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Regulatory Update - March 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.

We thank you for your interest in Grant Thornton.

INDUSTRY NEWS
March 30, 2016 – OCC Reports 2015 Fourth Quarter Decline in Bank Trading Revenue
The Office of the Comptroller of the Currency’s (OCC) Quarterly Report on Bank Trading and Derivatives Activities indicates a decline in bank trading revenue for the fourth quarter of 2015. The report states that trading revenue of U.S. commercial banks and savings associations fell to $4.3 billion in the fourth quarter of 2015, down from $5.3 billion in the previous quarter. The OCC also reported a decline in the notional amount of derivatives held by insured U.S. commercial banks, a result of industry efforts to eliminate offsetting trades rather than a reduction in trading activity.
Read the full OCC press release here>>

March 30, 2016 – OCC Reports Improvement in Mortgage Performance Through Fourth Quarter of 2015
The most recent quarterly report on mortgages released by the OCC notes that the performance of first-lien mortgages improved during the fourth quarter of 2015 compared with a year earlier. The OCC Mortgage Metrics Report, Fourth Quarter 2015, showed 94.1 percent of mortgages included in the report were current and performing at the end of the quarter, compared with 93.9 percent a quarter earlier. The report also showed that foreclosure activity has steadily declined since the end of 2013, with roughly 64,000 new foreclosures initiated during the fourth quarter of 2015, compared with over 75,000 a year earlier.
Read the full OCC press release here>>

March 29, 2016 – FRB Chair Discusses the Federal Open Market Committees Economic Forecast for 2016
The Federal Reserve Board (FRB) Chair Janet Yellen discussed the Federal Open Market Committees (FOMC) economic forecast for 2016 at the Economic Club of New York in New York, New York.  Chair Yellen noted that the FOMC anticipates only gradual increases in the federal funds rate over the coming years, highlighting the risks to the outlook for economic activity, inflation and monetary policy.  She warned that the guidance should be taking only as a forecast, and that ultimately monetary policy will respond to the economy to promote the employment and inflation goals as assigned by Congress.
Read the full speech here>>

March 23, 2016 – OFR Releases Private Fund Form and Hedge Funds Working Paper
The Office of Financial Research (OFR) has released a working paper which examines the precision of Private Fund Form (Form PF) in measuring the risk hedge funds pose to the financial system. Hedge funds and other private funds now file Form PF with the Securities and Exchange Commission. The paper finds that options significantly weaken the risk-measurement tolerances in Form PF.
Read the full OFR Working Paper here>>

March 22, 2016 – CFPB Reports High Rate of Debt Collection Complaints From Servicemembers and Their Families
The Consumer Financial Protection Bureau (CFPB) has released an annual report from the Office of Servicemember Affairs highlighting complaints submitted in 2015 and CFPB enforcement actions that directly impacted the military community. The report found that servicemembers have been submitting debt collection complaints to the CFPB at nearly twice the rate of non-military consumers. In addition the report highlights CFPB enforcement actions that returned over $5 million to servicemembers and their families in 2015.
Read the full CFPB press release here>>

March 18, 2016 – FDIC Vice Chairman Speaks at Conference on Supervising Large Complex Financial Institutions
Federal Deposit Insurance Corporation (FDIC) Vice Chairman Thomas Hoenig, recently spoke at the Federal Reserve Bank of New York, Conference on Supervising Large Complex Financial Institutions. Vice Chairman Hoenig discussed three elements necessary in ensuring success with the bank supervisory process. First, he suggested, commercial banking firms of all sizes, including the largest, should be subject to full-scope examinations. Second, because banks—especially the largest banks—have an outsized effect on the economy, should be required to disclose important supervisory findings that serve to better inform the public regarding their financial condition. Third, supervisors must recognize their limits and insist that banking firms hold sufficient capital to backstop management mistakes and simply bad luck.
Read the full FDIC press release here>>

March 17, 2016 – OCC Announces New Senior Executives for Bank Supervision and Compliance
Comptroller of the Currency, Thomas J. Curry, announced the appointment of new senior executives at the OCC. Grace Dailey will become Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner and Grovetta Gardineer will fill the newly created position of Senior Deputy Comptroller for Compliance and Community Affairs.
Read the full OCC press release here>>

