On May 26, The CFPB and the Federal Reserve will host a 60-minute webinar to answer questions with respect to the TILA-RESPA Integrated Disclosure rule under the TILA and RESPA, also known as TRID. “This fifth and final in the planned series of webinars will address specific questions related to rule interpretation and implementation challenges that have been raised to the Consumer Financial Protection Bureau by creditors, mortgage brokers, settlement agents, software developers, and other stakeholders,” according to the Federal Reserve. For those interested in attending, registration is required and can be accessed here.
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 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 The EGRPRA requires the Agencies and the FFIEC to review and identify outdated, burdensome, or unnecessary regulations at least every 10 years.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.
On March 23, the Federal Reserve and the Office of the Comptroller of the Currency – both non-parties in the suit – filed briefs requesting that a district court reject a motion to compel discovery of over 30,000 documents held by a large bank. Arguing that the documents contain confidential supervisory information, the regulators asserted the bank examination privilege – “a qualified privilege that protects communications between banks and their examiners in order to preserve absolute candor essential to the effective supervision of banks.” As for scope, the regulators argued that the privilege covers the documents because they provide agency opinion, not merely fact, and that any factual information was nonetheless “inextricably linked” with their opinions. Additionally, they contended that the privilege is not strictly limited to communications from the regulator to the bank – instead, it may also cover communications made from the bank to the regulator and communications within the bank. As for procedure, the regulators claimed that a plaintiff is required to request the disclosure of privileged documents through administrative processes before seeking judicial relief, a requirement they contend exists even where a defendant bank also holds copies of the documents. Finally, the regulators argued in the alternative that the lead plaintiff has not shown good cause to override the qualified privilege, as the interests of the government in protecting the supervisory information outweighs the interest of the plaintiffs in production.
On March 16, the Federal Reserve Board issued a proposal seeking public comment that would require all banking organizations with existing Legal Entity Identifiers (LEIs) to report their respective LEIs on regulatory reporting forms beginning June 30, 2015. Because an LEI is unique to a single legal entity, requiring disclosure of the LEI would enable regulators to facilitate information sharing and coordination on domestic financial policy, rulemaking, examination, reporting requirements, and enforcement actions
On March 12, the New York DFS issued a consent order against a Germany-based global bank for alleged Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance violations that occurred between 2002 and 2008. According to the DFS’s press release, certain bank employees were selected “to manually process Iranian transactions — specifically, to strip from SWIFT payment messages any identifying information that could trigger OFAC-related controls and possibly lead to delay or outright rejection of the transaction in the United States.” The DFS also alleges that the bank’s New York branch failed to implement proper BSA/AML compliance thresholds, allowing certain alerts regarding suspicious transactions to be excluded. Under the terms of the consent order, the bank must pay a $1.45 billion penalty, to be distributed as follows: $610 million to the DFS; $300 million to the U.S. Attorney’s Office for the Southern District of New York; $200 million to the Federal Reserve; $172 million to the Manhattan District Attorney’s Office; and $172 million to the U.S. DOJ. Additionally, the order requires that the bank “terminate individual employees who engaged in misconduct, and install an independent monitor for Banking Law violations in connection with transactions on behalf of Iran, Sudan, and a Japanese corporation that engaged in accounting fraud.”
On March 3, Federal Reserve Chair Janet Yellen delivered remarks to the Citizens Budget Commission regarding actions that the Federal Reserve has taken to strengthen its supervision of large financial institutions in the wake of the recent financial crisis. In her remarks, Chairwoman Yellen highlighted five regulatory changes, including (i) higher capital standards, (ii) higher liquidity requirements, (iii) implementation of stress tests, (iv) required submission of living wills, and (v) in cooperation with the FSOC, the Fed’s enhanced authority to promote the resiliency and stability of the financial system in addition to the safety and soundness of individual institutions.
On March 5, researchers from the Federal Reserve Bank of Richmond released an essay highlighting the decline in the formation of new banks since the financial crisis. According to the essay, new bank formation has fallen from an average of approximately one hundred per year since 1990 to about three per year since 2010. The researchers cited increased banking regulations, the low interest rate environment, and a weak economic recovery as contributing factors for the low rate of new bank startups.
On March 3, the Senate Banking Committee will hold a hearing entitled, “Federal Reserve Accountability and Reform.” The hearing comes after Dallas Fed President Richard Fisher’s February 13 remarks on the growing concern regarding the Federal Reserve’s current governance structure. Additionally, Senator Rand Paul’s (R-KY) “Audit the Fed” proposed legislation has brought increased attention to the transparency of the Federal Reserve operations and monetary policy. Scheduled witnesses for the hearing include Dr. John B. Taylor of Stanford University and Dr. Paul Kupiec of American Enterprise Institute.
On February 18, three federal banking agencies – the Federal Reserve Board, OCC, and FDIC – issued a joint notice seeking public comments on a proposed information collection form and its reporting requirements, FFIEC 102 – “Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule.” If finalized, market risk institutions will be required to file the proposed FFIEC 102 to allow the agencies to, among other things, assess “the reasonableness and accuracy of the institution’s calculation of its minimum capital requirements . . . and . . . the institution’s capital in relation to its risks.” The proposed FFIEC 102 sets forth reporting instructions for financial institutions to which the market risk capital rule applies, and specifies that reporting requirements would take effect starting March 31, 2015. Comments to the proposal must be submitted on or before March 20.
On February 11, Richard W. Fisher, outgoing President of the Federal Reserve Bank of Dallas, delivered remarks before the Economic Club of New York in New York City. In his remarks, he outlined four proposals to address concerns regarding the Fed’s independence and of critics who feel too much authority is concentrated in the New York Fed. His four proposals: (i) Rotate the Vice Chairmanship of the FOMC (currently the NY Fed President is the FOMC’s permanent vice-chair); (ii) supervise and regulate systemically important financial institutions (SIFIs) by Federal Reserve Bank staff from a district other than the one in which the SIFI is located; (iii) grant Federal Reserve Bank Presidents an equal number of votes as Fed Governors, with each getting six votes, and this would replace the current system where the NY Fed gets a permanent vote and the remaining 11 Reserve Banks get four votes, with Cleveland and Chicago voting every two years and the remaining Reserve Banks voting every three years; and (iv) require the Chair of the Federal Reserve hold a press conference after every FOMC meeting. Currently, the Chair holds a press conference every quarter.
On February 10, officials from federal and state banking authorities – the Fed, FDIC, NCUA, OCC, and the CSBS – testified at a U.S. Senate Banking Committee on ways the agencies can provide “regulatory relief” to community banks and credit unions, which disproportionately incur burdens to implement the rules and provisions of the Dodd-Frank Act. Specifically, officials from each of the federal banking agencies detailed current initiatives and proposals that would provide less burdensome compliance costs.
On January 15, the Federal Reserve and the FDIC issued a joint press release making available the public sections of resolution plans of firms with less than $100 billion in qualifying nonbank assets. The Dodd-Frank Act requires that certain banking institutions periodically submit resolution plans to the Federal Reserve and the FDIC describing the bank’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company. The public portions of these “living wills” are available on the Federal Reserve and FDIC websites.
On January 6, President Obama announced his intent to nominate Allan R. Landon to serve on the Board of Governors of the Federal Reserve System. If confirmed by the U.S. Senate, Landon would serve out the remaining term of former Fed Governor Sarah Bloom Raskin, who departed to become Deputy Secretary of Treasury. Previously, Landon was a partner at Ernst & Young LLP and served as Chairman and CEO of Bank of Hawaii Corporation.