The Department of Education is set to propose new regulations which could change how financial institutions provide services on college campuses, according to a NPRM to be published in the Federal Register on May 18. The new rules, part of a nearly 300-page “Program Integrity and Improvement” package, are intended to among other things (i) ensure that students have convenient access on their Title IV funds, (ii) do not incur unreasonable and uncommon financial account fees, and (iii) are not led to believe they must open a particular account from a financial institution to receive Federal student aid. The proposed regulations also update other provisions in the cash management regulations, clarify how previously passed coursework is treated with respect to Title IV funds eligibility, and streamline the requirements for converting clock hours to credit hours. Public comments on the proposed rulemaking will be due 45 days after date of publication in the Federal Register.
DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets
On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.
On May 12, FDIC Chairman Martin Gruenberg delivered remarks at the American Association of Bank Directors (AABD)-SNL Knowledge Center Bank Director Summit. In his prepared remarks, Gruenberg discussed, among other things, (i) the role of bank directors with respect to the safety and soundness of the U.S. banking system, particularly the importance of an effective corporate governance framework within community banks, and (ii) current challenges facing the boards of community banks, citing strategic and cyber risk as the most pressing. Of significant importance, Gruenberg provided information concerning community bank directors’ professional liability in regard to the banking regulator’s supervisory expectations, reminding that as receiver for a failed bank, the FDIC has the authority to bring legal action against professionals, including bank directors, for their role in a bank’s failure. BuckleySandler’s David Baris serves as President of AABD.
On May 21, the FDIC’s Division of Depositor and Consumer Protection is scheduled to host a teleconference that will focus on the implementation of the new mortgage rules issued by the CFPB in 2013. According to the FDIC, officials from the banking regulator will discuss findings and highlight best practices that its examiners have noted during initial examinations in the first year since the rules became effective in 2014. Registration is required, and will begin at 2:00 p.m. EST.
FinCEN Recognizes Law Enforcement Agencies For Use of BSA Data, Holds First-Ever Law Enforcement Awards Ceremony
On May 12, FinCEN held its first-ever Law Enforcement Awards, recognizing law enforcement agencies that made effective use of BSA data in criminal investigations which lead to a successful prosecution. The awards were presented in six different categories: (i) SAR Review/Task Force; (ii) Third Party Money Launderers; (iii) Transnational Organized Crime; (iv) Cyer Threats; (v) Significant Fraud; and (vi) Transnational Security Threats. In prepared remarks, FinCEN Director Jennifer Shasky Calvery noted the importance of BSA data to the financial industry, stating that the data is used to confront serious threats to the U.S. financial system including massive fraud schemes, cyberthreats, foreign corruption, drug trafficking, and terrorist organizations.
On May 4, OCC Comptroller Thomas J. Curry delivered remarks at the third outreach meeting held under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) in Boston. Acknowledging that smaller banks lack compliance resources as compared to larger institutions, Curry noted that the agency is working with the FFIEC to remove the outdated and onerous regulatory requirements currently imposed on the institutions: “If it is clear that a regulation is unduly burdensome, and if we have the authority to make changes to eliminate that burden, we will act.” With respect to regulatory requirements that call for legislative action, Curry emphasized that the agency is working with Congress to eliminate the unnecessary burdens. In this regard, the agency has presented lawmakers with three specific proposals to remove regulatory burden on smaller banks: (i) raise the asset threshold from $500 million to $750 million so that a greater number of community banks qualify for the 18-month examination cycle; (ii) provide a community bank exemption from the Volcker Rule; and (iii) provide greater flexibility to federal savings associations to change and expand their business strategies without changing their governance structure.
On April 27, the Conference of State Bank Supervisors (CSBS) announced that three working groups of state regulators – the State Coordinating Committee (SCC), the Multi-State Mortgage Committee (MMC), and the Multi-State MSB Examination Task Force (MMET) – issued annual reports to state regulators regarding their 2014 operations and progress. Responsible for information sharing and examination work with the CFPB, the SSC report outlines the two agencies’ 9 joint examinations. The MMC – established as the “oversight body for multi-state mortgage supervision” in 2008 – is responsible for coordinated, multi-state mortgage exams, and its report covers the 6 joint mortgage examinations conducted with the CFPB in 2014. Finally, the MMET supervises the money services businesses; its report highlights 57 examinations conducted jointly with the CFPB in 2014.
DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty
On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities – $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.
The DOJ released a statement regarding a plea agreement made with a former loan officer of the Export-Import Bank. According to the DOJ, the former loan officer accepted bribes totaling over $78,000 in exchange for providing favorable action on loan applications. From June 2006 through December 2013, the former loan officer managed the review of credit underwriting for companies and lenders submitting financing applications to the Export-Import Bank and admitted to recommending the approval of unqualified loan applicants on 19 different occasions. In addition, the former loan officer also pleaded guilty to improperly expediting the process of certain applications. The sentencing hearing is scheduled for July 20, 2015.
