On November 13, the OCC, the FDIC, and the Federal Reserve announced that the final outreach meeting to review regulations under the Economic Growth and Regulatory Paperwork Reduction Act will be held on December 2 at the FDIC’s headquarters in Arlington, VA. In addition to panel presentations by bankers, consumer groups and community groups, the following persons are scheduled to attend the meeting: FDIC Chairman Martin J. Gruenberg; OCC Comptroller Thomas J. Curry; Federal Reserve Governor Daniel K. Tarullo; DC Department of Insurance, Securities and Banking’s Acting Commissioner, Stephen C. Taylor; and the Virginia Bureau of Financial Institution’s Commissioner, E. Joseph Face, Jr.
On November 19, the Federal Reserve announced a plan to redistribute unclaimed funds from the Independent Foreclosure Review Payment Agreement (Agreement). Under the Agreement, borrowers whose homes were in any state of the foreclosure process in 2009 or 2010 received payment from Federal Reserve -regulated servicers, resolving allegations of improper mortgage servicing and foreclosure practices. The Fed’s recently announced plan gives borrowers who have yet to cash or deposit their original check until December 31, 2015 to request a replacement check; all checks must be deposited by March 31, 2016. In an effort to distribute the maximum amount of funds to borrowers affected by alleged deficient servicing and foreclosure practices, the Federal Reserve will instruct the paying agent company to redistribute the remaining funds after March 31, 2016 to the borrowers who did cash or deposit their original checks.
Federal Reserve and New York DFS Take Action Against Canadian Bank for Deficiencies Relating to AML Compliance
On November 10, the Federal Reserve and the New York DFS announced an enforcement action against a Canadian bank for alleged deficiencies relating to its BSA/AML compliance program. In order to resolve the allegations, the bank agreed to prepare various written policies and procedures, including (i) a written plan that provides for a sustainable governance framework, including improving the management information systems reporting of compliance with BSA/AML requirements, OFAC regulations, and State Regulations; (ii) a revised written BSA/AML compliance program; (iii) a revised written program for conducting customer due diligence; (iv) a written program that ensures that any suspicious activity is timely reported; and (v) a written plan to improve compliance with OFAC regulations. All policies must be submitted for approval within 60 days of the agreement’s issuance date.
On November 4, Federal Reserve Chair Janet Yellen testified before the House Committee on Financial Services. The topic of Chair Yellen’s testimony was “the lessons of the financial crisis and how we have transformed our regulatory and supervisory approach.” She explained that, prior to the crisis, the Fed’s “primary goal was to ensure the safety and soundness of individual financial institutions” and that, since the crisis, the Fed’s aim has been to regulate and supervise “in a manner that promotes the stability of the financial system as a whole.” Yellen went on to explain that the regulatory approaches adopted to address both large financial institutions and companies and community banks have been different. According to Yellen, with respect to the large financial institutions, the Fed’s approach is “oriented toward both the safety and soundness of the individual firms, and the stability of the financial system as a whole.” With respect to community banks, Chair Yellen noted that the Fed’s supervisory approach is risk based: “[i]n supervising these institutions, we follow a risk-focused approach that aims to target examination resources to higher-risk areas of each bank’s operations and to ensure that banks maintain risk-management capabilities appropriate to their size and complexity.”
On November 4, the Federal Reserve and the New York DFS announced a combined $258 million penalty against a global bank for “violations in connection with transactions on behalf of countries and entities subject to U.S. sanctions.” According to the Fed’s cease and desist order, the bank failed to implement adequate risk management and compliance policies and procedures to “ensure that activities conducted at offices outside the United States complied with applicable OFAC Regulations and were timely reported in response to inquiries by the Federal Reserve Bank of New York.” Specifically, the Fed alleged that, from November 2001 to January 2006, foreign offices of the bank processed funds transfers with parties subject to OFAC Regulations through the bank’s New York-based subsidiary and other unaffiliated U.S. financial institutions without having the information necessary to determine that the transactions were consistent with U.S. law. The Fed’s order requires the bank to develop a compliance program that establishes (i) policies and procedures to ensure compliance with applicable OFAC regulations; (ii) an OFAC compliance reporting system; and (iii) requirements for employee training in OFAC-related issues. Under the terms of the DFS consent order, the bank agreed to hire an independent monitor to conduct a comprehensive review of its BSA/AML and OFAC sanctions compliance program, policies, and procedures.
