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Regulatory Update - April 2016

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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.

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INDUSTRY NEWS
April 28, 2016 – CFPB Unveils Student Loan Payback Playbook
The Consumer Financial Protection Bureau (CFPB) has released a Student Loan Payback Playbook, a set of prototype disclosures that outline a path to affordable payments for borrowers trying to avoid student debt distress. The Payback Playbook will be available to borrowers on their monthly bills, in regular email communications from their student loan servicers, or when they log into their student loan accounts and will provide personalized information about repayment options so that borrowers may secure a monthly payment they can afford. Features will include personalized payment options, clear straightforward language, and real-time up-to-date information so that borrowers can stay on top of their payments. The Department of Education and CFPB plan to finalize and implement these disclosures as part of the new vision for serving student loan borrowers.
Read the full CFPB press release here>>

April 26, 2016 – CFPB Monthly Complaint Snapshot Examines Mortgage Complaints  
The Monthly Complaint Report published by the CFPB this month highlights consumer complaints related to mortgages. As of April 1, 2016, the CFPB has received over 223,000 mortgage complaints. The report found that consumers continue to encounter servicing problems related to their mortgages including prolonged loss mitigation, confusion surrounding loan transfers, and lack of communication between servicers and their consumers.
Read the CFPB press release here>>

April 21, 2016 – FDIC Chairman Discusses Cross-Border Cooperation at Eurofi High Level Seminar
Federal Deposit Insurance Corporation (FDIC) Chairman, Martin Gruenberg, discussed the progress made to foster cross-border cooperation on the resolution of systemically important financial institutions at the Eurofi High Level Seminar in Amsterdam, The Netherlands. Mr. Gruenberg provided background into the FDIC’s efforts regarding systemic resolution, focusing in particular on the passing of the Dodd-Frank Act. He spoke of the importance of cross border cooperation between leading world jurisdictions and highlighted the FDIC’s role as an insurer of deposits held in the U.S. banking system.
Read the full speech here>>

April 21, 2016 – FRB Announces Newly Appointed Director of Division of Reserve Bank Operations and Payment Systems
The Federal Reserve Board (FRB) announced the appointment of Matthew Eichner as director of its Division of Reserve Bank Operations and Payment Systems, effective May 1, 2016. Mr. Eichner has served as deputy director of the division since January 2015 and succeeds Louise Roseman, who will serve as senior adviser until her retirement later this year.
Read the full FRB press release here>>

April 20, 2016 – FDIC Chairman Stresses Economic Inclusion at Financial Services Roundtable
At a Financial Services Roundtable held this month in Washington, D.C., FDIC Chairman, Martin Gruenberg, spoke of the importance of economic inclusion and bridging the gap between consumer confidence and the financial system. Mr. Gruenberg’s speech focused on four ways the FDIC plans to achieve that goal: through additional research, the Safe Accounts Initiative, mobile banking and increased financial education.
Read the full speech here>>

April 20, 2016 – CFPB Finds Half of Online Payday Borrowers Rack Up an Average of $185 in Bank Penalties
The CFPB has found that attempts by online lenders to debit payments from a consumer’s checking account add a steep, hidden cost to online payday loans. A report released by the CFPB shows half of online borrowers rack up an average of $185 in bank penalties because at least one debit attempt overdrafts or fails. And one third of those borrowers who get hit with a bank penalty wind up having their account closed involuntarily. The study also found that despite this high cost to consumers, lenders’ repeated debit attempts typically fail to collect payments.
Read the full CFPB press release here>>

April 20, 2016 – OFR Paper Explores the Impact of Unusual News On Forecasting Market Stress
The Office of Financial Research (OFR) has released a working paper investigating how the "unusualness" of news may help anticipate stress in the financial system. Using automated text analysis as a tool for monitoring financial stability, the authors found that negative sentiment extracted from tens of thousands of news articles concerning fifty large financial companies was useful in forecasting stock market volatility. The results indicate that the interaction between measures of “unusualness” (the unlikeliness of consecutive word phrases) and sentiment can predict stock market volatility, both at the company-specific and aggregate level.
Read the full OFR working paper here>>

