risk Management describes principles and considerations for banking organizations' risk management of third-party relationships. It covers risk management practices for the stages in the life cycle of third-party relationships: planning, due diligence and third-party selection, contract negotiation, ongoing monitoring, and termination.

The guidance includes illustrative examples to help banking organizations, particularly community banks, align their risk management practices with the nature and risk profile of their third-party relationships. The agencies plan to engage with community banks immediately and develop additional resources in the near future to assist them in managing relevant third-party risks.

The final guidance reflects streamlined language and improved clarity based on the agencies' consideration of public comments on the proposed guidance released in July 2021.

06/06/2023

SEC charges Binance entities and founder

Yesterday, the Securities and Exchange Commission announced it has charged Binance Holdings Ltd. (“Binance”), which operates the largest crypto asset trading platform in the world, Binance.com; U.S.-based affiliate, BAM Trading Services Inc. (“BAM Trading”), which, together with Binance, operates the crypto asset trading platform, Binance.US; and their founder, Changpeng Zhao, with a variety of securities law violations.

Among other things, the SEC's complaint alleges that, while Zhao and Binance publicly claimed that U.S. customers were restricted from transacting on Binance.com, Zhao and Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform. Further, the SEC alleges that, while Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes.

The SEC also alleges that Zhao and Binance exercise control of the platforms’ customers’ assets, permitting them to commingle customer assets or divert customer assets as they please, including to an entity Zhao owned and controlled called Sigma Chain. The SEC’s complaint further alleges that BAM Trading and BAM Management US Holdings, Inc. (“BAM Management”) misled investors about non-existent trading controls over the Binance.US platform, while Sigma Chain engaged in manipulative trading that artificially inflated the platform’s trading volume. Further, the Complaint alleges that the defendants concealed the fact that it was commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, that is also owned by Zhao.

05/31/2023

CPF funds for high-speed internet

The U.S. Department of the Treasury has announced the approval of $151.5 million for high-speed internet projects in Mississippi under the American Rescue Plan’s Capital Projects Fund (CPF). A key priority of the CPF program is making funding available for broadband infrastructure, advancing the goal of affordable, high-speed internet for everyone in America.

05/24/2023

OFAC targets DPRK malicious cyber and illicit IT worker activities

The Treasury Department on Tuesday announced that OFAC has sanctioned four entities and one individual involved in obfuscated revenue generation and malicious cyber activities that support the Democratic People’s Republic of Korea (DPRK) Government. The DPRK conducts malicious cyber activities and deploys information technology (IT) workers who fraudulently obtain employment to generate revenue, including in virtual currency, to support the Kim regime and its priorities, such as its unlawful weapons of mass destruction and ballistic missile programs.

For the names and identification information of the designated parties, see the May 23, 2023, BankersOnline OFAC Update.

05/17/2023

Russian ransomware actor targeted

OFAC yesterday designated Mikhail Matveev for his role in launching cyberattacks against U.S. law enforcement, businesses, and critical infrastructure. Concurrently, the U.S. District Courts for the District of New Jersey and the District of Columbia unsealed indictments against Matveev. Additionally, the U.S. Department of State announced an award of up to $10 million for information that leads to the arrest and/or conviction of Matveev under its Transnational Organized Crime Rewards Program.

For identification information on Matveev, see yesterday's BankersOnline OFAC Update.

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