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FinCEN Acting Director Comments on Recent Casino Actions and Culture of Compliance
On October 3, FinCEN Acting Director Jamal El-Hindi issued a statement regarding anti-money laundering and countering the financing of terrorism compliance. According to Acting Director El-Hindi, two recent actions against casinos represent failure to (i) adequately train staff at every level in the organization; and (ii) properly file - or file at all – Suspicious Activity Reports and Currency Transaction Reports. Still, Acting Director El-Hindi acknowledged that casinos in general have improved their AML compliance efforts. Acting Director El-Hindi stated that FinCEN will continue to work with casinos on their compliance efforts, and cautioned that “[a] good compliance culture is one where doing the right thing is rewarded, and where ‘looking the other way’ has consequences.”
OCC Issues Guidance on "De-Risking" in Foreign Correspondent Banking Relationships
On October 5, the OCC issued Bulletin 2016-32 to provide highly anticipated guidance regarding “de-risking” in foreign correspondent banking relationships. Last week, Comptroller Curry stated that the OCC intended to issue guidance that would reiterate the agency’s “risk management expectations for banks to establish and follow policies and procedures for regularly conducting risk evaluations of their foreign correspondent portfolios.” The guidance outlines “best practices” for banks to use when “conducting periodic reevaluations of the risks related to foreign correspondent accounts and making account retention or termination decisions.” As expected and as previously summarized in BuckleySandler’s Special Alert, these best practices include, but are not limited to, (i) establishing effective governance for overseeing how banks reevaluate risk and monitor recommendations for retaining or terminating foreign correspondent accounts; (ii) communicating regularly to senior management about decisions to retain or terminate foreign correspondent accounts, giving consideration to any adverse impact that closures may have on access to financial services for an entire group of customers or an entire region; (iii) establishing lines of communication with foreign correspondent customers in the context of determining whether to withdraw from a relationship; (iv) considering specific information these customers may provide that may mitigate risks they present; (v) when decisions are made to terminate accounts, providing sufficient time for customers to establish alternative banking relationships, unless any delay would create additional risk; and (vi) maintaining clear audit trails documenting the reasons and methods used for considering account closure.
OCC Issues Large Bank Recovery Guidelines
On September 29, the OCC released final guidelines establishing standards for recovery planning for large OCC-regulated institutions. The guidelines, which are not applicable to community banks, are designed to provide “a comprehensive framework for evaluating the financial effects of severe stress that may affect a covered institution and options it may take to remain viable under such stress.” Pursuant to the guidelines, an institution “should develop and maintain a recovery plan that is specific to that covered bank and appropriate for its individual size, risk profile, activities, and complexity, including the complexity of its organizational and legal entity structure.” OCC examiners will begin to assess an institution’s recovery plan for appropriateness and adequacy. The guidelines, which contain various compliance dates, become effective January 1, 2017.
Connecticut AG Jepsen and Banking Commissioner Perez Resolve RMBS Investigation
On October 3, Connecticut AG Jepsen, alongside Banking Commissioner Jorge Perez, resolved a four-year investigation into a Connecticut-based investment bank’s residential mortgage-back securities (RMBS) practices. According to the consent order, from January 2005 to December 2008, the investment bank was the lead securities underwriter of about 250 RMBS deals with a value of more than $250 billion. The state alleged, among other things, that the bank’s due diligence process on the 250 RMBS deals was “inadequate and resulted in omissions and misstatements in the representations made to the public and investors about the securities.” The $120 million settlement is Connecticut’s largest single settlement in history.
Special Alert: OCC to Issue Guidance on "De-Risking" in Foreign Correspondent Banking Relationships
On September 28, 2016 OCC Comptroller Thomas J. Curry announced during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance around “de-risking” in foreign correspondent banking relationships. Following the joint fact sheet published by the federal banking agencies and the Department of Treasury, Comptroller Curry said that it will issue “guidance that reiterates our risk management expectations for banks to establish and follow policies and procedures for regularly conducting risk evaluations of their foreign correspondent portfolios.” The guidance will describe “best practices” that the OCC has observed that banks can use when “re-evaluating their risks and making decisions about retaining or terminating foreign correspondent accounts.”
Click here to view the full Special Alert
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- James T. Parkinson, (202) 349-7955
- Benjamin Hutten, (212) 600-2333
Fed Proposal Would Modify Stress Tests for Large, Noncomplex Bank Holding Companies
On September 26, the Federal Reserve released a proposed rule that would essentially remove bank holding companies defined to be “large and noncomplex” from the qualitative portion of annual Comprehensive Capital Analysis and Review (CCAR) assessment process (“stress tests”). Under the proposed rule, large and noncomplex bank holding companies are those with total consolidated assets of at least $50 billion, but less than $250 billion, less than $10 billion in foreign exposure, and less than $75 billion in average nonbank assets. Currently, the Fed applies the CCAR process to bank holding companies with more than $50 billion in total consolidated assets. Fed Governor Daniel Tarullo indicated that the Fed was also considering adoption of a “stress capital buffer” approach for larger, global systemically important banks (GSIB). The new approach would replace the uniform 2.5-percent capital conservation buffer, and would instead require GSIBs to retain capital “equal to the maximum decline in a firm's common equity tier 1 capital ratio under the severely adverse scenario of the supervisory stress test before the inclusion of the firm's planned capital distributions.”
Fed Proposes Restrictions on Financial Holding Companies' Physical Commodities Activities
On September 23, the Federal Reserve released a proposed rule outlining new risk-based capital and other regulatory requirements for banks that transact in physical commodities. Among other things, the proposed rule would require financial holding companies to retain additional capital if the company is engaged in activities involving commodities for which existing laws impose certain environmental liability. The rule also looks to accomplish the following: (i) to restrict the amount of physical commodity trading activity firms may conduct; (ii) to rescind authorizations that allow firms to engage in physical commodity activities involving power plants; (iii) to remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and (iv) to establish reporting requirements on the nature and extent of firms' physical commodity holdings and activities. In the memo discussing the proposal, the Fed indicated that it was addressing circumstances where “damages can exceed the market value of the physical commodity involved in the catastrophic events, and can exceed the committed capital and insurance policies of the organization.” The deadline to submit comments is set at December 22.
DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations
On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas: (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.
House Considers Further Narrowing FDIC Scope on Brokered Deposits
On September 27, the House Financial Institutions and Consumer Credit Subcommittee heard testimony on HR 4116, a bill that would affect how the FDIC determines the amount of deposits at insured banks that qualify as “brokered deposits.” The Federal Deposit Insurance Act currently requires larger premiums for banks with higher ratios of brokered deposits as compared to traditional deposits. This bill would exclude reciprocal deposits from the definition of brokered deposits where the condition of the institution at its most recent examination was adjudged either good or outstanding, or where the total reciprocal deposits of the institution do not exceed either $10 billion or 20% of its total liabilities. This narrowed scope of brokered deposits would come on the heels of the FDIC’s decision to exclude smaller community banks from including reciprocal deposits are brokered deposits announced earlier this year.
NCUA Settles MBS Case with Foreign Bank
A foreign bank has agreed to pay $1.1 billion to settle lawsuits brought in Kansas and California in 2011 by the National Credit Union Administration Board (NCUA) as the liquidating agent for two corporate credit unions. The lawsuit centered on claims that the bank sold faulty mortgage-backed securities, contributing to the failures of the two credit unions during the financial crisis.