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  • Treasury releases recommendations for modernizing the Community Reinvestment Act

    Agency Rule-Making & Guidance

    On April 3, the U.S. Treasury Department released recommendations to the Federal Reserve Board, the FDIC, and the OCC (CRA regulators) on suggestions for modernizing the Community Reinvestment Act (CRA). As previously covered in a Buckley Sandler Special Alert, Treasury released a report last June indicating that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers and ensure that the benefits of the CRA investments are aligned with the needs of the communities being served. Last month the Government Accountability Office (GAO) released a report recommending Treasury consider GAO’s findings when conducting its review. (See previous InfoBytes coverage here.)

    The April memorandum of recommendations addresses findings from Treasury’s comprehensive assessment of the CRA framework and focuses on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. Specifically, the recommendations include (i) updating the definitions of “geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors”; (ii) improving the flexibility of the CRA examination process to increase clarity in examiner guidance and improve evaluation criteria to increase CRA rating determination transparency and effectiveness; (iii) addressing the timing and issuance of performance evaluations to increase banks’ accountability when planning CRA activity; and (iv) identifying performance incentives to encourage banks to meet the credit and deposit needs of their entire communities, including low- and moderate-income areas. The memorandum solicited input from stakeholders such as consumer advocacy groups, financial industry members, and the CRA regulators.

    Agency Rule-Making & Guidance Department of Treasury CRA Federal Reserve OCC FDIC Examination GAO

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  • FFIEC issues Examination Modernization Project update

    Federal Issues

    On March 22, the Federal Financial Institutions Examination Council (FFIEC) issued an update on the status of its Examination Modernization Project. According to FDIC FIL-11-2018 and the accompanying press release, the project’s objective is to identify and assess measures to improve the community bank safety and soundness examination process, pursuant to the Economic Growth and Regulatory Paperwork Reduction Act’s review of regulations. According to feedback from selected supervised institutions and examiners, agencies should ensure examiners understand the importance of clear, transparent communication objectives during the examination process. As a result, the FFIEC indicated the following four areas with the potential for “meaningful supervisory burden reduction”:

    • regulator communication objectives should be highlighted and reinforced before, during, and after examinations;
    • technology should be leveraged to “shift, as appropriate, examination work from onsite to offsite”;
    • examinations should continue to be tailored “based on risk”; and
    • electronic file transfer systems should be improved “to facilitate the secure exchange of information between institutions and supervisory offices or examiners.”

    The FFIEC also announced plans to take further action on other areas of improvement.

    Federal Issues FFIEC Community Banks EGRPRA FDIC Examination

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  • CFPB releases HMDA formatting tool and updates filing instructions

    Agency Rule-Making & Guidance

    On February 1, the CFPB launched their 2018 Loan/Application Register (LAR) Formatting Tool (the “Tool”). According to the website, the Tool is intended to assist small volume lenders in creating an electronic file to submit to the HMDA Platform. The Tool is only intended to be used by institutions that are not able to format their HMDA data into a “pipe delimited text file.” The Bureau also announced minor updates to the 2018 Filing Instructions Guide for HMDA. As previously covered by InfoBytes, the CFPB’s supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts.” The CFPB does not intend to impose penalties with respect to errors reported in the 2018 data.

    Agency Rule-Making & Guidance CFPB HMDA Examination Mortgages

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  • FINRA releases 2018 regulatory and examinations priorities letter


    On January 8, the Financial Industry Regulatory Authority (FINRA) published its Annual Regulatory and Examination Priorities Letter (2018 Letter), which focused on several broad issues within the securities industry, including improving the examination program to “implement a risk-based framework designed to better align examination resources to the risk profile of [] member firms.” As previously covered in InfoBytes, last July FINRA360 (a comprehensive self-evaluation and organizational improvement initiative) prompted the organization to announce plans currently underway to enhance operations by consolidating its existing enforcement teams into a single unit. In the 2018 Letter, FINRA announced ongoing efforts to work with member firms to understand the risks and benefits of fintech innovation such as blockchain technology, as well as the impact initial coin offerings (ICOs) and digital currencies have on broker-dealers.

    Additional areas of regulatory and examination focus for FINRA in 2018 will include: (i) fraudulent activities and suspicious activity report filing requirements; (ii) business continuity planning; (iii) protection and verification of customer assets, including whether firms have implemented adequate controls and supervision methods along with measuring the effectiveness of cybersecurity programs; (iv) anti-money laundering monitoring and surveillance resources and policies and procedures; and (v) the role firms and other registered representatives play when effecting transactions in cryptocurrencies and ICOs—specifically with regard to the supervisory, compliance and operational infrastructure firms implement to “ensure compliance with relevant federal securities laws and regulations and FINRA rules.”

