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Regulatory Update - November 2015

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Grant Thornton’s monthly Regulatory Update tracks key regulatory news and enforcement activity within the financial services industry so you can stay informed about the impact of current events on your business.

We thank you for your interest in Grant Thornton.

INDUSTRY NEWS
November 24, 2015 - FRB Announced Enhanced Supervision of Large and Complex Banking Organizations
The Federal Reserve Board (FRB) announced that it is implementing several recommendations to enhance the supervision of large and complex banking organizations. The recommendations were developed after an extensive review of Reserve Board procedures for supporting consistent and sound supervisory decisions as well as methods used by Reserve Banks to resolve differing staff opinions related to the supervision of large and complex firms.
Read the full FRB press release here >>

November 24, 2015 - CFPB Monthly Complaint Snapshot Examines Bank Account and Service Complaints
The Consumer Financial Protection Bureau (CFPB) released its latest monthly consumer complaint snapshot, highlighting bank account and service complaints. The report shows many consumers are experiencing problems opening and managing accounts, while other consumers found their accounts closed without explanation. Debt collection, credit reporting and mortgage continue to top the list of areas with the highest volume of complaints.  Consumer complaints involving prepaid cards showed the largest percentage increase from the 2014 to 2015 reporting period.
Read the full CFPB Complaint Snapshot here >>

November 24, 2015 - FDIC-Insured Institutions Earn $40.4 Billion in Third Quarter 2015
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.4 billion in the third quarter of 2015, up $1.9 billion (5.1 percent) from a year earlier. The increase in earnings was mainly attributable to a $3.2 billion decline in noninterest expenses, as itemized litigation expenses at large banks were $2.7 billion lower than a year ago. Financial results for the third quarter of 2015 were also included in the FDIC's latest Quarterly Banking Profile. Chairman of the FDIC, Martin J. Gruenberg, noted that while the banking industry had another positive quarter, there are signs of growing interest-rate risk and credit risk that warrant attention.
Read the full FDIC press release here >>

November 20, 2015 – FRB Governor Addresses Treasury Markets and Debt Management
At the 2015 Roundtable on Treasury Markets and Debt Management: Evolution of Treasury Market and Its Implications held this month in New York, Federal Reserve Governor Jerome Powell discussed the importance of the Treasury Market structure.  The Governor encouraged panelists to discuss, develop and evaluate structural innovations to the current market structure which could provide greater or more stable liquidity.
Read the full speech here>>

November 19, 2015 - FRB Continues Testing of Term Deposit Facility
The FRB plans to continue its previously announced periodic testing of the Term Deposit Facility (TDF) with one operation in December. These test operations are aimed at ensuring the operational readiness of the TDF and providing eligible institutions with an opportunity to maintain familiarity with term deposit procedures. TDF test operations are a matter of prudent planning and have no implications for the near-term conduct of monetary policy.
Read the full FRB press release here >>

November 18, 2015 - FDIC Chairman Addresses Orderly Liquidation of Large, Complex, Systemically Important Financial Institutions
At The Clearing House Annual Conference in New York on November 18, 2015, FDIC Chairman Martin J. Gruenberg discussed the progress the FDIC has made in developing a framework under the Dodd-Frank Act for the orderly failure of a large, complex, systemically important financial institution while avoiding the taxpayer bailouts and the market breakdowns that took place during the recent financial crisis.
Read the full FDIC press release here >>

November 13, 2015 – Banking Agencies Announce Final Outreach Meeting to Address Outdated or Unnecessary Regulations
The federal banking agencies will hold an outreach meeting on December 2, 2015, at the FDIC in Arlington, Virginia, as part of their regulatory review under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).  The meeting is the sixth and final in a series of outreach sessions that the FDIC, the FRB, and the Office of the Comptroller of the Currency (OCC) have held throughout the country. The meeting will feature panel presentations by bankers and consumer and community groups.  
Read the full FRB press release here >>

November 11, 2015 - FRB Announces Annual Indexing of Reserve Requirement Amounts
The FRB announced the annual indexing of two amounts used in determining reserve requirements of depository institutions.  These amounts are the reserve requirement exemption amount and the low reserve tranche. These annual adjustments, known as the low reserve tranche adjustment and the reserve requirement exemption amount adjustment, are based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2014 and June 30, 2015.
Read the full FRB press release here >>

November 5, 2015 – FDIC Vice Chairman Addresses Post-Crisis Risks and Bank Equity Capital
In a speech at the Annual International Banking Conference at the Federal Reserve Bank of Chicago, FDIC Vice Chairman Thomas M. Hoenig discussed the need to implement further changes in order to prevent another financial crisis.  Hoenig stated that there is need for either better risk prediction controls within global banks or the demand of higher equity capital requirements in order to promote stability.
Read the full speech here >>