March 9, 2016 – Tennessee Commissioner Appointed to FFIEC State Liaison Committee
The Federal Financial Institutions Examination Council (FFIEC) announced the appointment of Tennessee Commissioner Greg Gonzales to the Council's State Liaison Committee. Commissioner Gonzales’s SLC nomination was confirmed by the Conference of State Bank Supervisors (CSBS), to complete a partial term vacancy created by the resignation of Lauren Kingry. Commissioner Gonzales is the 18th commissioner of the Tennessee Department of Financial Institutions. His term will continue through March 31, 2017.
Read the full FFIEC press release here>>

March 8, 2016 – Counterparty Credit Concentrations and Systemic Losses Research Released by OFR
Using data from Depository Trust & Clearing Corporation, the OFR applied the Federal Reserve's supervisory stress test scenarios to examine the impacts on banks, and the banking system as a whole, from default of their largest counterparties in the credit derivatives markets.  The working paper demonstrates the effects of the default, both indirect and direct, against the bank's other counterparties and the bank itself.  Findings indicate higher loss concentrations for the banking system than for individual firms and potential large indirect losses when a major counterparty defaults.
Read the full OFR working paper here>>

March 7. 2016 – Comptroller of the Currency Discusses Global Financial Regulation, Cybersecurity, and Money Laundering Risks
Comptroller of the Currency, Thomas J. Curry, discussed global financial regulation during his remarks at the Institute of International Bankers’ Annual Conference.  The Comptroller highlighted the importance of international cooperation as well as efforts in the United States to improve cybersecurity and fight against money laundering. During the speech, Comptroller Curry also reiterated the agency’s expectations and role in banks’ process of reevaluating risk.
Read the full OCC press release here>>

March 7, 2016 – FDIC Chairman Addresses Ongoing Recovery of U.S. Banking Industry and Cross-Border Cooperation Efforts
In a statement during the Institute of International Bankers’ (IIB) annual Washington conference, FDIC Chairman Martin Gruenberg, Chairman, FDIC, addressed two primary issues: (1) the ongoing recovery of the U.S. banking industry, and (2) the substantial progress that has been made to foster cross-border cooperation among the major jurisdictions of the world on the resolution of systemically important financial intuitions.
Read the full FDIC press release here>>

March 7, 2016 – FRB Governor Presents Update on 2016 Economic and Financial Developments
At the IIB’s annual Washington Conference held in Washington, D.C., Federal Reserve Governor Lael Brainard presented an update on the economic and financial developments following the start of 2016. Governor Brainard noted that "as a result of the capital and liquidity regulations already in place as well as the associated stress tests, the eight most systemic U.S. banking organizations are now holding $800 billion more in high-quality liquid assets than they were in 2011 and $500 billion more in common equity capital than they were in 2008." Governor Brainard stressed the need to create a resilient financial system, taking action to ensure no banking institution is too large or complex to fail.  She discussed the importance of the Comprehensive Capital Analysis and Review (CCAR) stress-testing framework and the proposed Total Loss-Absorbing Capacity rule, including comments received by the FRB both from U.S. and international banks.
Read the full FRB speech here>>

March 7, 2016 – CFPB Accepting Complaints on Consumer Loans from Online Marketplace Lenders
The CFPB announced it is accepting complaints from consumers encountering problems with loans from online marketplace lenders. The CFPB is also released a consumer bulletin that provides an overview of marketplace lending and outlines tips for consumers who are considering taking out loans from these types of lenders.
Read the full CFPB press release here>>

March 3, 2016 – NCUA Reports Nationwide Growth in Loans and Deposits
The National Credit Union Administration (NCUA) reported that median growth rates for loans, assets, and shares and deposits at federally insured credit unions were positive in all states in 2015. Overall, share and deposit accounts at federally insured credit unions increased $65.2 billion, or 6.9 percent, from the end of the fourth quarter of 2014. Nationwide, median loan growth in federally insured credit unions was 4.0 percent during the year ending in the fourth quarter of 2015. Median asset growth was 3.3 percent, while median growth in shares and deposits was 3.6 percent.
Read the full NCUA press release here>>
Read the full NCUA press release here>>