April 20, 2016 – FRB Chair Releases Statement on Currency Redesign
FRB Chair Janet Yellen released a statement following the U.S. Treasury's currency redesign announcement this month.  Chair Yellen stated "Throughout American history, women have made important contributions to the free and democratic society we enjoy today. I welcome the decision by the Treasury Department to honor these achievements. The Federal Reserve will work with Treasury on a design that also incorporates strong security features to protect worldwide users of U.S. currency."
Read the full FRB press release here>>

April 14, 2016 – FRB Governor Discusses Use of Distributed Ledger Technologies in Payment, Clearing and Settlement
FRB Governor Lael Brainard spoke at the Institute of International Finance Blockchain Roundtable in Washington, D.C. this month, addressing the use of distributed ledger technologies in payment, clearing and settlement. In her speech, Governor Brainard emphasized the importance of developments in the digitization of finance and the need for engagement on the part of policymakers and regulators to facilitate growth while minimizing potential risks. She noted, "it is important to give promising technologies the serious consideration they merit, seek to understand their opportunities and risks, and actively engage in dialogue about their potential uses and evolution."
Read the full FRB press release here>>

April 14, 2016 – FRB Governor Testifies Regarding Trends in Fixed-Income Markets
FRB Governor Jerome Powell testified before the Subcommittee on Securities, Insurance, and Investment, and Subcommittee on Economic Policy, Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.  In his testimony, Governor Powell addressed the trends in fixed-income markets, noting the significant factors driving changes in these markets. These factors include advances in computing and communication technologies, changes in treasury markets and corporate bond markets, and increased regulation.
Read the full testimony here>>

April 13, 2016 – OCC Names Deputy Comptroller for Compliance Risk
The Office of the Comptroller of the Currency (OCC) announced the selection of Donna Murphy to be Deputy Comptroller for Compliance Risk. In this role, Ms. Murphy will oversee development of policy and examination procedures relating to consumer, Bank Secrecy Act and anti-money laundering, and Community Reinvestment Act issues. She will serve as a key advisor to the Committee on Bank Supervision and to the Comptroller of the Currency on compliance and CRA matters. Ms. Murphy will report to Senior Deputy Comptroller for Compliance and Community Affairs Grovetta Gardineer, effective May 1.
Read the full OCC press release here>>

April 7, 2014 – OCC Comptroller Discusses Innovation During Retail Banking Conference
Comptroller of the Currency, Thomas Curry, discussed innovation and its impact on retail banking during an appearance at the American Banker Retail Banking Conference. During his remarks, Mr. Curry presented detail to the agency’s principles for implementing a framework for identifying, understanding, and evaluating financial service innovation affecting the federal banking system.
Read the full OCC press release here>>

April 6, 2016 – FDIC Chairman Discusses Strategies for Long-Term Success at Community Banking Conference
In his speech at the FDIC Community Banking Conference, FDIC Chairman Martin Gruenberg, focused on four key issues for community banks: the business model; supervision; the challenges and opportunities posed by information technology; and the significance of ownership structure and succession planning.  Mr. Gruenberg discussed three areas in which the FDIC plans to continue support of its community banks, including renewed commitment to tailored supervision, updating the FDIC’s technical assistance program, and promoting the creation of de novo community banks.
Read the full speech here>>

April 6, 2016 – FDIC Vice Chairman Proposes Framework for Regulatory Relief at Community Banker Conference
In his remarks to the FDIC Community Banker Conference in Arlington, Virginia, FDIC Vice Chairman Thomas Hoenig set forth his vision for achieving and maintaining long-term regulatory relief.  Mr. Hoenig outlined a legislative framework for regulatory relief, encouraging the community banking industry, through its trade associations and other means, to become ever more strategic and effective as it develops and delivers new products. Mr. Hoenig noted that while regulatory relief is important, “it will not by itself save the community bank model.” Community Banks must learn to adapt to their competition, applying insights and improving offerings in order to achieve continued success.
Read the full speech here>>