On April 21, the United States Court of Appeals for the Tenth Circuit upheld the dismissal of a bank shareholders’ suit against a bank holding company – and its officers and directors – for breach of fiduciary duty. Barnes v. Harris, No. 14-4002 WL 1786861 (10th Cir. Apr. 24, 2015) The shareholders had filed a derivative suit in 2012 against the officers and directors of the bank holding company after the bank failed in 2010 and was placed into FDIC receivership. The FDIC filed a motion to intervene in the suit, which was granted. Upon a bank’s failure, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) states the FDIC owns “all rights, titles, powers, and privileges of the [bank], and any stockholder … of such [bank] with respect to the [bank] and the assets of the [bank].” The applicability of FIRREA to a derivative suit against a failed bank’s holding company in this court was a question of first impression and the Tenth Circuit agreed with the Fourth, Seventh, and Eleventh Circuits who have all concluded FIRREA gives the FDIC sole ownership of shareholder derivative claims and state law must be used to determine if the claims are derivative. In this case, though the shareholders were alleging harm to the holding company, all of that harm was due to the failure of the bank, which was the holding company’s only asset. The claims were found to be derivative, with the exception of a poorly pleaded fraud complaint that belonged solely to the holding company, and the district court’s dismissal of all claims was affirmed.
On April 22, the Financial Conduct Authority (FCA) fined a subsidiary of U.S.-based bank approximately £13 million ($19.8 million) for (i) improperly reporting more than 35 million various client transactions, ranging from the identity of counterparties to the trading times of such transactions; and (ii) failing to report an additional 121,000 transactions over a seven-year period. According to the final notice issued by the FCA, many of the reporting issues were self-reported to the British regulator.
CSBS Announces $5.2 Million Multi-State Enforcement Action Against Maryland-Based Mortgage Lender To Resolve Allegations Of Misconduct Relating To Continuing Education And Testing Of Mortgage Loan Originators
On April 13, the Conference of State Bank Supervisors (“CSBS”) announced a settlement agreement and consent order following a coordinated enforcement action launched by 43 states against a non-bank mortgage lender after finding that the lender’s mortgage professionals shared test information from mandatory compliance examinations and the lender’s compliance staff routinely completed continuing education and examination requirements for other employees. The case developed after state financial regulators in New Hampshire and Maryland discovered the misconduct and reported it to the Multi-State Mortgage Committee (“MMC”)—a group composed of state regulators charged with supervising mortgage lenders that operate in multiple states—which opened an investigation. Joined by 41 other states, the settlement agreement also found that many of the lender’s employees dishonestly completed continuing education requirements for other employees, including the mortgage lender’s chief executive officer and chief operating officer. The settlement agreement and consent order issued by the MMC for the breach of these duties included the imposition of a $5.2 million fine and commanded the removal and replacement of the lender’s chief operating officer. The agreement also ordered the lender to (i) prepare a comprehensive plan of improved corporate governance policies approved by the lender’s parent’s board of directors within 270 days, with a follow-up reported to the MMC on implementation of the plan required 270 days later, and (ii) hire an independent auditor to evaluate the lender’s training and education program. The same mortgage lender was also subject to a different and unrelated enforcement action in February 2015. The CFPB recently imposed a $2 million penalty against the lender for deceptive marketing practices and paying kickbacks to customer referrals.
On April 14, the OCC issued the “Real Estate Settlement Procedures Act” booklet as part of the Comptroller’s Handbook, which is prepared for use by OCC examiners in connection with their examination and supervision of national banks and federal savings associations (collectively, “banks”). The revised booklet, which replaces a similarly titled booklet issued in October 2011, reflects updated guidance relating to mortgage servicing and loss mitigation procedures resulting from the multiple amendments made to Regulation X over the past several years. Notable revisions reflected in the revised booklet include: (i) the transfer of rulemaking authority for Regulation X from HUD to the CFPB; (ii) new requirements relating to mortgage servicing; (iii) new loss mitigation procedures; (iv) prohibitions against certain acts and practices by servicers of federally related mortgage loans with regard to responding to borrower assertions of error and requests for information; and (v) updated examination procedures for determining compliance with the new servicing and loss mitigation rules. The OCC notified its applicable supervised financial institutions of the changes affecting all banks that engage in residential mortgage lending activities by distributing OCC Bulletin 2015-25.
On April 6, the Federal Reserve, OCC, and FDIC (Agencies) revealed that their ongoing regulatory review under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) will now be expanded to include recently issued regulations. The EGRPRA requires the Agencies and the FFIEC to review and identify outdated, burdensome, or unnecessary regulations at least every 10 years. The regulators have held two public outreach meetings with additional outreach sessions currently scheduled for May 4 in Boston, August 4 in Kansas City, October 19 in Chicago, and concluding on December 2 in Washington, D.C.
On April 6, three prudential banking regulators – the Federal Reserve, OCC, and FDIC – issued interagency guidance to clarify and answer questions from regulated financial institutions with respect to the regulatory capital rule adopted in 2013. The FAQs address various topics, including (i) the definition of capital; (ii) high-volatility commercial real estate exposures; (iii) other real estate and off-balance sheet exposures; (iv) separate account and equity exposures to investment funds; (v) credit valuation adjustment; and (vi) the definition of a qualifying central counterparty.