March 1, 2016 – FTC Releases Annual Summary of Consumer Complaints
Debt collection, identity theft and imposter scams were the most common categories of consumer complaints received by the Federal Trade Commission’s (FTC) Consumer Sentinel Network in 2015, according to the agency’s new data book. The book, produced annually using complaints received by the FTC’s Consumer Sentinel Network, includes not only complaints made directly by consumers to the FTC, but also complaints received by state and federal law enforcement agencies, national consumer protection organizations and non-governmental organizations. The data book includes both national statistics as well as a state-by-state listing of top complaint categories in each state and a listing of states and metropolitan areas that generated the most complaints per capita.
Read the full FTC press release here>>

March 1, 2016 – CFPB Monthly Complaint Snapshot Examines Prepaid Complaints
The latest monthly consumer complaint snapshot released by the CFPB highlights consumer complaints about prepaid products. The report shows that consumer complaints about prepaid products spiked in recent months as an increased number of customers complained of being frozen out of their accounts. This month’s snapshot also highlights trends seen in complaints coming from Texas and the Houston metro area. As of February 1, 2016, the CFPB has handled approximately 811,700 complaints across all products.
Read the full CFPB press release here>>

REGULATORY GUIDANCE
March 23, 2106 – CFPB Issues Advisory and Report for Financial Institutions on Preventing Elder Financial Abuse
The CFPB issued a report providing an in-depth look at financial exploitation, case scenarios, and detailed recommendations to prevent and respond quickly to abuse. According to the CFPB, older consumers are attractive targets for financial abuse because they may have significant assets or equity in their homes and usually have a regular source of income such as Social Security or a pension. They may also be especially vulnerable due to isolation, cognitive decline, physical disability, or other health problems. In recent studies, about 17 percent of seniors reported that they have been the victim of financial exploitation, but few cases ever come to the attention of protective services.
Read the full CFPB press release here>>

March 22, 2016 – Interim Rule Broadens Qualified Mortgage Coverage of Lenders Operating in Rural and Underserved Areas
The CFPB issued an interim final rule that broadens the availability of certain special provisions for small creditors that operate in rural or underserved areas. The new rule, which takes effect March 31, 2016, implements Congress’s recent legislation, the Helping Expand Lending Practices in Rural Communities (HELP) Act, that allowed more small creditors operating in rural or underserved areas to take advantage of these provisions.
Read the full CFPB press release here>>

March 21, 2016 – Bank Regulatory Agencies Release Guidance on Applying Customer Identification Program to Prepaid Cards
The FDIC, FRB, OCC, NCUA, and the Financial Crimes Enforcement Network (FinCEN) (collectively, the agencies), have published guidance to clarify the applicability of the customer identification program (CIP) regulations implementing Section 326 of the USA PATRIOT Act to prepaid cards. The guidance specifically discusses the treatment under the CIP regulations of prepaid cards issued by banks, savings associations, credit unions, and branches of foreign banks, including cards that are sold and distributed by third parties. The guidance describes when the bank should obtain information sufficient to reasonably verify the identity of the cardholder, including at a minimum, obtaining the name, date of birth, address, and identification number, such as the Taxpayer Identification Number of the cardholder.
Read the full FDIC press release here>>
Read the full FRB press release here>>
Read the full OCC press release here>>

March 16, 2016 – Revised Oil and Gas Exploration and Production Lending Handbook Issued by the OCC
The OCC has issued the “Oil and Gas Exploration and Production Lending” booklet of the Comptroller’s Handbook, replacing the “Oil and Gas Production Lending” booklet issued in April 2014. This booklet provides updated guidance to examiners on the risks inherent in lending to upstream oil and gas exploration and production companies and provides supervisory guidance on prudent risk management of this lending activity. The booklet includes expanded examiner guidance for evaluating exploration and production loans and the impact that these lending activities have on the risk profile and financial condition of national banks and federal savings associations.
Read the full OCC press release here>>