November 5, 2015 - Shared National Credits Review Notes High Credit Risk and Weaknesses Related to Leveraged Lending and Oil and Gas
According to an annual review of large shared credits released by federal banking agencies, credit risk in the Shared National Credit (SNC) portfolio remains at a high level. This year’s review found that banks are making progress in aligning their underwriting practices with the leveraged lending guidance issued by regulators in 2013. However, the review highlighted continuing gaps between industry practices and the expectations for safe and sound banking.
Read the full OCC press release here >>

November 4, 2015 – Testimony by FRB Chair
FRB Chair Janet Yellen spoke before the Committee on Financial Services at the U.S. House of Representatives regarding the agency's regulation and supervision of financial institutions. Yellen discussed how the FRB has transformed its regulatory and supervisory approach based on lessons learned from the financial crisis, shifting its focus to regulating in a manner that promotes the stability of the financial system as a whole.
Read the FRB press release here >>

November 3, 2015 - CFPB Recovers $107 Million in Relief for More Than 238,000 Consumers Through Supervisory Actions
The CFPB released its latest supervision report outlining the illegal practices uncovered by CFPB examiners from May 2015 to August 2015. The Bureau found violations in the student loan servicing, mortgage origination and servicing, consumer reporting, and debt collection markets. The report shows that CFPB supervisory actions resulted in $107 million in relief to more than 238,000 consumers.
Read the full CFPB press release here >>

November 2, 2015 – Comptroller of the Currency Highlights Increasing Credit Risk
Comptroller of the Currency Thomas J. Curry discussed increasing credit risk facing the federal banking system.  The Comptroller made these remarks during the Risk Management Associations’ Annual Risk Management Conference in Boston, Massachusetts.  Leveraged lending, which accounts for approximately one quarter of the SNC portfolio, remained a focus of the banking agencies. The review also noted an increase in weakness among credits related to oil and gas exploration, production, and energy services following the decline in energy prices since mid-2014.
Read the full OCC bulletin here >>

REGULATORY GUIDANCE
November 25, 2015 - Agencies Announce Dollar Thresholds in Regulations Z and M for Exempt Consumer Credit and Lease Transactions
The FRB and the CFPB announced the dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) that will apply for determining exempt consumer credit and lease transactions in 2016. These thresholds are set pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amendments to the Truth in Lending Act and the Consumer Leasing Act that require adjusting these thresholds annually based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the Federal Reserve Board and the CFPB will not adjust this exemption threshold from the prior year. Transactions at or below the thresholds are subject to the protections of these regulations.
Read the full CFPB press release here >>

November 24, 2015 - FRB Proposes Rule Concerning Disclosure of Liquidity Profiles
The FRB has proposed a rule requiring large banking organizations to publicly disclose several measures of their liquidity profile. Under the proposed rule, large banking organizations would be required to disclose their consolidated liquidity coverage ratios (LCR) each quarter based on averages over the prior quarter. Firms would also be required to disclose their consolidated high-quality liquid assets (HQLA) amounts, broken down by HQLA category. Additionally, firms would be required to disclose their projected net cash outflow amounts, including retail inflows and outflows, derivatives inflows and outflows, and several other measures. Comments on the proposal will be accepted through February 2, 2016.
Read the full FRB press release here >>

November 20, 2015 - CFPB Alerts Companies About Obtaining Consumer Authorization For Recurring Auto Debits
The CFPB issued a bulletin alerting companies that they must obtain authorization before automatically debiting a consumer’s account. The bulletin also reminds companies that they are required by law to provide notifications to consumers that clearly describe the terms of preauthorized auto debits. In addition, the Bureau is publishing action letters today for consumers seeking to revoke a company’s authorization to auto debit an account.
Read the full CFPB bulletin here>>

November 19, 2015 - FRB Plans to Redistribute Unclaimed Funds from Independent Foreclosure Reviews
The FRB announced a plan to redistribute unclaimed funds under the Independent Foreclosure Review Payment Agreement to eligible borrowers who have cashed or deposited checks.  The plan covers borrowers of mortgage servicers regulated by the FRB. The Independent Foreclosure Review Payment Agreement, overseen by the FRB and the OCC, provided $3.9 billion for borrowers of 14 servicers whose homes were in any stage of the foreclosure process in 2009 or 2010.  As of October 2015, more than $3.5 billion had been cashed or deposited by eligible borrowers.
Read the full FRB press release here >>

