InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FDIC announces FDItech virtual ‘Office Hours’
On April 29, the FDIC’s technology lab, FDiTech, announced that it will host a series of virtual “office hours” to hear from a variety of stakeholders in the business of banking concerning current and evolving technological innovations. The office hours will be hour-long, one-on-one sessions that will provide insight into the contributions that innovation has made in reshaping banks and enabling regulators to manage their oversight efficiently. According to the FDIC, “FDiTech seeks to evaluate and promote the adoption of innovative and transformative technologies in the financial services sector and to improve the efficiency, effectiveness, and stability of U.S. banking operations, services, and products; to support access to financial institutions, products, and services; and to better serve consumers.” FDiTech’s goal is to contribute to the transformation of banking by supporting “the adoption of technological innovations through increased collaboration with market participants.” In the first series of office hour sessions, the FDIC and FDiTech are seeking participants’ outlook on artificial intelligence and machine learning related to: (i) automation of back office processes; (ii) Bank Secrecy Act/Anti-Money Laundering compliance; (iii) credit underwriting decisions; and (iv) cybersecurity.
FDiTech anticipates hosting approximately 15 one-hour sessions each quarter. Interested parties seeking to participate in these sessions must contact the FDIC by May 24.
FDIC proposal would prohibit misuse of its name or logo
On April 22, the FDIC proposed a rule implementing its authority to prohibit “making misrepresentations about deposit insurance or misusing the FDIC’s name or logo.” The proposed rule is intended to promote transparency on the FDIC’s processes for inspecting and enforcing potential breaches of prohibitions under the FDIC Act by “further clarify[ing] [] procedures for identifying, investigating, and where necessary taking formal and informal action to address potential violations of Section 18(a)(4).” Additionally, the proposed rule would establish a primary point of contact for the public to report or inquire about potential violations. The FDIC specified that the proposed rule is in response to the “increasing number of instances where financial services providers or other entities or individuals have misused the FDIC’s name or logo.”
Comments on the proposed rule will be accepted for 60 days after publication in the Federal Register.
Agencies issue MRMG; seek comments on BSA/AML compliance
On April 9, the Federal Reserve Board, FDIC, and OCC, in consultation with FinCEN and the NCUA, issued a joint statement on the use of risk management principles outlined in the agencies’ “Supervisory Guidance on Model Risk Management” (known as the “model risk management guidance” or MRMG) as it relates to financial institutions’ compliance with Bank Secrecy Act/anti-money laundering (BSA/AML) rules. While the joint statement is “intended to clarify how the MRMG may be a useful resource to guide a bank’s [model risk management] framework, whether formal or informal, and assist with BSA/AML compliance,” the agencies emphasized that the MRMG is nonbinding and does not alter existing BSA/AML legal or regulatory requirements or establish new supervisory expectations. In conjunction with the release of the joint statement, the agencies also issued a request for information (RFI) on the extent to which the principles discussed in the MRMG support compliance by financial institutions with BSA/AML and Office of Foreign Assets Control requirements. The agencies seek comments and information to better understand bank practices in these specific areas and to determine whether additional explanation or clarification may be helpful in increasing transparency, effectiveness, or efficiency. Comments on the RFI are due within 60 days of publication in the Federal Register.
Fed formalizes stance on supervisory guidance
On March 31, the Federal Reserve Board issued a final rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the CFPB, FDIC, NCUA, and OCC on September 11, 2018 (2018 Statement). As previously covered by InfoBytes, an October 2018 joint proposal amended the 2018 Statement by (i) clarifying that references in the 2018 Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.” The final rule is effective 30 days after publication in the Federal Register, and mirrors final rules issued by the CFPB, OCC, FDIC, and NCUA.
U.S.-EU release statement on Joint Financial Regulatory Forum
On March 24 and 25, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S.-EU Joint Financial Regulatory Forum to discuss topics of mutual interest, including those related to (i) “next steps” for Covid-19 recovery and for mitigating financial stability risks; (ii) “sustainable finance”; (iii) banking and insurance multilateral and bilateral engagement; (iv) capital market regulatory and supervisory cooperation; (v) regulatory and supervisory developments pertaining to financial innovation, including the importance of promoting ongoing “responsible innovation and international supervisory cooperation”; and (vi) anti-money laundering and countering the financing of terrorism (AML/CFT) issues, including “the potential for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].” Participants also discussed possible responses to climate-related financial risks, as well as “the progress in their respective legislative and supervisory efforts to ensure a smooth transition away from LIBOR.”