March 15, 2016 – FDIC Adopts Rule to Increase Deposit Insurance Fund to Statutorily Required Level Adopted
The FDIC has approved a final rule to increase the Deposit Insurance Fund (DIF) to the statutorily required minimum level of 1.35 percent. The U.S. Congress, in the Dodd-Frank Wall Street Reform and Consumer Protection Act, increased the minimum for the DIF reserve ratio, the ratio of the amount in the fund to insured deposits, from 1.15 percent to 1.35 percent and required that the ratio reach that level by September 30, 2020. Further, the Dodd-Frank Act also made banks with $10 billion or more in total assets responsible for the increase from 1.15 percent to 1.35 percent.
Read the full FDIC press release here>>

March 10, 2016 – FDIC Releases New Videos on Flood Insurance and Outsourcing Technology Services
As part of the FDIC's Community Banking Initiative and Technical Assistance Video Program, the FDIC announced the release of series of new videos, one on outsourcing technology services and another on flood insurance. The outsourcing technology services video is designed to assist community bank directors and senior management in developing a comprehensive risk-assessment program for vendor management. The series of flood insurance videos provide financial institution management, compliance officers, and staff with resources for better understanding of federal flood insurance laws, regulations, and compliance responsibilities.
Read the full FDIC press release here>>
Read the full FDIC press release here>>

March 8, 2016 – FDIC Publishes a Bank Customer's Guide to Cybersecurity
Consumers increasingly rely on computers and the Internet for everything from shopping and communicating to banking and bill paying. While the benefits of faster and more convenient "cyber" services are clear, the strategies for preventing online fraud and theft may not be as well-known by many bank customers. That is why the FDIC has produced a special edition of the agency's quarterly FDIC Consumer News (Winter 2016) entitled "A Bank Customer's Guide to Cybersecurity.”
Read the full FDIC press release here>>

March 4, 2016 – FDIC, FRB and OCC Issue Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions
The FDIC, FRB, and OCC (the agencies) have released an “Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions.” This advisory describes existing supervisory expectations, guidance, and industry practice for using evaluations instead of appraisals when estimating the market value of real property securing real estate-related financial transactions. During outreach meetings with representatives from the financial industry conducted pursuant to the requirement of the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA), questions were raised about the use of evaluations. The questions focused on when evaluations could be used for real estate-related financial transactions and how to support a market value conclusion when there have been few or no recent comparable sales.
Read the full FDIC press release here>>
Read the full FRB press release here>>
Read the full OCC press release here>>

March 4, 2016 – Bank Regulatory Agencies Issue Frequently Asked Question Capital Treatment for Qualifying Collateralized Debt Obligations Backed by Trust Preferred Securities under the Volcker Rule
The FDIC, FRB, OCC, SEC and the Commodity Futures Trading Commission (the "Agencies") have issued a Frequently Asked Question (FAQ) document to clarify the capital treatment of certain Collateralized Debt Obligations backed by Trust Preferred Securities (TruPS CDO) under section 13 of the Bank Holding Company Act, which implements section 619 of the Dodd-Frank Act, also known as the "Volcker Rule." The Volcker Rule permits a banking entity to retain its interest in a Qualifying TruPS CDO under the interagency interim final rule.
Read the full FDIC press release here>>

March 4, 2016 – FDIC, FRB, and OCC Adopt Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks
The FDIC, FRB, and OCC have jointly adopted interim final rules permitting insured depository institutions (IDIs) with up to $1 billion in total assets and that meet certain other criteria to qualify for an 18-month on-site examination cycle instead of a 12-month cycle. The implementation of these rules allows the agencies to better focus supervisory resources on IDIs that present capital, managerial or other issues of supervisory concern, while reducing regulatory burden on small, well-capitalized and well-managed institutions.
Read the full FDIC press release here>>

