Recently, the Conference of State Bank Supervisors (CSBS) published its 2015 Annual Report to provide an overview of its activities and initiatives in 2015. The report highlights that, throughout 2015, state regulators (i) increased coordination and collaboration between state regulators and other stakeholders, including federal regulators and Congress; (ii) developed research and analytical tools, such as risk profiling tools to assist with the examination selection process, as well as tools to address emerging non-depository regulatory issues; (iii) developed “right-sized” policy solutions for an ever-changing financial services industry, acknowledging that “community banks play a vital and necessary role in [the] diverse financial services ecosystem”; and (iv) provided education and training for examiners and supervisors, noting that “more than 1,000 examiners from 43 agencies representing 41 states had been certified through the CSBS Certification Program.” Importantly, the report notes that cybersecurity remains a “major issue facing the financial services industry.” In an effort to encourage executive leadership and raise awareness, CSBS launched the Executive Leadership of Cybersecurity (ELOC) initiative, which emphasizes that cybersecurity is “more than a ‘back office’ issue, but an executive issue that requires CEO and Board level attention.”
The Conference of State Bank Supervisors (CSBS) and the Multi-State Mortgage Committee (MMC) issued a report to state regulators regarding its 2015 review of the supervisory structure around examination and risk assessment of non-bank mortgage loan servicers. Notable servicing examination findings outlined in the report include: (i) violations and deficiencies related to loan transfer activity, noting that a “significant portion of servicing examination findings are tied to the mortgage servicing requirements implemented into the [RESPA] and [TILA] in January of 2014”; (ii) ineffective oversight of sub-servicer activity and insufficient third party vendor management; and (iii) ineffective examination management procedures on the part of mortgage servicers, leading to delayed examination processes, as well as impeded regulatory oversight. The report further outlines origination examination findings, emphasizing RESPA violations related to Mortgage Servicing Agreements (MSAs) which typically include payments for promotional advertising services performed on behalf of the mortgage company. Read more…
On May 9, the OCC updated its Comptroller’s Handbook to include a new booklet titled “Student Lending.” Despite banks having to alter their private student lending strategies as a result of the 2008 financial crisis, the OCC’s booklet maintains that banks can still benefit from the wider array of consumer products and the broader business model that the private student lending industry offers. The new booklet contains information related to banks’ participation in the private student lending industry, including, but not limited to:
- Inherent credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation risks in the industry.
- Unique aspects of private student loans, such as the “significant time lag between loan advances and repayment, and the student borrower’s lack of certainty in finding a stable, reliable primary source of repayment after graduation.”
- Regulatory expectations for safe and sound operations, cautioning that banks should adhere to the credit underwriting and documentation standards as stated in 12 CFR 30, appendix A, “Safety and Soundness Standards.”
- Risk management practices, reminding banks that use third parties to market, solicit, or originate private student loans to have in place risk management frameworks that include due diligence in selecting third parties, written contracts that have been vetted for duties, obligations, and responsibilities of all parties (compensation parameters included), and ongoing monitoring and quality assurance programs.
On April 29, the FFIEC updated its IT Examination Handbook, revising its Retail Payment Systems booklet to include an Appendix E, Mobile Financial Services. The Retail Payment Systems booklet consists of guidance intended to help examiners evaluate financial institutions’ and third-party providers’ management of risks associated with retail payment systems. Appendix E is designed to address risk management associated with mobile financial services (MFS): “Appendix E contains guidance pertaining to [MFS] risks that supplements existing booklet guidance on other retail payment topics, such as electronic payments related to credit cards and debit cards, remote deposit capture and changes in technology or retail payment systems.” Appendix E outlines risk management practices for the following MFS technologies: (i) short message service/text messaging; (ii) mobile-enabled web sites and browsers; (iii) mobile applications; and (iv) wireless payment technologies. In addition to MFS technologies, Appendix E also addresses management strategies related to (i) risk identification; (ii) risk measurement; (iii) risk mitigation; and (iv) monitoring and reporting.
On April 19, the Federal Reserve issued a letter announcing a new off-site loan file review program available to banking institutions with less than $50 billion in total assets. According to the letter, recent technological advancements, i.e. secure data transmission and electronic file imaging, allow the Federal Reserve to collect and review loan file information off-site “without compromising the effectiveness of the examination process.” To determine if the off-site loan review program is appropriate for an institution, the Federal Reserve will consider the following: (i) if the institution uses a secure transmission method to submit the loan file data; (ii) if the institution can provide loan data and imaged documents that are legible, easily viewable, and properly organized; and (iii) if the loan files are sufficiently comprehensive, allowing examiners to reach a conclusion regarding the appropriate rating of a credit without requesting additional information. Regarding adjustments to the examination process of an off-site loan review, the letter cautions that examiners will need to allocate sufficient time before an examination begins to ensure loan file data was successfully transmitted to the Reserve Bank, and communicate with institutional management throughout the examination process. Finally, the letter discusses the scope of the off-site examination process verses that of an on-site examination process, noting that (i) certain portions of examination work will remain off-site regardless of whether the institution is participating in the new off-site program; and (ii) at examiners’ discretion, Reserve Banks “may hold either off-site or on-site discussions with the institution’s management regarding preliminary loan review findings such as the appropriateness of individual credit ratings assigned by [a state member bank or foreign banking organization] and the completeness of credit file documentation.”