On October 20, the DOJ, OFAC, the NYDFS, the Manhattan District Attorney’s Office, and the Federal Reserve simultaneously announced that a Paris-based investment bank would pay a total of more than $787 million to settle multiple alleged violations of U.S. sanctions regulations. The OFAC settlement resolves allegations that the investment bank and certain predecessor banks, between August 6, 2003 and September 16, 2008, processed 4,055 transactions – for a total of approximately $337,043,846 – to or through U.S. financial institutions that involved countries and/or persons subject to the sanctions regulations administered by OFAC. The investment bank settled with OFAC for more than $329,500,000, an amount that reflects the agency’s consideration of the following aggravating factors: (i) the investment bank had indications that its actions had the potential to constitute violations of the U.S. law before the earliest date of the apparent violations; (ii) several managers of the investment bank were aware of the conduct that led to the violations; (iii) the investment bank’s conduct resulted in significant harm to various sanctions programs OFAC oversees and their associated policy objectives; (iv) the investment bank’s size and sophistication, along with its global presence; and (v) the investment bank’s failure to maintain proper controls to prevent the violations from occurring and otherwise maintain an adequate compliance program. Read more…
On September 28, the Federal Reserve, the FDIC, and the OCC announced that the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) will be held on October 10 in Chicago, Illinois. The meeting will feature panel presentations from industry insiders and consumer advocates. Senior officials from the Federal Reserve, OCC, and FDIC are also scheduled to attend. This meeting will be the fifth of six outreach meetings focused on identifying outdated or burdensome regulatory requirements imposed on financial institutions. The sixth and final meeting is expected to take place on December 2 in Washington, D.C. Previous InfoBytes coverage on EGRPRA can be found here.
Legislation Seeking Better Transparency in Federal Agency Settlements Passes Unanimously in U.S. Senate
On September 21, Senate Bill 1109, the Truth in Settlements Act, passed in the U.S. Senate with amendments by unanimous consent and has now been referred to the U.S. House of Representative’s Committee on Oversight and Government Reform for consideration. Originally introduced in January 2014 and sponsored by Elizabeth Warren (D-MA), the Truth in Settlements Act would require federal agencies to post online, in a searchable format, a list of each covered settlement agreement, criminal or civil, with payments totaling $1 million or more. The list would entail, among other things, (i) the names of the settling parties and the amount each must pay; (ii) a description of the claims each party settled; (iii) whether a portion of the settlement amount is tax-deductible; and (iv) any actions the settling parties must take under the settlement agreement in lieu of payment. If enacted, the bill would require agencies to publicly explain via written statement why confidentiality is justified for certain instances. The bill, co-sponsored by Senators James Lankford (R-OK) and Tammy Baldwin (D-WI), aims to provide greater transparency and oversight regarding settlements reached by federal enforcement agencies.
On September 10, the Federal Reserve announced the appointment of Federal Reserve Bank of Chicago Senior Vice President Todd Aadland as its Payments Security Strategy Leader. Aadland will also continue to serve as a Senior Vice President and Chief Information Officer within the Federal Reserve Bank of Chicago’s Customer Relations and Support Office. In his new role, Aadland will lead the Federal Reserve System’s initiatives to address fraud risk, and promote the safety and security of the U.S. payment system. In addition, Aadland will serve as chairman of the Secure Payments Task Force, a group comprised of more than 170 payments stakeholders representing academia, government, and industry. Aadland’s appointment follows a Federal Reserve announcement naming a Faster Payments Strategy Leader tasked with improving the speed and efficiency of current and emerging payment systems.
Digital Insights & Trends: Regulating Faster Electronic Payments – More Complexity or Improved Consistency?