March 4, 2016 – FRB Proposes Rule to Address Risk Associated with Excessive Credit Exposures to Single Counterparties  
The FRB proposed a rule to address the risk associated with excessive credit exposures of large banking organizations to a single counterparty. The proposal would apply single-counterparty credit limits to bank holding companies with total consolidated assets of $50 billion or more. The proposed limits are tailored to increase in stringency as the systemic footprint of a firm increases. Similarly tailored requirements would also be established for foreign banks operating in the U.S.
Read the full FRB press release here>>

March 2, 2016 – FDIC Issues Guidance Surrounding Abandoned Foreclosures
The FDIC is clarifying supervisory expectations in existing guidance for institutions' risk-management practices for decisions to discontinue foreclosure proceedings after initiating such actions, which are commonly referred to as abandoned foreclosures. Institutions should have appropriate policies and practices pertaining to decisions to discontinue foreclosure actions.
Read the full FDIC press release here>>

March 1, 2016 – Interagency Guidance on Funds Transfer Pricing Related to Contingent Liquidity Risks
The FDIC, FRB, and OCC (collectively, the “agencies”) are jointly issuing the “Interagency Guidance on Funds Transfer Pricing Related to Funding and Contingent Liquidity Risks.” This interagency guidance addresses funding risk and contingent liquidity risk for national banks and federal savings associations with consolidated assets of $250 billion or more.
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
March 30, 2016 – CFPB Halts Student Loan Debt Relief Scam
The CFPB has ordered the student debt relief corporation, Student Aid Institute, Inc., to halt all debt relief services due to its participation in a student loan debt relief scam.  The corporation and its chief executive officer, Steven Lamont, are accused of illegally tricking borrowers into paying fees for federal loan benefits and misrepresenting to consumers an affiliation with the Department of Education. The CFPB has permanently barred the company and Lamont from the debt relief industry.
Read the full CFPB press release here>>

March 24, 2016 – FRB Announces Enforcement Action against New York Branch of Foreign Bank
The FRB issued an enforcement action against the National Bank of Pakistan, including its New York Branch.  The enforcement action notes findings relating to the Branch’s risk management and failure to comply with applicable federal and state laws, rules, and regulations relating to anti-money laundering (“AML”) compliance, including the Bank Secrecy Act (“BSA”).
Read the full FRB press release here>>
Read the enforcement action here>>

March 24, 2016 – NCUA Agrees to $29 Million Offer of Judgment from Bank for Losses Related to Residential-Mortgage Backed Securities
The NCUA has agreed to accept a $29 million offer of judgment from Credit Suisse.  The agreement arises from claims of losses related to purchases of residential mortgage-backed securities by Members United and Southwest corporate credit unions.
Read the full NCUA press release here>>

March 18, 2016 - CFPB Wins Final Judgment Against Company for Illegal Debt-Relief Scheme
At the request of the CFPB, a federal district court entered a final judgment this week against debt relief company Morgan Drexen, Inc., resolving a lawsuit filed by the CFPB in August 2013. The CFPB’s lawsuit against Morgan Drexen alleged that the company charged illegal upfront fees and deceived consumers. The court found that the company violated federal law, prohibited Morgan Drexen from collecting any further fees from its customers, and ordered it to pay approximately $133 million in restitution and a $40 million civil penalty.
Read the full CFPB press release here>>

March 14, 2016 – FTC Bans Scammer from Debt and Mortgage Relief Business
A Court Order obtained by the FTC bans Denny Lake, the final individual defendant in a mortgage modification scam aimed at financially strapped homeowners, from telemarketing and from selling debt relief and mortgage-related products and services. The court order resolves an FTC action brought in April 2015, when the court halted the HOPE Services and HAMP Services scheme that promised consumers help getting their mortgages modified, but instead stole their mortgage payments, leading some to foreclosure and bankruptcy. The court found that Lake violated the FTC’s Mortgage Assistance Relief Services Rule and its Telemarketing Sales Rule.
Read the full FTC press release here>>