REGULATORY GUIDANCE
April 29, 2016 – FFIEC Issue Revised 'Retail Payment Systems' Booklet
The Federal Financial Institutions Examination Council (FFIEC) members have issued a Revised Payment Systems booklet as part of the FFIEC Information Technology Examination Handbook.  The update consists of the addition of a new appendix, Appendix E: Mobile Financial Services.  This new appendix focuses on risks associated with activities and devices for mobile financial services, emphasizing an enterprise-wide risk management approach for effectively managing and mitigating existing and evolving risks. The appendix also includes work program objectives to assist examiners in determining the state of risk and controls at an institution or third-party provider.
Read the full FFIEC press release here>>

April 27, 2016 – OCC Publishes Guidance Concerning Record Maintenance, Retention and Examiner Access
The OCC has issued a bulletin to remind national banks and federal savings associations (collectively, banks) of their obligations related to the maintenance of records, records retention, and examiner access to records. The OCC has become aware of communications technology recently made available to banks that could prevent or impede OCC access to bank records through certain data deletion or encryption features. Use of communications technology in this manner is inconsistent with the OCC’s expectations regarding data retention and availability. The published bulletin reminds banks that the OCC has full and unimpeded access to a bank’s books and records pursuant to its authority, and that communications technology should not be used in a way that limits examiner access to bank records.
Read the full OCC bulletin here>>

April 27, 2016 – FDIC Releases Updated 'Financial Institution Employee's Guide to Deposit Insurance'
The FDIC has released an updated Financial Institution Employees Guide to Deposit Insurance, providing numerous examples for determining deposit insurance coverage for all deposit insurance ownership categories. The Guide is designed primarily as a resource for bank employees to understand the FDIC’s rules and requirements for deposit insurance coverage so that they can assist depositors in understanding FDIC deposit insurance coverage.  The Guide also contains a variety of scenarios regarding formal and informal revocable trusts to address common situations and clarify misconceptions associated with both ownership categories.
Read the full FDIC press release here>>

April 26, 2016 – OCC Comptroller Discusses Proposed Net Stable Funding Rule at FDIC Board Meeting
At a board meeting of the FDIC, OCC Comptroller, Thomas Curry, made a statement approving the proposed Net Stable Funding Rule and signed the proposed rule on behalf of the OCC. The proposed rule would cover depository institutions with more than $250 billion in total consolidated assets or $10 billion in foreign exposure. In addition, the proposed rule would also cover depository institutions with more than $10 billion in total consolidated assets that are subsidiaries of large holding companies, large depository institutions, or certain FSOC-designated non-bank firms.
Read the full OCC press release here>>

April 26, 2016 – FDIC Releases Final Rule on Deposit Insurance Assessments for Small Banks
FDIC Chairman, Martin Gruenberg, released a statement supporting the publication of the final rule regarding deposit insurance assessments for small banks, those with less than $10 billion in assets. The rule, which will become effective July 1, 2016, revises the financial ratios method to be based on a statistical model estimating the probability of failure over three years, updates the financial measures used in the financial ratios method to be consistent with the statistical model and eliminates risks categories for established small banks using the financial ratios methods. The final rule will be used to determine assessment rates for small banks beginning the quarter after the Deposit Insurance Fund reserve ratio reaches 1.15 percent, but no earlier than the third quarter of this year.
Read the full FDIC press release here>>
Read the full FDIC Financial Institution Letter here>>

