With the beginning of a new year comes new opportunities in the banking and financial fields. These opportunities, however, are not without potential challenges, obstacles and pitfalls. Focused attention on strategy and problem avoidance is more critical than ever.
Join us Tuesday, January 24 for a panel discussion on some of the hot topics in the banking industry. Learn how new regulations will pose significant compliance and operational challenges for your organization and how you can prepare to implement the right steps to avoid complications and scrutiny.
Our presenters will cover critical changes in the market including :
- Strategy and Competition
- Financial Technology
- Regulatory Landscape
- Talent Acquisition and Retention
- Customer Demands
- The Impact of Global Decisions
This program will be presented from various Stinson Leonard Street locations.
Join us in person in the Denver, Kansas City, Minneapolis, St. Louis and Washington, DC offices for this informative event.
Tuesday, January 24
Registration: 8:30 – 9 a.m. (MT) 9:30 – 10 a.m. (CT) 10:30 -11 a.m. (ET)
Program: 9 – 11 a.m. (MT) 10 a.m. – 12 p.m. (CT) 11 a.m. – 1 p.m. (ET)
Lunch reception immediately following in Denver, Kansas City, Minneapolis, St. Louis and Washington, DC.
Stinson Leonard Street
Kansas City [map]
St. Louis [map]
Washington, DC [map]
Written by: P. Michael Campbell
On Friday December 2nd, the Office of the Comptroller of Currency (“OCC”) announced that it would start considering applications for special purpose national bank charters from fintech (financial technology) companies. The OCC believes that providing fintech companies charters will establish a regulatory framework for the fintech industry. As noted by the OCC, a company receiving the special purpose national bank charter will be “held to the same rigorous standards of safety and soundness, fair access, and fair treatment of customers that apply to national banks and federal savings associations.”
In addition to regulation by the OCC, a fintech company receiving a charter could be subject to regulation from other governmental bodies, including the Federal Reserve, Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau.
Any company seeking a special purpose national bank charter is expected to have a well-developed business plan setting forth in “significant detail” the bank’s activities. The plan must also cover the governance structure, capital, liquidity, compliance risk management, financial inclusion and recovery and exit strategies.
SLS is well positioned to advise any company seeking a special purpose national bank charter. SLS has experts in every aspect of the application process and years of experience working with regulatory agencies.
The OCC’s proposal is open for comment until January 15th and is expected to receive many comments as the move has been both applauded and criticized in the financial and banking industry. SLS will continue to monitor any developments with the OCC’s announcement.
Written by: Maria Macoubrie
On November 15, 2016, the Federal Deposit Insurance Corporation (FDIC) released its final rule regarding deposit account recordkeeping (https://www.fdic.gov/news/news/press/2016/pr16101a.pdf) (Final Rule) to help insure prompt access to funds in the event of a bank failure, particularly in large banks with a high number of accounts that use multiple deposit systems, where data aggregation and account identification is otherwise difficult. The Final Rule is effective April 1, 2017. While the Final Rule is designed to apply to institutions with large numbers of deposit accounts, there is some ambiguity with respect to how those accounts should be counted.
The Final Rule applies only to “covered institutions.” A “covered institution” is an insured depository institution that has 2 million or more deposit accounts in two consecutive quarters. There is some uncertainty within the industry whether deposit accounts for prepaid and similar omnibus relationships that (based on previous guidance regarding brokered deposits) have been treated as a single deposit account, should be counted as a single deposit account for purposes of the Final Rule. The FDIC failed to respond to several comments requesting clarification of this particular issue. This issue will continue to be a top question raised by several industry groups to the FDIC as the effective date looms closer.
The Final Rule requires a covered institution to configure its information technology system to be capable of performing the following tasks within 24 hours of the FDIC being appointed as a receiver: (a) accurately calculating deposit insurance coverage for each deposit account; (b) generating output records in the specified format and layout; (c) restricting access to some or all of the deposits in a deposit account until the FDIC has made a deposit insurance determination using the covered institution’s technology system; and (d) debiting from the deposit account the uninsured amount.
The Final Rule includes both general and alternative recordkeeping requirements. The general recordkeeping requirements are robust and include unique identifying information to determine ownership rights. The alternative recordkeeping requirements apply where the covered institution does not maintain the account holder data itself. Under the alternative recordkeeping requirements, the covered institution need only maintain the unique identifier of the account holder and a file code designating the account type as set forth in the File Rule. In cases where the covered institution is able to use the alternative recordkeeping requirements, the covered institution must certify to the FDIC that the account holder for the omnibus account will provide to the FDIC the information needed for the covered institution’s information technology system to calculate deposit insurance coverage as required within 24 hours after the appointment of the FDIC as receiver.
To the extent the “account holder” is a program manager or other party that maintains records on large numbers of persons that have pass-through FDIC deposit insurance, the Final Rule could present a regulatory risk to covered institutions if those account holders are not prepared to comply with the very specific and detailed recordkeeping requirements imposed by the Final Rule.
Not less than 10 business days after a covered institution becomes subject to the Final Rule, it must notify the FDIC of the person(s) responsible for implementing the recordkeeping and information technology system capabilities required by the Final Rule.
