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  • White House Releases Proclamation Announcing National Cybersecurity Awareness Month

    Privacy, Cyber Risk & Data Security

    On September 30, President Trump issued a Proclamation announcing October 2017 as National Cybersecurity Awareness Month. As part of the initiative, the Department of Homeland Security (DHS) issued tools and resources for both consumers and organizations to manage cybersecurity risk. As previously covered in InfoBytes, the President issued an Executive Order earlier this year entitled “Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure” that requires agencies to submit risk management reports to DHS and develop recommendations for cybersecurity improvements affecting all critical infrastructure, including the financial services industry.

    Privacy/Cyber Risk & Data Security Federal Issues Risk Management Trump Department of Homeland Security Executive Order

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  • FDIC Releases August 2017 Enforcement Actions

    Federal Issues

    On September 29, the FDIC released its list of 27 orders of administrative enforcement actions taken against banks and individuals in August. The FDIC assessed civil money penalties against three banks, including one citing violations of the National Flood Insurance Act (NFIA) and the Flood Disaster Protection Act for (i) failing to obtain flood insurance before loan origination; (ii) failing to provide flood insurance coverage for the full term of the loan; (iii) failing to ensure the amount of flood insurance coverage was “at least equal to the outstanding principal balance of the loan or the maximum limit of coverage” under the NFIA, including numerous instances where coverage options were not provided to borrowers; and (iv) failing to provide written notice in a timely fashion—or at all—to borrowers that the property securing the loan was in a special flood hazard area.

    Also on the list are six removal and prohibition orders against institution-affiliated parties related to unsafe or unsound banking practices and breaches of fiduciary duty leading to financial loss. One of these orders fines an individual $200,000 for expense account-related misconduct, concealing the ownership of certain stock from the FDIC, and causing dividends on this stock to be placed into his personal account. The list also contains seven Section 19 orders allowing applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and eight terminations of consent orders.

    There are no administrative hearings scheduled for October 2017. The FDIC database containing all 27 of its enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Flood Insurance

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  • OCC Releases Bank Supervision Operating Plan for Fiscal Year 2018

    Agency Rule-Making & Guidance

    On September 28, the OCC’s Committee on Bank Supervision released its  bank supervision operating plan (Plan) for fiscal year (FY) 2018. The Plan outlines the agency’s supervision priorities and specifically highlights the following supervisory focus areas: (i) cybersecurity and operational resiliency; (ii) commercial and retail credit loan underwriting, concentration risk management, and the allowance for loan and lease losses; (iii) business model sustainability and viability and strategy changes; (iv) Bank Secrecy Act/anti-money laundering compliance management; and (v) change management to address new regulatory requirements.

    The annual Plan guides the development of supervisory strategies for individual national banks, federal savings associations, federal branches, and federal agencies, and service providers.

    The OCC will provide updates about these priorities in its Semiannual Risk Perspective, as InfoBytes has previously covered.

    Agency Rule-Making & Guidance OCC Risk Management Anti-Money Laundering Bank Secrecy Act Compliance Lending Privacy/Cyber Risk & Data Security

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  • CFTC Orders Large Financial Institution to Pay for Supervision Failures

    Securities

    On September 28, the Commodity Futures Trading Commission (CFTC) announced a concurrent filing and settling of charges against a large financial institution/clearing firm (Firm) for failing to adequately supervise fee processing. The Order alleges that between 2009 and 2016, the Firm did not implement and maintain adequate procedures and systems that could account for and help prevent the risk of overcharging customers for exchange and clearance fees. In 2015, according to the Order, the Firm modified its processes to prevent future overcharges to customers.

    The settlement requires the Firm to pay a $500,000 civil penalty.

    Securities Enforcement CFTC Financial Institutions Compliance Settlement

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  • OFAC Amends Sanctions on Russia’s Financial and Energy Sectors

    Financial Crimes

    On September 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended Directive 1 and Directive 2 of its Ukrainian-/Russian-related Sectoral Sanctions, as required by the Countering America’s Adversaries Through Sanctions Act of 2017 (H.R. 3364), which was signed into law by President Trump in August. (See previous InfoBytes summary here.) As amended, Directive 1 prohibits U.S. persons from all dealings in equity issued on or after July 16, 2014, of persons determined by OFAC to be part of the Russian financial services sector. Directive 1 also prohibits U.S. persons from dealing in the following debt of such persons: (i) debt of over 90 days maturity issued on or after July 16, 2014, but prior to September 12, 2014; (ii) debt of over 30 days maturity issued on or after September 12, 2014, but before November 28, 2017; and (iii) debt of over 14 days maturity issued on or after November 28, 2017. As amended, Directive 2 prohibits U.S. persons from all dealings in the following debt of persons identified by OFAC to be part of the Russian energy sector: (i) all debt of over 90 days maturity issued on or after July 16, , but before November 28, 2017; and (ii) all debt of over 60 days maturity issued on or after November 28, 2017. OFAC also released updated FAQs to answer questions related to the amended directives.