April 26, 2016 – Bank Regulatory Agencies Issue Joint Notice of Proposed Rulemaking on Incentive-Based Compensation Arrangements
The FDIC, Federal Housing Finance Agency, FRB, National Credit Union Administration, OCC, and SEC have issued a join notice of proposed rulemaking to implement Section 956 of the Dodd Frank Act, prohibiting incentive-based compensation arrangements that encourage inappropriate risks by providing executive officers, employees, directors or principal shareholders with excessive compensation, fees or benefits or which could lead to material financial loss at the institution. The proposed rule uses a tiered approach with three size categories of covered institutions: with $250 billion or more in total assets; Level 2, with $50 to $250 billion; and Level 3, with $1 to $50 billion. All covered institutions would be subject to a basic set of requirements and prohibitions, and more stringent provisions would apply to the two categories of larger institutions.
Read the full FDIC press release here>>
Read the full OCC press release here>>

April 19, 2016 – FRB Implements New Procedures for Off-Site Loan Review Examinations
The FRB has implemented new procedures for examiners to conduct off-site loan reviews for community and small regional banks. State member banks and U.S. branches and agencies for foreign banking organizations with less than $50 billion in total assets can opt to allow FRB examiners to review loan files off-site, during both full-scope or targeted examinations, so long as loan documents can be sent securely and with the required information. This option is being offered as part of the FRB's ongoing efforts to improve efficiency and reduce burden while still maintaining quality supervision.
Read the full FRB press release here>>

April 15, 2016 – SEC Adopts Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants
The SEC has adopted final rules implementing a comprehensive set of business conduct standards and chief compliance officer requirements for security-based swap dealers and major security-based swap participants (security-based swap entities).  The rules implement the business conduct standards and chief compliance officer requirements under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The rules are designed to enhance transparency, facilitate informed customer decision-making and heighten standards of professional conduct to better protect investors.
Read the full SEC press release here>>
Read the final SEC rule here>>

April 13, 2016 – FDIC and FRB Announce Determinations and Provide Feedback on Resolution Plans of Eight Systemically Important, Domestic Banking Institutions
The FDIC and the FRB jointly announced determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important, domestic banking institutions. The agencies have jointly determined that each of the 2015 resolution plans of Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street, and Wells Fargo was “not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code”, the statutory standard established in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The agencies have issued joint notices of deficiencies to these five firms detailing the deficiencies in their plans and the actions the firms must take to address them. Each firm must remediate its deficiencies by October 1, 2016. If a firm has not done so, it may be subject to more stringent prudential requirements.
Read the full FDIC press release here>>
Read the full FRB press release here>>

April 12, 2016 – OCC Releases 'Risk Appetite Statement'
The OCC released its Risk Appetite Statement, which sets boundaries of acceptable levels of risk in key areas of agency operations. The Risk Appetite Statement documents the agency’s overall conservative risk appetite. It also states that the OCC will accept more risk in some areas to remain nimble, and can adapt to the changing needs of supervising national banks and federal savings associations. Agency management and employees will use the statement to evaluate their decisions and actions during the course of overseeing national banks and federal savings associations as well as the execution of agency management functions such as human resources, procurement, and information technology.
Read the full OCC press release here>>

April 7, 2016 – FRB Proposes Amendments to Rule Requiring Companies to Hold Additional Risk-Based Capital
The FRB has proposed technical amendments to its rule requiring global systemically important bank holding companies (GSIBs) to hold additional amounts of risk-based capital. The proposed amendments clarify that GSIBs must continue to calculate their surcharges using year-end data, while their related surcharge data will be reported on a quarterly basis. It also states that these firms are required to compute their surcharge scores using billions of dollars. Lastly, the amendments provide additional information on how GSIBs should calculate their short-term wholesale funding scores, which help to determine their surcharges, during the rule's transition period.
Read the full FRB press release here>>

April 6, 2016 – FDIC Rescinds De Novo Time Period Extension
The FDIC has rescinded Financial Institution Letter (FIL) 50-2009, Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Depository Institutions. The FIL, among other measures, extended the de novo period for newly organized, state nonmember institutions from three to seven years for examinations, capital maintenance, and other requirements. It was issued against the backdrop of an elevated number of newly insured institutions that had either failed or had been identified as problem banks during the financial crisis.
Read the full FDIC press release here>>