FDIC issues 2021 Consumer Compliance Supervisory Highlights
On March 31, the FDIC released the spring 2021 edition of the Consumer Compliance Supervisory Highlights, intended to provide information and observations related to the FDIC’s consumer compliance supervision of state non-member banks and thrifts in 2020. Topics include:
- A summary of the FDIC’s supervisory approach in response to the Covid-19 pandemic, including efforts made by banks to meet the needs of consumers and communities;
- An overview of the most frequently cited violations (approximately 74 percent of total violations involved TILA, Truth in Savings Act, Flood Disaster Protection Act, EFTA, and RESPA), as well as other consumer compliance examination observations related to RESPA, TRID, and fair lending;
- Information on regulatory developments, such as Community Reinvestment Act and flood insurance rulemaking and small-dollar loan programs;
- A summary of consumer compliance resources available to financial institutions; and
- Examples of practices that may be useful to institutions in mitigating risks.
FFIEC releases 2021 HMDA reporting guide
On March 30, the FDIC issued FIL-21-2021 announcing the Federal Financial Institutions Examinations Council’s issuance of the 2021 edition of the “Guide to HMDA Reporting: Getting It Right!” The guide applies to HMDA data collected in 2021 that will be reported to supervisory agencies by March 1, 2022, and includes (i) a summary of responsibilities and requirements; (ii) directions for assembling the necessary tools; and (iii) instructions for reporting HMDA data. According to the announcement, the 2021 edition provides information to assist with HMDA compliance in the event of a merger or acquisition, as well as updates to the appendices that reflect amendments to Regulation C made by a CFPB final rule published last year (covered by InfoBytes here). The final rule increased the permanent threshold from 25 to 100 loans starting July 1, 2020, for both depository and nondepository institutions, and also increased the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200. The latter change, however, will not take effect until January 1, 2022, when the current temporary threshold of 500 open-end lines of credit expires.
Prudential regulators exploring how institutions use AI
On March 29, the FDIC, Fed, OCC, CFPB, and NCUA issued a request for information (RFI) seeking input on financial institutions’ use of artificial intelligence (AI), which may include AI-based tools and models used for (i) fraud prevention to identify unusual transactions for Bank Secrecy Act/anti-money laundering investigations; (ii) personalization of customer services; (iii) credit underwriting; (iv) risk management; (v) textual analysis; and (vi) cybersecurity. The RFI also solicits information on challenges financial institutions face in developing, adopting, and managing AI, as well as on appropriate governance, risk management, and controls over AI when providing services to customers. Additionally, the agencies seek input on whether it would be helpful to provide additional clarification on using AI in a safe and sound manner and in compliance with applicable laws and regulations. According to FDIC FIL-20-2021, while the agencies support responsible innovation by financial institutions and believe that new technologies, including AI, have “the potential to augment decision-making and enhance services available to consumers and businesses, . . . identifying and managing risks are key.” Comments on the RFI are due 60 days after publication in the Federal Register.
Treasury issues emergency capital investment program FAQs
On March 30, the U.S. Treasury Department issued frequently asked questions to provide timely guidance concerning all aspects of the Emergency Capital Investment Program (ECIP). The FAQs cover issues regarding:
- The types of institutions eligible to participate in the ECIP;
- Submission of an ECIP application and emergency investment lending plan;
- How Treasury will decide allocation of the available capital among applicants that meet the thresholds for eligibility, including how well an applicant has responded to the needs of communities impacted by the Covid-19 pandemic;
- Whether an institution can choose to issue preferred stock or subordinated debt in the ECIP; and
- Compliance and reporting requirements.
The ECIP was established by the Consolidated Appropriations Act of 2021 (covered by InfoBytes here), and will provide up to $9 billion in capital directly to Community Development Financial Institutions and minority depository institutions to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities” that may be disproportionately impacted by the Covid-19 pandemic. As previously covered in InfoBytes, on March 22, the OCC, Federal Reserve Board, and the FDIC published an interim final rule (IFR) to facilitate the implementation of the ECIP.
Agencies issue rulemaking to facilitate Emergency Capital Investment Program for CDFIs and MDIs
On March 22, the OCC, Federal Reserve Board, and the FDIC published an interim final rule (IFR) to facilitate the implementation of the Emergency Capital Investment Program (ECIP). As previously covered by InfoBytes, the ECIP was established by the Consolidated Appropriations Act of 2021, and will provide up to $9 billion in capital directly to Community Development Financial Institutions and minority depository institutions to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities” that may be disproportionately impacted by the Covid-19 pandemic. The IFR outlines capital designations and investment eligibility criteria, and specifically notes that the agencies have revised “the capital rule to clarify that senior preferred stock will qualify as additional tier 1 capital and subordinated debt will qualify as tier 2 capital.” The ECIP will expire six months after the date on which the national Covid-19 emergency ends.