November 18, 2015 - SEC Proposes Rules to Enhance Transparency and Oversight of Alternative Trading Systems
The SEC announced it has voted to propose rules to enhance operational transparency and regulatory oversight of alternative trading systems (ATSs) that trade stocks listed on a national securities exchange (NMS stocks), including “dark pools.” The proposal would require an NMS stock ATS to file detailed disclosures on newly proposed Form ATS-N about its operations and the activities of its broker-dealer operator and its affiliates.  These disclosures would include information regarding trading by the broker-dealer operator and its affiliates on the ATS, the types of orders and market data used on the ATS, and the ATS’ execution and priority procedures.
Read the full SEC press release here >>

November 17, 2015 - Minimum FDIC Deposit Insurance Fund Reserve Ratio Requirement
On October 22, 2015, the FDIC Board of Directors approved the attached Notice of Proposed Rulemaking (NPR) to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act: (1) raising the minimum reserve ratio of the Deposit Insurance Fund (DIF) from 1.15 percent to 1.35 percent; (2) requiring that the reserve ratio reach 1.35 percent by September 30, 2020; and (3) requiring that the FDIC offset the effect of the increase in the minimum reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion (small banks). The NPR proposes to surcharge insured depository institutions with total consolidated assets of $10 billion or more (large banks) and grant credits to banks with fewer assets for the portion of their regular assessments that contribute to increasing the reserve ratio from 1.15 percent to 1.35 percent. Comments on the NPR are due January 5, 2016.
Read the full FDIC press release here >>

November 16, 2015 - FDIC Clarifies its Approach to Banks Offering Products and Services, such as Deposit Accounts and Extensions of Credit, to Non-Bank Payday Lenders
The FDIC is reissuing FIL-14-2005, "Payday Lending Programs: Revised Examination Guidance," and its attachment, "Revised Guidelines for Payday Lending," (collectively, the 2005 Payday Lending Guidance) to ensure that bankers and others are aware that it does not apply to banks offering products and services, such as deposit accounts and extensions of credit, to non-bank payday lenders. Financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of business customers or individual customers operating in compliance with applicable state and federal laws.
Read the full FDIC press release here >>

November 6, 2015 - FDIC Guidance on the Capital Treatment of Certain Investments in Covered Funds
The FDIC has issued guidance to FDIC-supervised institutions to clarify the interaction between the regulatory capital rule and the final rule implementing section 13 of the Bank Holding Company Act ("Volcker rule") with respect to the appropriate capital treatment for investments in certain private equity funds and hedge funds.  The Volcker rule prohibits banking organizations from holding ownership interests in covered funds after the relevant conformance period, except for ownership interests arising from sponsoring covered funds totaling less than three percent of tier 1 capital and subject to certain seeding period provisions.  Under the rule, investments in covered funds purchased or acquired after December 31, 2013, must be deducted from tier 1 capital after an initial conformance period that ended on July 21, 2015.
Read the full FDIC press release here >>

November 6, 2015 - OCC Guidance for Compliance With TILA-RESPA Integrated Disclosure Rule
The OCC has provided guidance regarding initial examinations of OCC-supervised institutions for compliance with the Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure Rule. The rule went into effect on October 3, 2015.  During initial examinations for compliance with the rule, OCC examiners are evaluating a bank’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each bank to achieve effective compliance.
Read the full OCC bulletin here >>

November 6, 2015 – FDIC Advisory on Effective Risk Management Practices for Purchased Loans and Purchased Loan Participations
The FDIC issued an Advisory to update information contained in the FDIC Advisory on Effective Credit Risk Management Practices for Purchased Loan Participations (FIL-38-2012). This updated Advisory addresses purchased loans and loan participations and reminds FDIC-supervised institutions of the importance of underwriting and administering these purchased credits as if the loans were originated by the purchasing institution. The updated Advisory also reminds institutions that third-party arrangements to facilitate loan and loan participation purchases should be managed by an effective third-party risk management process.
Read the full FDIC press release here >>

November 5, 2015 – FRB Announces Sixth Triennial Study to Examine U.S. Payments Usage
The FRB announced plans to conduct its sixth triennial study to determine the current aggregate volume and composition of electronic and check payments in the United States. The study builds upon research begun by the FRB in 2001 to provide the public and the payments industry with estimates and trend information about the evolving nature of the nation's payments system. A public report containing initial topline estimates is expected to be published in December 2016.
Read the full FRB press release here >>

November 4, 2015 – Revised OCC Credit Card Lending Booklet
The OCC issued the “Credit Card Lending” booklet of the Comptroller’s Handbook. This revised booklet replaces the “Credit Card Lending” booklet issued in October 1996. The revised booklet also replaces section 218, “Credit Card Lending,” issued in May 2006 as part of the former Office of Thrift Supervision Examination Handbook for the examination of federal savings associations (FSA). The revised booklet incorporates national bank and FSA statutes and regulations, guidance, and examination procedures. The booklet also provides updated guidance to examiners on assessing and managing the risks associated with credit card lending activities.
Read the full OCC press release here >>

