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  • NYDFS fines global banking firm $205 million for alleged FX violations

    Securities

    On June 20, the New York Department of Financial Services (NYDFS) announced a $205 million settlement with a global banking firm to resolve allegations that the bank engaged in unsafe and unsound practices in its foreign exchange (FX) trading business. According to the consent order, the bank did not implement and maintain sufficient controls to identify and prevent unsafe and unsound activities conducted by certain FX traders. Among other things, the order states that FX traders (i) used electronic chatrooms to coordinate trading activity with competitors to improperly affect FX prices; (ii) engaged in a practice known as “jamming the fix,” which entails accumulating a large trading position and subsequently making aggressive trades with the intention of moving the fix price in a desired direction; (iii) disclosed confidential customer information to competitors through electronic chatrooms; and (iv) mislead customers by hiding markups on trades. In addition to the fine, the bank is required to improve its internal controls and programs to comply with applicable New York State and federal laws and regulations, submit a written plan to improve its compliance risk management program, and provide an enhanced written internal audit program.

    Securities NYDFS Enforcement Bank Compliance Foreign Exchange Trading

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  • NYDFS will continue to pursue litigation if OCC moves forward with fintech charter

    State Issues

    On June 6, New York Department of Financial Services (NYDFS) Superintendent, Maria T. Vullo, spoke to the Exchequer Club in Washington, DC, emphasizing, among other things, her opposition to the OCC’s proposal for a fintech charter. Vullo noted that the OCC has not actually finalized plans for the new charter and Comptroller, Joseph Otting, is expected to announce his views on the pending proposal soon. As previously covered by InfoBytes, two legal challenges, one by NYDFS and one by the Conference of State Bank Supervisors, were recently dismissed in separate district courts for lack of subject matter jurisdiction and ripeness due to the fact that the OCC has not issued a fintech charter nor has it finalized its plans to issue one. In her speech, Vullo, acknowledged these lawsuits and her desire to continue the litigation “rather than accept the OCC’s lack of authority in the non-depository space and respect the states’ regulation of and consumer protections in this area.” Vullo noted that fintech, when done right, is a “very good thing” that can assist in bringing banking services to underserved customers. But she also stated that companies that use financial technology should not be granted “an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers.”

    Vullo also touched on (i) her support for the CFPB’s final rule on payday loans, vehicle title loans, and certain other high-cost installment loans; (ii) her concerns over the dismantling of the Bureau’s Office for Students; (iii) her opposition to the Department of Education’s position that only the federal government may oversee student loan servicers (see InfoBytes coverage here); and (iv) the potential risks with the unregulated virtual currency market.

    State Issues NYDFS OCC Fintech Fintech Charter

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  • New York governor signs bill authorizing NYDFS to study online lending in the state

    Lending

    On June 1, the New York governor signed AB 8938, which authorizes and directs the New York Department of Financial Services (NYDFS) to study online lending institutions that conduct business in the state, and requires NYDFS to submit a report containing analysis, assessments, and recommendations pertaining to online lending institutions by July 1. As previously covered in InfoBytes, NYDFS announced plans on April 24 to issue a report, which would include an analysis of the differences between online lending products and services and those of traditional lending institutions, the risks/benefits of the products offered, and the availability of various credit products in the absence of online lending. With the enactment of AB 8938, NYDFS is also tasked with, among other things, surveying existing state and federal laws and regulations applicable to the online lending industry. The act is effective immediately and shall expire July 1—the report’s due date.

    Lending Online Lending State Issues NYDFS

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  • New York Senate introduces bill to enact state charters for on-line lenders

    State Issues

    On May 2, the New York Senate introduced a bill that, if passed, would establish a new article under the state’s banking law to provide for the chartering and regulating of internet lending services corporations (on-line lenders). Among other things, the “New York limited state charter for internet lending services,” S8340, would (i) authorize the New York Department of Financial Services (NYDFS) to issue limited state charters to on-line lenders who “engage in the business of making loans over an internet or electronic platform”; (ii) allow chartered on-line lenders to approve or deny consumer loan applications submitted through NYDFS-approved electronic means; (iii) limit the principal amount of personal loans to $25,000 and $50,000 for business and commercial loans, as well as require the adherence to legally authorized interest rates; (iv) require that chartered on-line lenders be able to demonstrate fiscal solvency with “a minimum capital requirement of not less than $250,000”—an amount five times higher than what is required of brick and mortar-based licensed lenders; and (v) grant NYDFS the authority to regulate chartered on-line lenders.

    S8340 further notes that, at present, the state’s banking law does not provide a regulatory environment to oversee the operations of on-line lenders. The bill currently sits with the Senate’s Banks Committee.

    State Issues State Legislation Fintech NYDFS

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  • Global banking firm fined $110 million for alleged FX violations

    Securities

    On May 1, the Federal Reserve Board (Fed) and the New York Department of Financial Services (NYDFS) announced (press releases available here and here) a combined nearly $110 million settlement with a global banking firm to resolve allegations that the bank engaged in unsafe and unsound practices in its foreign exchange (FX) trading business. According to consent orders issued by the Fed and NYDFS, the bank did not maintain sufficient policies and procedures to identify and prevent “unsafe and unsound” activities conducted by certain FX traders. Among other things, between 2008 and 2012 (NYDFS’ time frame goes through 2013), certain FX traders allegedly disclosed confidential customer information and trading activity with competitors through electronic chatrooms. NYDFS additionally alleged that the traders discussed coordinating their trading activities and other ways to manipulate currency prices to increase trading profits, and claimed that while the bank had policies in place intended to prevent such activity, the policies were not adequately enforced.