Covered institutions must certify compliance (meeting specific certification requirements) before the effective date and then annually thereafter.
In addition, the FDIC has the right to audit compliance beginning the first calendar quarter following the effective date and every three years thereafter (more frequently if there is a particular risk).
The Final Rule also contains several provisions to request temporary relief from the Final Rule. It also grants the FDIC the right to expedite the effectiveness of the Final Rule for certain covered institutions.
Written by: Lindsay Harden
Ever since the establishment of the Consumer Financial Protection Bureau (CFPB) in 2011, it has become what some argue is the most powerful federal agency in history. The Dodd-Frank Act not only established the CFPB, but transferred to it rulemaking authority previously held by seven different federal agencies, resulting in a significant concentration of power and giving the agency authority over nearly every type of financial product and service in the financial marketplace. Yesterday, that power was curtailed – to some extent – by the federal Court of Appeals for the D.C. Circuit.
In its opinion, the Court of Appeals noted that the Director of the CFPB, Richard Cordray, possesses more unilateral authority than any single commissioner or board member in any other independent agency in the U.S. government. The director alone decides what rules to issue, how to enforce those rules, when to enforce, against whom to enforce, and what sanctions and penalties to impose. Additionally, Dodd-Frank provided that the director can be removed only “for cause.” As a result, the director has an enormous amount of influence over American business, American consumers, and the overall U.S. economy, yet is accountable to no one – neither Congress nor the president.
The challenge the court considered was brought by PHH Corporation, a mortgage lender that argued the single-director model was unconstitutional and sought a shut-down of the entire agency. The court opted, however, for a more narrow approach, striking the phrase “for cause” from the Dodd-Frank provision concerning the grounds for removal of the agency’s director. Thus, the director can now be removed by the president at will; a solution, the court reasoned, that will provide the critical check on the agency which was previously lacking.
The court also made another important finding in its decision, related to whether CFPB administrative actions are limited by statutes of limitations. The agency has repeatedly argued in the past that its administrative enforcement actions are not subject to statutes of limitations, meaning that it could theoretically bring an administrative action based on conduct occurring at any time in the past. However, the court rejected this argument and held that CFPB enforcement actions, whether brought as administrative actions or in court, are subject to the applicable statutes of limitations found within the underlying consumer protection laws the agency enforces.
It is unclear whether this decision will prompt other, more material changes in the agency’s structural organization and regulatory approach. Although the director may now be removed at will, he still holds all the same rulemaking and enforcement power as before. For example, the CFPB administrative appeals process is still heavily weighted in the agency’s favor, as each action brought by the director initially must then be appealed to him before becoming eligible for judicial review.
Though the agency will not be going away in the near future, this change does provide some ability to manage the director’s extraordinary power, at least in the short term. An appeal to either the full D.C. Court of Appeals or to the U.S. Supreme Court is expected, which could (if the case is reversed) return the CFPB back to its status quo, with virtually unlimited power and influence.
For additional information on this case, please see our Dodd-Frank.com blog post.
CFPB Reissues Guidance on Supervised Bank and Non-Bank Relationship with Third-Party Service Providers
Written by: George Sand
On October 31, 2016, the Bureau of Consumer Financial Protection (“CFPB”) reissued Bulletin 2012-03 (Service Providers) to clarify certain aspects of the risk management program for service providers. The intention behind the release is to clarify that appropriate risk management can be accomplished through giving flexibility to supervised entities.
The CFPB expects supervised banks and non-banks to properly provide oversight to their respective service providers to ensure compliance with Federal consumer financial law and to prevent consumer harm. Section 1002(26) of the Dodd-Frank Act (12 U.S.C. 5481(14)) defines a service provider as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” The fact that a supervised bank or non-bank enters into a relationship with a service provider does not mean such bank or non-bank is absolved from liability for the service provider’s product. The supervised bank or non-bank may be liable for its service provider’s unfair, deceptive, or abusive acts or practices towards consumers. Circumstances triggering supervised bank or non-bank liability include a service provider’s unfamiliarity with legal requirements applicable to the product provided, inadequate efforts to implement such requirements carefully and effectively, and insufficient internal controls, among others. Title X authorizes CFPB to exercise enforcement authority over supervised service providers, which includes the ability of CFPB to examine supervised service provider operations on site.
Under the reissued bulletin, the CFPB clarifies that a supervised bank or non-bank risk management program may vary depending on the service being performed. Factors taken into consideration include the service’s size, scope, complexity, importance and potential for customer harm. The CFPB provides that supervised banks and non-banks should take the following steps with service providers:
- Conduct a thorough due diligence to ensure service provider has the requisite knowledge and capacity to comply with Federal consumer financial law;
- Review the service provider’s policies, procedures, internal controls, and training materials to ensure they provide for appropriate operations and oversight;
- Draft contractual provisions with the service provider that provide “clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices”;
- Establish internal controls and monitoring procedures for surveillance of the service provider to ensure service provider is abiding by Federal consumer financial law; and
- “Promptly” react to identified problems, including terminating the relationship when necessary.