    Financial Crimes OFAC Sanctions Executive Order Trump

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  • CFPB Publishes Updated Reference Material for HMDA

    Agency Rule-Making & Guidance

    On September 28, the CFPB released, on its website, updates to the reference material for the Home Mortgage Disclosure Act (HMDA). The Bureau updated the, (i) institutional coverage criteria; (ii) transactional coverage criteria; and (iii) key dates timeline.

    These updates are associated with the changes, previously reported in InfoBytes, that the CFPB made in the 2017 HMDA final rule.

    Agency Rule-Making & Guidance CFPB HMDA Consumer Finance Compliance Mortgages

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  • California Legislature Urges Congress to Request the Department of Defense Alter Criteria for Safe Harbor Provision in the MLA

    State Issues

    On September 25, the California Legislature filed a joint resolution that urges Congress to impress upon the Department of Defense the need to realign their criteria requiring a social security number for the safe harbor provision in the Military Lending Act (MLA). The resolution noted that the revised MLA regulations requiring lenders to ask for a social security number, among other information from borrowers, may expose lenders to liability under the California Unruh Civil Rights Act. It further states that this provision of the MLA could unnecessarily burden many segments of California’s immigrant communities.

    State Issues State Legislation Military Lending Act Department of Defense Safe Harbor

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  • Diagnostic Test Manufacturer Settles FCPA Violations With SEC for $13 Million

    Financial Crimes

    On September 28, the SEC announced that a diagnostic test manufacturer had settled a variety of FCPA books and records and internal control allegations stemming from its sales practices in Africa, Asia, and Latin America, including the failure to improperly characterize and record payments made to government officials in Columbia and India. In concluding the more than two year investigation, the company agreed to pay a civil monetary penalty of $9.2 million, and disgorgement and interest of approximately $3.8 million. As part of the settlement agreement, the company did not admit or deny the SEC’s findings of fact. As discussed in a previous FCPA Scorecard post, the DOJ announced in March 2016 that it is also investigating the company’s foreign sales practices. That investigation is ongoing. 

    Ongoing FCPA investigations can of course have costly business implications beyond reputational damage; the ongoing FCPA investigation of the company appears to have taken a toll, likely playing a role in the reduced price paid by a global healthcare company in April 2017 to acquire the company.

    Financial Crimes SEC FCPA

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  • Financial Industry Groups Sue the CFPB Over Arbitration Rule

    Courts

    On September 29, the U.S. Chamber of Commerce (Chamber) and other financial industry groups joined together to file a lawsuit in a Texas District Court against the CFPB over the constitutionality and legality of the Bureau’s arbitration rule (rule). The complaint alleges four reasons why the rule is invalid and should be set aside:

    • the rule is a product of the unconstitutional structure of the CFPBas covered in a previous InfoBytes, a similar argument is being heard in the U.S. Court of Appeals for the D.C. Circuit in the case brought by PHH;
    • the CFPB failed to follow procedures in the Administrative Procedures Act (APA) in adopting the conclusions of a flawed arbitration study. Specifically, the complaint alleges that the study improperly limited public participation, applied flawed methodologies, misunderstood relevant data, and did not address key considerations;
    • the rule is a model of arbitrary and capricious agency action because it fails to take into account important aspects of the problem it is attempting to address and runs counter to the record before the Bureau; and
    • the rule is a violation of the Dodd Frank Act because it fails to advance the public interest or consumer welfare.

    Currently, the rule is also under scrutiny by Congress. As previously discussed in InfoBytes, the House passed a disapproval resolution, under the Congressional Review Act, to repeal the rule. A similar measure is set for discussion in the Senate.

    Buckley Sandler will follow up with a more detailed summary of the lawsuit.

    Courts CFPB Litigation Arbitration Consumer Finance

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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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