March 11, 2016 –  FDIC Reports the First Bank Failure of 2016
North Milwaukee State Bank, Milwaukee, Wisconsin, was closed by the Wisconsin Department of Financial Institutions, which appointed FDIC as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company, Raleigh, North Carolina, to assume all of the deposits of North Milwaukee State Bank.  The failed institution had total assets of $67 million and the loss to the FDIC’s Deposit Insurance Fund is estimated at $9.6 million.
Read the full FDIC press release here>>

March 9, 2016 – Misuse of Sensitive Data Results in Court Order
At the FTC’s, a federal district court has banned seven individuals, Ideal Financial Solutions Inc., and its subsidiaries from collecting or disclosing consumer information.  The defendants reportedly took money from consumers' bank accounts without authorization, using sensitive personal information such as Social Security and bank account numbers located in consumer payday loan applications which the defendants had purchased from data brokers and payday loan websites. The court has imposed a $43million judgment against Ideal Financial Solutions and its subsidiaries, Steven Sunyich, Christopher Sunyich, Michael Sunyich, and Melissa Sunyich Gardner, and a $37 million judgment against Jared Mosher. The court banned Jared Mosher, Steven Sunyich and Christopher Sunyich, from marketing, selling and handling any credit-related products or services. Finally, all defendants were banned from collecting or disclosing consumer account numbers except for transactions expressly authorized by the consumer.
Read the full FTC press release here>>

March 8, 2016 – CFPB Supervision of Banks and Nonbanks Recovers $14.3 Million for Consumers
The CFPB has released its latest supervision report where the exams of banks and nonbanks resulted in the remediation of $14.3 million to approximately 228,000 consumers. In its examinations covering the last months of 2015, the CFPB found violations in the student loan market, including illegal automatic defaults by student loan servicers and illegal garnishment threats by debt collectors performing services for the Department of Education. Examiners also found instances of international money transfer companies violating the CFPB’s new remittance rule, banks providing inaccurate information to credit reporting companies about customer checking accounts, and debt collectors illegally contacting consumers.
Read the full CFPB press release here>>

March 1, 2016 - FRB Issues Enforcement Action Against Korean Bank for Bank Secrecy Act/Anti Money Laundering Violations
The FRB has issued an enforcement action against the Industrial Bank of Korea, including its New York branch. The FRB identified deficiencies relating to the Bank's risk management and failure to comply with federal and state laws, rules, and regulations relating to anti-money laundering (“AML”) compliance, including the Bank Secrecy Act (“BSA”). The enforcement action also sites failure to comply with the requirements of Regulation K of the FRB to report suspicious activity and to maintain an adequate BSA/AML compliance program.
Read the full FRB press release here>>
Read the full enforcement action here>>

February 25, 2016 – OCC Assesses $2.5 Million Civil Money Penalty Against Financial Institution for Bank Secrecy Act/Anti-Money Laundering Violations
The OCC has assessed a $2.5 million civil money penalty against Gibraltar Private Bank and Trust Company, Coral Gables, Florida, for violations of the Bank Secrecy Act. The OCC found that the bank engaged in violations of beginning in 2010 when it failed to maintain an effective Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. The Bank consented to a Cease and Desist Order October 15, 2010, later updated on October 16, 2014, requiring the Bank to update its policies, procedures, and systems related to its BSA/AML compliance program.
Read the full OCC press release here>>

GRANT THORNTON ANNOUNCEMENTS
Auditing Risk Culture*
Regulators are increasing their focus on how an organization’s culture impacts their risk-taking practices. As a result, financial institutions are under more scrutiny to ensure they have robust governance frameworks, including policies, procedures and processes, in place to manage risks appropriately and in accordance with the organization’s risk appetite. Regulators are expecting internal audit departments to include auditing risk culture in their audit plans and report to the board and executive management the results of such audit activities.

Grant Thornton’s Internal Audit Center of Excellence offers advisory services to assist internal audit departments in this effort.  We can help your institution create a defined plan and framework for auditing risk culture with internal audit results that are clear and that can be assessed within auditable entity areas or business processes, as well as across your organization. Please do not hesitate to contact Grant Thornton for an exploratory conversation to discuss how we may be able to help you assess your institution’s risk culture.

*The article described above is attached 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.