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  • 9th Circuit denies bank’s challenge to FDIC bank secrecy order


    On March 12, the U.S. Court of Appeals for the 9th Circuit upheld a 2016 FDIC cease and desist order against a California bank arising out of alleged deficiencies in compliance management relating to the Bank Secrecy Act (BSA) and anti-money laundering laws. According to the opinion, FDIC examinations dating back to 2010 identified areas for BSA compliance improvement. While the bank made adjustments in response to the original findings, a 2012 FDIC examination found the bank’s BSA compliance program still was deficient, including because it did not “establish and maintain procedures designed to ensure adequate internal controls, independent testing, administration, and training”—known as the “four pillars”—and because the bank had not filed a necessary suspicious activity report. The bank argued that the BSA compliance standards were too vague, accused FDIC examiners of bias during the examination in a manner that violated its due process rights, and alleged that the decision was not supported by substantial evidence.

    The three-judge panel ruled that (i) there was no bias in the FDIC’s decision to assess a penalty against the bank because there was substantial evidence to support an administrative law judge’s findings that the bank’s failure to maintain adequate controls violated BSA regulations; and (ii) because the BSA and FDIC’s implementing regulations are “economic in nature and threaten no constitutionally protected rights,” vagueness is not an overriding concern. While the “four pillars” of BSA compliance are open to interpretation, the panel noted, the FDIC provides banks with a manual written by the Federal Financial Institutions Examination Council that sets forth a uniform compliance standard. Furthermore, FDIC Financial Institution Letter 17-2010 clarifies that the manual contains the FDIC’s BSA compliance supervisory expectations. “A BSA Officer at the Bank bearing the requisite ‘specialized knowledge’ would understand that compliance with the FFIEC Manual ensures compliance with the BSA. . . . The BSA and its implementing regulations are not unconstitutionally vague,” the panel stated. Therefore, the 9th Circuit held that the manual was entitled to Chevron deference and denied the bank’s petition for review.

    Courts Appellate Ninth Circuit Bank Secrecy Act Anti-Money Laundering Compliance FDIC FFIEC

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  • OCC makes technical changes to stress testing rule; regulators submit unified stress test report for OMB approval

    Federal Issues

    On February 23, the OCC finalized technical changes to its annual stress testing rule. Specifically, the final rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board (Fed) to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the OCC’s stress testing rule. The final rule takes effect March 26.

    The same day, the Fed, the OCC, and the FDIC submitted a notice to the Office of Management and Budget (OMB) requesting approval of a new stress test report form (FFIEC 016) to be implemented for the stress test report due July 31. If approved, FFIEC 016 would replace the agencies’ three separate, yet identical, forms currently used to collect information from financial institutions and holding companies with total assets of more than $10 billion but less than $50 billion. Comments on the proposed change must be received on or before March 26.

    Federal Issues OCC Stress Test Federal Reserve FDIC OMB FFIEC

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  • FFIEC releases 2018 HMDA reporting guide

    Agency Rule-Making & Guidance

    On February 21, the Federal Financial Institutions Examination Council (FFIEC) issued the 2018 edition of the “A Guide to HMDA Reporting: Getting it Right!” which reflects updates to the Home Mortgage Disclosure Act (HMDA) rule, effective January 1, 2018. The HMDA reporting guide is updated annually to assist institutions with their reporting requirements for the specified calendar year. Additionally, the CFPB recently launched their 2018 Loan/Application Register (LAR) Formatting Tool to assist small volume lenders in creating an electronic file to submit to the FFIEC HMDA platform, previously covered by InfoBytes here.

    Agency Rule-Making & Guidance Fannie Mae Freddie Mac Servicing Guide HMDA Mortgages FFIEC

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  • FDIC releases 2017 annual report, among key issues are living wills, cybersecurity, and simplifying regulations

    Federal Issues

    On February 15, the FDIC released its 2017 Annual Report, which includes, among other things, the audited financial statements of the Deposit Insurance Fund and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund. The report also provides an overview of key FDIC initiatives, performance results, and other aspects of FDIC operations, supervision developments, and regulatory enforcement, including the following:

    • Living Wills. The report discusses the FDIC’s continued evaluation of resolution plans for Systemically Important Financial Institutions (SIFIs) and notes there remain “inherent challenges and uncertainties” associated with the plans, specifically within four areas: “intra-group liquidity; internal loss-absorbing capacity; derivatives; and payment, clearing, and settlement activities.” Further, the FDIC and Federal Reserve (who share joint responsibility for reviewing and assessing resolution plans) reviewed plans submitted by the eight largest U.S. SIFIs and noted that four of the firms’ plans had shortcomings—although no deficiencies were identified—and stipulated that the plans must be resubmitted by July 1, 2019. (See previous InfoBytes coverage here on recent comments by FDIC Chairman Martin concerning living will challenges.)
    • Cybersecurity. Among other initiatives, the report discusses a collaboration between the FDIC, the Federal Reserve, and the OCC to update the interagency Cybersecurity Assessment Tool, which “helps financial institutions determine their cyber risk profile, inherent risks, and level of cybersecurity preparedness.” The report provides feedback from institutions currently using the tool.
    • Simplifying Regulation. In accordance with the requirements of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), the report discusses the FDIC’s, Federal Reserve Board’s, and OCC’s regulatory review process done in conjunction with the National Credit Union Administration and the members of the Federal Financial Institutions Examination Council (FFIEC). As previously covered in InfoBytes here and here, a report was issued in March outlining initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations, and last September a proposed rule to simplify capital rule compliance requirements and reduce the regulatory burden was issued.

    Federal Issues FDIC SIFIs Living Wills Privacy/Cyber Risk & Data Security Federal Reserve OCC NCUA FFIEC EGRPRA

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  • Agencies Announce Availability of 2016 Small Business and Farm CRA Data

    Federal Issues

    On November 21, the three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibility—the Federal Reserve Board, the FDIC, and the OCC—announced the release of the 2016 small business and small farm CRA data. The analysis contains information from 726 lenders reporting data about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2016, a 3.3 percent decrease from 2015.

    The FFIEC disclosure statement on the data for each reporting lender is available here.

    Federal Issues CRA FFIEC OCC FDIC Federal Reserve

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  • Federal Banking Agencies Seek Comments on Proposal to Further Streamline Call Reports

    Agency Rule-Making & Guidance

    On November 2, the Federal Reserve Board, FDIC, and OCC (agencies)—all members of the Federal Financial Institutions Examination Council (FFIEC)—issued a joint notice and request for comment on a proposal to further streamline the Consolidated Reports of Condition and Income (Call Reports) in an effort to reduce data reporting requirements and regulatory burdens for financial institutions. The proposal would modify Call Reports applicable to banks with (i) domestic offices only and less than $1 billion in total assets (FFIEC 051); (ii) domestic offices only (FFIEC 041); and (iii) domestic and foreign offices (FFIEC 031). The proposed revisions, which would eliminate or combine several data items and revise certain existing reporting thresholds, would take effect as of the June 30, 2018, report date. Comments on the proposal are due within 60 days after its publication in the Federal Register.

    Previous requests for proposed burden-reducing Call Report revisions were submitted by the agencies in August 2016 and June 2017. (See InfoBytes’ coverage of the August request here.)

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC FFIEC Call Report Federal Register

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  • CFPB Launches Beta Version of HMDA Platform

    Agency Rule-Making & Guidance

    On November 3, the CFPB announced the beta release of the new HMDA Platform. The beta version enables financial institutions to become familiar with the platform and permits entities to establish test log-in credentials, upload sample files and validate data, receive edit reports, and confirm test their test submissions. Entities can test and retest throughout the beta period, and any test data will be removed from the system when the 2017 filing period opens on January 1, 2018.

    As previously covered by InfoBytes, in November 2016 the Federal Financial Institutions Examination Council (FFIEC) announced that it was discontinuing its HMDA Data Entry Software and instead requiring that financial institutions file HMDA data through a new web-based interface. In August, the CFPB issued the final rule amending the 2015 HMDA Rule, with most of the revisions taking effect January 1, 2018 (see InfoBytes coverage here).

    The CFPB is requesting feedback on the platform and test experiences during the beta period time.

    Agency Rule-Making & Guidance CFPB HMDA FFIEC

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  • Federal Banking Agencies Issue Request for Comment on Proposed Combined Dodd-Frank Stress Test Report

    Agency Rule-Making & Guidance

    On October 6, the Federal Reserve Board (Fed), the FDIC, and the OCC (agencies)—all members of the Federal Financial Institutions Examination Council (FFIEC)—issued a joint notice and request for comment on a proposal to combine the agencies’ three separate, identical stress test report forms into a single new FFIEC report (FFIEC 016) under the Dodd-Frank Act. In addition to replacing the Fed’s FR Y–16, the FDIC’s DFAST 10–50, and the OCC’s DFAST 10–50B, a limited number of revisions would be made to align FFIEC 016 with “recent burden-reducing changes to the FFIEC 031 and FFIEC 041 Consolidated Reports of Condition and Income and the Fed’s FR Y–9C Consolidated Financial Statements for Holding Companies.” Under the proposal, institutions who have a Legal Entity Identifier will also be asked to include it on the report form.