    The bank did not admit to any wrongdoing in agreeing to the terms of the settlement, and the Fed and NYDFS noted the bank’s full cooperation with the investigations. In addition to the fine, the bank is prohibited from employing certain traders involved and is required to improve its internal controls and programs to comply with applicable New York State and federal laws and regulations, submit a written plan to improve its compliance risk management program, and provide an enhanced written internal audit program.

    Securities Enforcement NYDFS Federal Reserve Bank Compliance Foreign Exchange Trading

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  • Judge dismisses CSBS challenge to OCC fintech charter on ripeness grounds

    Fintech

    On April 30, a U.S. District Court judge dismissed the Conference of State Bank Supervisors’ (CSBS) challenge to the OCC’s proposed federal charter for fintech firms. (See previous InfoBytes coverage here.) According to the court, the suit is not “constitutionally or prudentially ripe for determination” and cannot proceed because the OCC has yet to issue a fintech charter to any firm. “This dispute would benefit from a more concrete setting and additional percolation. In particular, this dispute will be sharpened if the OCC charters a particular [f]intech—or decides to do so imminently,” the judge wrote.

    As previously covered in InfoBytes, last December the U.S. District Court for the Southern District of New York dismissed a lawsuit filed by the New York Department of Financial Services against the OCC, citing to lack of subject matter jurisdiction over the claims because the OOC had yet to finalize its plans to actually issue fintech charters.

    Fintech Courts OCC NYDFS Litigation

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  • NYDFS enters next phase in use of nationwide licensing system

    State Issues

    On April 25, the New York Department of Financial Services (NYDFS) announced the next phase in its initiative to manage the licensing and regulation of all nondepository financial institutions operating in the state. Beginning May 1, budget planners and premium finance companies will be able to transition their licenses to the Nationwide Multistate Licensing System and Registry (NMLS). Companies applying for new licenses will be also able to submit applications through the NMLS. As previously covered in InfoBytes, licensed lenders, sales finance companies, and money transmitters made the transition to NMLS last year. “The Department is proud to continue our work with [the Conference of State Bank Supervisors] and our fellow state regulators in the ongoing modernization of financial services regulation, enhancing the strong regulatory framework created by states, and supporting industry innovation,” stated NYDFS Superintendent Maria T. Vullo.

    State Issues NYDFS NMLS Non-Depository Institution Licensing

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  • NYDFS: Insurers required to file disaster response, business continuity plans with the state

    State Issues

    On April 24, the New York Department of Financial Services (NYDFS) announced updated guidance to New York-licensed insurers advising them of their obligations under New York’s Insurance Law and requiring entities to file disaster response plans and questionnaires by September 28, through two updated circular letters. The first updated circular letter—addressed to property/casualty insurance companies, including mortgage guaranty insurers, title insurers, and captive insurers—provides, among other things, that in addition to filing a disaster response and recovery plan, insurers must develop a business continuity plan and regularly perform a business impact analysis “to predict the consequences of disruption of a business function and process as a result of a disaster.” Additionally, the letter clarifies business impact analysis requirements and outlines areas to be addressed within an insurer’s business continuity plan. According to NYDFS, the updated requirements are issued “in light of disasters that may occur outside of New York, such as hurricanes, terrorist attacks, or cybersecurity breaches, which could affect an insurer’s ability to serve New York consumers.”

    State Issues NYDFS Mortgage Insurance

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  • NYDFS announces online lending study

    State Issues

    On April 24, the New York Department of Financial Services (NYDFS) announced a study of the practices, economic impact, and operations of online lending in New York. The study will culminate in a public report with recommendations to the state legislature by July 1. NYDFS indicates that the report will cover, among other things, an analysis of the differences between online lending products and services and those of traditional lending institutions, the risks/benefits of the products offered, and the availability of various credit products in the absence of online lending. The report will also provide information on the business practices of online lenders operating in New York.

    NYDFS is requesting comments and feedback on this study by May 24.

    State Issues NYDFS Online Lending Consumer Finance

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  • Federal Reserve issues cease and desist order against Taiwanese bank for BSA/AML deficiencies

    Financial Crimes

    On April 19, the Federal Reserve Board (Fed) issued a cease and desist order against a Taiwanese bank and its New York agency in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s order, a recent examination conducted by the Federal Reserve Bank of New York (Reserve Bank) and the NYDFS identified “significant deficiencies” in the agency’s BSA/AML compliance and risk management controls. The order requires, among other things, that the bank and agency submit within 60 days: (i) a written governance plan to strengthen the board of director’s oversight of BSA/AML compliance; (ii) a written program to achieve compliance with BSA/AML requirements; (iii) an enhanced, written customer due diligence program plan; and (iv) a revised  program to ensure compliant suspicious activity monitoring and reporting. The bank and agency are further required to engage an independent third party acceptable to the Reserve Bank to conduct a review of certain wire transactions to determine whether “suspicious activity involving high risk customers or transactions” was properly identified and reported in accordance with applicable regulations. The order imposes no financial penalty.

    Financial Crimes Federal Reserve NYDFS Bank Secrecy Act Anti-Money Laundering Enforcement Customer Due Diligence

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