October 30, 2015 – SEC Adopts Rules to Permit Crowdfunding
The SEC adopted final rules to permit companies to offer and sell securities through crowdfunding.  The SEC also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings.  The new rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections. Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects.  Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities.
Read the full SEC press release here >>

October 30, 2015 – Agencies Finalize Swap Margin Rule
Five federal agencies have issued a final rule to establish capital and margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants regulated by one of the agencies ("covered swap entities"), as required by the Dodd-Frank Act. The final rule, issued by the Farm Credit Administration (FCA), the FDIC, the Federal Housing Finance Agency (FHFA), the FRB, and the OCC, establishes minimum margin requirements for swaps and security-based swaps that are not cleared through a clearinghouse. The margin requirements help ensure the safety and soundness of swap trading in light of the risk to the financial system associated with non-cleared swaps activity. The final rule will phase in the variation margin requirements between September 1, 2016, and March 1, 2017. The initial margin requirements will phase in over four years, beginning on September 1, 2016.
Read the full FDIC press release here >>
Read the full FRB press release here >>
Read the full OCC press release here >>

RECENT ENFORCEMENT ACTION ACTIVITY
November 20, 2015 – OCC Issues BSA/AML Consent Order
The OCC identified deficiencies in the U.S. Bank’s overall program for Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance. The Bank consented to the issuance of a Consent Cease and Desist Order (“Order”) by the Comptroller of Currency and had begun corrective actions, specifically surrounding its suspicious activity report (SAR) internal controls, independent testing, and training.
Read the full OCC consent order here >>

November 4, 2015 - FTC to Announce Major Law Enforcement Initiative Involving Debt Collection Industry
The FTC hosted a press conference in Washington, DC to announce a major law enforcement initiative involving the debt collection industry. FTC Chairwoman Edith Ramirez, Illinois Attorney General Lisa Madigan, and Minnesota Commerce Department Commissioner Mike Rothman will delivered remarks and answered reporters’ questions.
Read the full FTC press release >>

November 4, 2015 – FRB Issues Civil Money Penalties and Cease & Desist Order for Violations of U.S. Sanctions
The FRB announced a $58 million penalty and consent cease and desist order against Deutsche Bank AG, of Frankfurt, Germany, related to violations of U.S. sanctions. The order requires Deutsche Bank to implement an enhanced program to ensure global compliance with U.S. sanctions administered by the U.S. Department of Treasury's Office of Foreign Assets Control. The FRB found that the firm lacked sufficient policies and procedures to ensure that activities conducted at its offices outside of the United States complied with U.S. sanctions laws and were reported in a timely manner in response to inquiries by the Federal Reserve Bank of New York. The order is being issued in conjunction with an action by the New York State Department of Financial Services for violations of various New York state laws.
Read the full FRB press release >>

November 4, 2015 - FTC and Law Enforcement Crackdown Against Abusive Debt Collectors
The FTC and federal, state, and local law enforcement authorities around the country announced the first coordinated federal-state enforcement initiative targeting deceptive and abusive debt collection practices. Arising out of the Operation Collection Protection initiative, this nationwide crackdown encompasses 30 new law enforcement actions against collectors who use illegal tactics such as harassing phone calls and false threats of litigation, arrest, and wage garnishment. The announcement of these cases brings the total number of actions taken so far this year by the Operation Collection Protection initiative up to 115.
Read the full FTC press release >>

GRANT THORNTON ANNOUNCEMENTS
Preparing for Increased Regulatory Oversight of Prepaid Cards*
As a result of the extended economic downturn and steady growth of a cashless society, the number of prepaid cards continues to increase. Across the U.S., both consumers and financial institutions alike are increasingly turning to prepaid debit cards as an alternative to traditional checking accounts.  Regulators have taken notice of this growing market and are moving to add more regulations that protect against consumers. The CFPB’s Spring 2014 rulemaking agenda included an update on the agency’s plan to issue a proposed rule that strengthens federal consumer protections for prepaid card products.  The proposed rule, which is expected to be finalized in the near future, will focus on many aspects of prepaid cards including adequate disclosure of fees and terms to consumers, the costs and benefits of providing limited liability protection in cases of theft, and examining how prepaid cards can help consumers build credit. Grant Thornton issued a thought leadership piece exploring the rise of prepaid cards, offering guidance to help prepare your institution to properly respond to existing regulation and prepare for future changes.

* Download the article described above for your reference.

Thank you again for your continued interest in Grant Thornton’s monthly Regulatory Update. To discuss challenges impacting your business – or industry developments in general – please contact us to schedule a conversation.