    Securities Fintech FINRA Examination Fraud Privacy/Cyber Risk & Data Security Anti-Money Laundering Initial Coin Offerings Virtual Currency SARs Blockchain Financial Crimes

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  • FDIC’s OIG Issues Evaluation of Agency’s Implementation of ATR/QM and Loan Originator Rules

    Federal Issues

    On December 6, the FDIC’s Office of Inspector General (OIG) released an evaluation report to examine how the agency implements certain consumer protection rules concerning consumers’ ability to repay mortgage loans and limits for loan originator compensation. The OIG report, FDIC’s Implementation of Consumer Protection Rules Regarding Ability to Repay Mortgages and Compensation for Loan Originators (EVAL-18-001), focused on the FDIC’s Division of Depositor and Consumer Protection (DCP), which is responsible for implementing the Ability to Repay/Qualified Mortgage (ATR/QM) and Loan Originator rules and tracking violations of the rules. The report found that the DCP “incorporated these rules into its examination program, trained its examiners, and communicated regulatory changes to FDIC-supervised institutions.” However, based on a sample of 12 examinations, the OIG also determined that examination workpapers generally needed improvement, finding (i) inconsistent documentation by examiners on decisions to exclude compliance testing for the ATR/QM and Loan Originator rules, and (ii) in certain circumstances, incomplete, incorrect, or improperly stored examiners’ workpapers, “which would preclude someone independent of the examination team from fully understanding examination findings and conclusions, based on the workpapers alone.”

    OIG further noted that, because DCP’s examination practices did not include tracking the number of institutions subject to the rules or recording how frequently examiners tested for compliance, any identified variances among the FDIC’s six regional offices could not be assessed for significance due to lack of context.

    As a result of these findings, the OIG made several recommendations for the DCP to strengthen its compliance examination process, including:

    • “research potential reasons for the regional variances in the number of rule violations by banks in the FDIC’s six regional offices”;
    • “track the aggregate number of FDIC-supervised institutions in each region that are subject to the rules”;
    • “track how often examiners test for compliance with the rules”; and
    • ‘‘take steps to improve workpaper documentation and retention.”

    The DCP agreed to implement these recommendations June 30, 2018.

    Federal Issues OIG FDIC Ability To Repay Qualified Mortgage Consumer Finance Loan Origination Mortgages Examination

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  • NCUA Issues Final Rules Regarding Appeals Procedures; Proposes Rule Regarding Capital Planning and Stress Testing

    Agency Rule-Making & Guidance

    On October 30, the National Credit Union Administration (NCUA) issued a final rule expanding the number of material supervisory determinations that can be appealed to the NCUA Supervisory Review Committee (SRC). Under the rule, federally insured credit unions (FICUs) may appeal examination-related determinations that may significantly affect capital, earnings, operating flexibility, or level of supervisory oversight. The effective date for the final rule is January 1, 2018.

    On October 30, the NCUA also proposed changes to rules covering capital planning and stress testing requirements for covered credit unions (see previously InfoBytes coverage on proposed changes to stress tests by other federal agencies). The proposal would allow FICUs with over $10 billion in assets to conduct their own stress tests in accordance with NCUA requirements and report the results in their capital plan submissions. The specific testing requirements are tiered and dependent on various asset size and capital planning cycles. Comments about the NCUA proposed rule must be received on or before December 29.

    Agency Rule-Making & Guidance NCUA Examination Credit Union Stress Test

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  • OCC Updates Guidance on Federal Branch Supervision and Enforcement Action Policies and Procedures

    Federal Issues

    On October 27, the OCC issued Bulletin 2017-46, updating guidance related to federal bank branch supervision and licensing. The OCC issued a revised version of its “Federal Branches and Agencies” booklet, which clarifies the process for reviewing and evaluating license conversion applications by a state-licensed branch or agency operated by a foreign bank to a federal branch or agency. Bulletin 2017-46 also replaced the 2014 agency paper entitled, The OCC’s Approach to Federal Branch and Agency Supervision. The paper outlines the OCC’s framework and considerations related to (i) the regulatory approach and supervision process for large and complex federal branches and agencies (not community banks), and (ii) the general overview of the filing requirements for applications, notices, and licenses, as well as the review and decision process.