    FFIEC 016 respondents are depository institutions and holding companies with at least $10 billion but less than $50 billion in total consolidated assets. The proposed FFIEC 016 will impact stress test reports with an as-of date of December 31, 2017, and have a submission deadline of July 31, 2018. Comments on the joint notice and request for comment must be received by December 5, 2017.

    Agency Rule-Making & Guidance FFIEC Federal Reserve OCC FDIC Dodd-Frank Stress Test

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  • Federal Banking Regulatory Agencies Issue Proposed Rulemaking to Simplify Regulatory Capital Rule

    Agency Rule-Making & Guidance

    On September 27, the Federal Reserve Board, the FDIC, and the OCC (agencies) issued a joint notice of proposed rulemaking to simplify capital rule compliance requirements and reduce the regulatory burden in accordance with the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Among other things, the proposed rule will “apply a simpler regulatory capital treatment” for mortgage servicing assets, certain deferred tax assets, investments in unconsolidated financial institutions, and capital issued by a consolidated subsidiary of a banking organization and held by third parties, or minority interest. To assist banks in evaluating the potential impact of the proposal, the agencies provided an estimation tool template and summary of the proposal. As previously discussed in InfoBytes, the agencies—all members of the Federal Financial Institutions Examination Council (FFIEC)—issued a report in March following an EGRPRA review, in which the agencies outlined initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations. In a statement issued by FDIC Chairman Martin J. Gruenberg, commenters are encouraged to also consider methods for simplifying existing regulatory capital rules impacting community banks. Comments on the joint proposed rule are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Bank Regulatory Capital Requirements Federal Reserve FDIC OCC EGRPRA FFIEC Federal Register

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  • FDIC Releases Revised Supervisory Appeals Guidelines, Updates FAQs on New Accounting Standards, and Announces FFIEC Industry Outreach Website

    Agency Rule-Making & Guidance

    On September 6, the FDIC released revised guidelines (FIL-42-2017) for appeals of certain material supervisory determinations to expand the circumstances under which banks may submit an appeal with the Division Directors and the Supervision Appeals Review Committee. The guidelines apply to all FDIC-supervised depository institutions. As previously reported in InfoBytes, the guidelines will provide consistency with the appeals processes of other federal banking agencies and will, among other things, (i) permit the appeal of the level of compliance with an existing formal enforcement action; (ii) provide that formal enforcement-related actions or decisions do not affect a pending appeal; (iii) allow for additional opportunities for appeal rights available under the guidelines with respect to material supervisory determinations in certain circumstances; (iv) annually publish the Division Directors’ material supervisory determinations decisions and (v) draw up other limited technical and conforming amendments. With the issuance of these guidelines, the FDIC is rescinding FIL-52-2016 (“FDIC Seeks Comment on Bank Appeals Guidelines”) and FIL-113-2004 (“FDIC Appeals Processes’).

    On the same day, the FDIC also issued FIL-41-2017, which presents updates to its “Frequently Asked Questions on the New Accounting Standard on Financial Instruments—Credit Losses” for financial intuitions and examiners. The FAQs apply to all FDIC-supervised banks, savings associations, and community institutions. The updates address topics such as “qualitative factors, data to implement [credit loss methodology], purchased credit-deteriorated assets, the evaluation of the public business entity criteria, the mechanics of adopting the standard for Call Report purposes, and collateral-dependent loans.” They also contain a reminder to institutions that credit loss methodology can be scaled base on an institution’s size, and encourage readiness and preparation plans to transition to the new accounting standard.

    Finally, the FDIC also issued FIL-40-2017 to announce the Federal Financial Institutions Examination Council’s (FFIEC) new Industry Outreach website, which was created as a way for financial institutions, trade associations, third-party providers, and consultants to access information related to supervisory guidance and regulations. The website will also provide information on FFIEC-sponsored webinars.

    Agency Rule-Making & Guidance FDIC Bank Compliance FFIEC

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