April 6, 2016 – FDIC Statement of Policy on Applications for Deposit Insurance Supplemental Guidance Released
The FDIC has issued guidance in the form of supplemental "Questions and Answers" (Q&As) to aid applicants in developing proposals for deposit insurance. The supplemental Q&As, which address business planning, provide additional transparency to the application process and supplement the guidance issued November 20, 2014, through Financial Institution Letter (FIL) 56-2014.
Read the full FDIC press release here>>

April 5, 2016 – FDIC Releases Pocket Guide on Community Bank Corporate Governance
The FDIC issued a special edition of Supervisory Insights, "A Community Bank Director's Guide to Corporate Governance: 21st Century Reflections on the FDIC Pocket Guide for Directors." This special corporate governance edition reviews the Pocket Guide and incorporates more recent guidance and technical resources to help board members effectively fulfill their role and duties.
Read the full FDIC press release here>>

April 1, 2016 – FRB  Finalizes Rule Regarding Types of Assets Big Banks May Hold To Meet Liquidity Needs
The FRB has finalized a rule to include certain U.S. obligation state and municipal securities in the range of assets large banking organizations may use to satisfy regulatory requirements designed to ensure that these banking organizations have the capacity to meet their liquidity needs during a period of financial stress. The liquidity coverage ratio (LCR) requirement adopted by the federal banking agencies in September 2014 requires large banking organizations to hold a minimum amount of high-quality liquid assets (HQLA) that can be readily converted into cash during a 30-day period of financial stress. The final rule allows investment-grade, U.S. general obligation state and municipal securities to be counted as HQLA up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities.
Read the full FRB press release here>>

RECENT ENFORCEMENT ACTION ACTIVITY
April 25, 2016 – CFPB Issues Consent Order Against New Jersey Based Debt Collection Firm
The CFPB issued a consent order against the debt collection law firm Pressler & Pressler, LLP, two of its principal partners, and New Century Financial Services Inc. for filing unfair and deceptive debt collection lawsuits based on weak or nonexistent evidence. The consent order bars the companies and individuals from illegal practices that can deceive or intimidate consumers, such as filing lawsuits without determining if the debts in question were valid. The firm and partners are required to pay $1 million in fines while New Century Financial Services must pay $1.5 million.
Read the full CFPB press release here>>

April 19, 2016 – FRB Executes Cease and Desist Order Against California Bank
The FRB has announced the execution of the enforcement action against CommerceWest Bank, Irvine, California. The FRB identified significant deficiencies in the bank's risk management and compliance with applicable laws, rules and regulations related to anti-money laundering.
Read the full FRB press release here>>
Read the full consent order here>>

April 14, 2014 – FRB Announces Execution of Enforcement Action Against Former Bank Employee
The FRB has announced the execution of the enforcement action against Gentry Parker, a former institution-affiliated party of Security Bank, Tulsa, Oklahoma.  The Consent Order requires Gentry Parker to pay $6,600 in restitution to the Bank for engaging in unsafe, unsound banking practices and breaches of fiduciary duty in connection to his reckless disregard of proper procedures for allocating Bank funds for civic contributions.
Read the full FRB press release here>>
Read the full consent order here>>

April 13, 2016 – OCC Assesses $35 Million Penalty Against Bank for Unfair Billing Practices
The OCC has assessed a $35 million penalty against HSBC Bank USA, N.A., McLean, Virginia.  The bank has also been ordered to identify and make restitution to harmed customers. The OCC found that the bank’s billing practices violated Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair and deceptive acts or practices. The $35 million civil money penalty reflects a number of factors, including the scope and duration of the violations and financial harm to customers from the unfair practices.
Read the full OCC press release here>>

GRANT THORNTON ANNOUNCEMENTS
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