In January of this year, the Federal Reserve System issued a white paper titled “Strategies for Improving the U.S. Payments System.” The white paper notes that current technological developments (including the widespread availability of high-speed data networks, the ubiquity of mobile devices, and the increasing use of real-time commercial transaction processing) are outpacing the functional ability of the payments system to handle electronic payment authorization and processing. In an effort to develop strategies for addressing this growing gap, the Federal Reserve has established a Faster Payments Task Force (“FPTF”). The FPTF, which had its first meeting in June, seeks to engage a wide range of stakeholders to “identify and evaluate alternative approaches for implementing safe, ubiquitous, faster payments capabilities in the United States.”
A key question raised by such an initiative is this: what should the legal and compliance requirements for a modern electronic payments system include, especially in connection with consumer transactions? Current U.S. regulations for electronic fund transfers form a cumbersome patchwork — the rights and obligations of the parties to the transaction vary by the payment method used, and in some cases may change during the course of the transaction as the payment method is converted from one form to another (for example, the time frames within which a consumer may identify and reverse unauthorized or erroneous payments are often very different, depending on the form of payment).
The Consumer Financial Protection Bureau (“CFPB”), which is participating in the FPTF, has just issued a position paper on “Consumer Protection Principles” for faster electronic payments. The CFPB has identified the following as key elements of the legal and compliance framework: Read more…
On July 30, the Federal Reserve announced the appointment of Sean Rodriguez as its Faster Payments Strategy Leader. Rodriguez serves as a Senior Vice President at the Chicago Federal Reserve Bank. In his new role, Rodriguez will lead the Federal Reserve’s Faster Payments Task Force focusing on improving the speed and efficiency of various current and emerging payment systems. More information related to the Federal Reserve’s efforts to improve the U.S. payment system is available at fedpaymentsimprovement.org.
On July 21, a leading China-based bank agreed to address deficiencies in connection with the BSA/AML risk management and compliance program of its New York branch office. The Agreement, entered into with the Federal Reserve Bank of New York and the New York State Department of Financial Services, requires the bank and its New York branch to (i) enhance the branch’s written BSA/AML compliance program and customer due diligence program; and (ii) develop a written program for the branch that is capable of identifying and reporting suspected violations of law and suspicious transactions to law enforcement and supervisory authorities. In addition, the bank must hire an independent third-party to review the Branch’s U.S. dollar clearing transaction activity “to determine whether suspicious activity involving high-risk customers or transactions at, by, or through the branch was properly identified and reported” to the appropriate federal banking authorities. No civil money penalty was imposed on the bank.
On July 21, the Federal Reserve Board of Governors announced the members of the Faster Payments and Secure Payments Task Force as described in the Strategies for Improving the U.S. Payment System white paper released earlier this year. The committees will advise the Federal Reserve task force chair on meeting agendas, and help prioritize various task force activities, among other payments initiatives. The members include various interest groups representing industry, tech, and government, among others. More information about the task forces and the Fed’s payments improvement initiatives can be found at fedpaymentsimprovement.org.
Federal Reserve Orders Bank Holding Company to Strengthen its Firmwide Risk Management, Cites Capital Planning and Liquidity Risk Deficiencies
On July 7, the Board of Governors announced the execution of an enforcement action against a Boston-based bank holding company over deficiencies identified by the Federal Reserve Bank of Boston concerning the company’s governance, risk management, capital planning, and liquidity risk management operations. Pursuant to the Agreement, within 60 days of its execution the company must submit written plans detailing their efforts to strengthen board oversight of the company’s management and operations, bolster the risk management program, improve capital planning to match the company’s size and complexity, and strengthen liquidity risk management. No civil money penalty was imposed on the company.
Federal Banking Agencies Reveal Location For Latest EGRPRA Outreach Meeting Highlighting Rural Banking Issues
On July 6, federal banking agencies – the Board of Governors, FDIC, and OCC – announced the date and location of the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Scheduled for August 4 at the Federal Reserve Bank of Kansas, the upcoming meeting will examine rural banking issues and will feature remarks from agency officials. This is the fourth of six scheduled outreach meetings around the country focused on identifying newly issued, outdated, or burdensome regulatory requirements imposed on financial institutions.