    On October 31, the OCC issued Bulletin 2017-48 to update its policies and procedures regarding bank enforcement actions. The updates are designed to provide more clarity and consistency in the implementation, communication and monitoring of enforcement actions.  In particular, the updates are intended to, among other things, better describe the relationship between violations, concerns identified in matters requiring attention, and enforcement actions, emphasize communication with bank management and personnel and OCC supervisors, and enhance standard processes for tracking and resolving corrective actions.  The updates are effective December 1, and are reflected in its “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies Supervision,” and “Large Bank Supervision” booklets of the Comptroller’s Handbook.

    Federal Issues OCC Bank Supervision Enforcement Examination

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  • Trade Groups Lobby for Exemption of Small Independent Mortgage Lenders from CFPB Examinations

    Agency Rule-Making & Guidance

    On September 18, the Community Home Lenders Association and the Community Mortgage Lenders of America sent a joint letter to Treasury Secretary Mnuchin urging relief for smaller independent mortgage bankers from CFPB supervision, enforcement, and vender management audits. Specifically, the trade groups requested support for legislation that would help eliminate the risk of enforcement actions from the CFPB for smaller nonbanks. The letter cites the conclusions drawn in the Treasury Report on financial regulations, released in June (this report was a product of the February Executive Order, covered by a Buckley Sandler Special Alert). Of particular interest from the trade groups was the report’s conclusion that Congress should repeal the CFPB’s supervisory authority and return the supervision of nonbanks to state regulators.

    Agency Rule-Making & Guidance Mortgages CFPB Examination Vendor Management Department of Treasury

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  • OIG Report: Potential for Improvement Within CFPB Examiner Commissioning and On-the-Job Training Programs

    Agency Rule-Making & Guidance

    On September 20, the Office of Inspector General (OIG) for the CFPB issued findings in a report entitled The CFPB Can Enhance the Effectiveness of Its Examiner Commissioning Program and On-the-Job Training Program (the Report) stemming from an evaluation to assess the Bureau’s effectiveness when designing, implementing, and executing these two programs.

    Examiner Commissioning Program (ECP). The Report found that, despite efforts to enhance the program since it began in 2014, the CFPB's Supervision Learning and Development Division (SL&D)—which is responsible for examiner training—presented several areas in need of improvement, including: (i) where examiners appeared to pursue commissioning before being fully prepared or required multiple attempts to pass commissioning components, which in turn affected the number of examiners available for examinations; (ii) where examiners commenced components of the ECP, despite inadequate training, developmental opportunities, or exposure to certain internal processes; (iii) findings that SL&D lacked a formal method for evaluating and updating the ECP, thus reducing opportunities to identify potential areas for improvement; (iv) inconsistent delivery of ECP requirements to prospective employees; and (v) a lack of clarity on when the start of the five-year time requirement begins for examiners trying to obtain their commissioning, which can create the risk of examiners moving through the ECP before being ready.

    On-the-Job Training Program (OJT). The OIG also identified areas for improvement in the CFPB’s implementation of the OJT program. Specifically, the OIG found that due to inconsistent implementation of the OJT program, examiners are unable to clearly understand the program’s requirements and expectations.

    Recommendations. The OIG presented the following recommendations: (i) issue guidance documenting an examiner’s readiness, including recommendations from regional management; (ii) update ECP guidance to better prepare examiners in understanding the program’s requirements, including the starting point of the five-year requirement; (iii) implement a formal method to evaluate the ECP program; (iv) develop guidelines for applicants of the ECP program; and (v) reassess the OJT program timeline for module development, communicate guidelines effectively at all regional offices, and develop guidelines for OJT program expectations.

    Agency Rule-Making & Guidance OIG CFPB Examination

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  • GAO Publishes Study Examining Fintech Industry Regulation


    On April 19, the U.S. Government Accountability Office (GAO) published a study examining four “subsectors” within the fintech industry—marketplace lenders, mobile payments, digital wealth management platforms, and distributed ledger technology (also known as blockchain)—and highlighting the types of products and services offered and how they are regulated. The report, Financial Technology – Information on Subsectors and Regulatory Oversight, is the first in a series of planned reports on fintech, following a request by Congress for a review of issues related to the industry. From July 2016 to April 2017, GAO reviewed agency publications, guidance, final rulemakings, initiatives, and enforcement actions, and also conducted interviews with representatives from the federal prudential regulators, state supervision agencies, and trade associations in order to compile the findings in the report. The report provides an overview of the technologies associated with each subsector, identifies primary users of the products and services, notes potential benefits and risks, and highlights industry trends and current regulations and oversight. Notably, GAO stated it made no recommendations in this report.

    Fintech GAO Examination Congress Marketplace Lending Distributed Ledger Blockchain Virtual Currency Mobile Payments

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