Community Banks – Week in Review
Cybersecurity and FinTech were the subjects of the most important releases over the past several days. The banking agencies published an ANPR on cybersecurity standards for the largest banking firms – which, as always, would have some trickle-down effect on smaller banks – and FinCEN issued an advisory on SARs for cyber crime. On the FinTech front, the CFPB issued a report and the Director delivered a speech that were somewhat surprisingly enthusiastic about FinTech. We quote the speech extensively below.
The full set of developments over the past week includes:
- "Why Are Interest Rates So Low? Causes and Implications," remarks of Federal Reserve Vice Chairman Fischer at the Economic Club of New York (Oct. 17).
- "That the actual federal funds rate has to be so low for the Fed to meet its objectives suggests that the equilibrium interest rate--that is, the federal funds rate that will prevail in the longer run, once cyclical and other transitory factors have played out--has fallen."
- Low growth rate attributable to slowing pace of innovation, rising fraction of population entering retirement, increase in aggregate household saving, weak investment, and developments abroad.
- "One development that would boost the equilibrium interest rate would be a further waning in the investor precaution that seems to have been holding back investment--in Keynesian terms, an improvement in animal spirits." Also, an expansionary fiscal policy.
- Remarks available at http://www.federalreserve.gov/newsevents/speech/fischer20161017a.htm.
- FDIC releases National Survey of Unbanked and Underbanked Households (Oct. 20).
- Number of unbanked households fell to 7% in 2015 from 7.7% in 2014.
- 20% of U.S. households were underbanked in 2015.
- 36.9% of households reported online banking as their primary method for accessing a bank account compared to 28.2% relying on bank tellers.
- 9.5% of households reported relying on mobile banking as their primary method for accessing a bank account, up from 5.7 percent in 2013.
- Use of prepaid cards by households increased to 9.8% from 7.9%.
- Survey results available at https://www.economicinclusion.gov/.
- FinCEN issues Advisory to Financial Institutions on Cyber-Events and Cyber-Enabled Crime and related FAQs (Oct. 25).
- Advisory covers SARs on cyber crime, inclusion of cyber-related information in SARs, collaboration to identify suspicious activity, and sharing of information among financial institutions.
- Advisory FIN-2016-A005 and FAQs available at https://www.fincen.gov/news/news-releases/fincen-issues-advisory-financial-institutions-cyber-events-and-cyber-enabled.
- Banking agencies release ANPR on enhanced cyber risk management standards for banking firms with more than $50 billion in assets, other systemically important entities, and for their service providers (Oct. 19).
- Five categories of standards: cyber risk governance, cyber risk management, internal dependency management, external dependency management, and incident response.
- Higher standards for systems that provide key functionality to the financial sector.
- Next step will be issuance of a proposed rule.
- ANPR available at http://www.federalreserve.gov/newsevents/press/bcreg/20161019a.htm
- Comment deadline: Jan. 17, 2017.
- FFIEC and OCC issue FAQs on Cybersecurity Assessment Tool (Oct. 17).
- FFIEC FAQs are for banks.
- OCC FAQs are for OCC examiners and are in addition to the FFIEC FAQs.
- FFIEC FAQs available at http://www.ffiec.gov/cybersecurity.htm.
- OCC FAQs available in Bulletin 2016-34, https://occ.gov/news-issuances/bulletins/2016/bulletin-2016-34.html.
- Media reports that OCC will release FinTech report tomorrow.
- CFPB releases Project Catalyst report: Promoting consumer-friendly innovation (Oct. 24).
- Project Catalyst created to promote consumer-friendly innovation.
- CFPB programs discussed include:
- Trial disclosure waiver policy – pilot testing of new disclosure approaches.
- No-action letter policy – reduce regulatory uncertainty for innovative products that promise significant consumer benefits.
- Research pilot programs with several companies.
- Marketplace innovations discussed in Report:
- Expanded access to credit.
- Safe access by consumers to their financial records.
- Improved cash-flow management.
- Increased options for student loan refinancing.
- Modernized mortgage servicing platforms.
- Improved credit reporting.
- Improved peer-to-peer money transfers.
- Support of consumer savings.
- Report available at http://www.consumerfinance.gov/data-research/research-reports/project-catalyst-report-promoting-consumer-friendly-innovation/.
- Remarks of CFPB Director Cordray at Money 20/20 (Oct. 23).
- "We have come to believe that FinTech can help provide people with more value and better service, as well as the fairness and protection that the law requires."
- "We feel an affinity for those seeking to harness new technologies to better serve customers since we ourselves are a new agency. We are committed to being data-driven, and we have adopted innovative approaches to fulfill our mission."
- "We will continue to … encourage innovation that drives the financial system to deliver even more value to consumers."
- "Some of the most exciting consumer-friendly innovations bring new products to those who had been locked out or underserved, whether or not they join the banking system. General-purpose reloadable prepaid cards and new forms of prepaid accounts provide the functionality to address people’s fundamental financial needs."
- "Computer-enabled data mining can lead to better understanding of the financial patterns of the underserved – their inflows and outflows and how they find ways to manage the gaps. This approach could open up opportunities to fashion brighter futures that benefit not only them, but the rest of us as well, thereby strengthening the economy as a whole."
- "Among the products that interest us are tools that help people better manage their finances and automatic or motivational savings tools that help them build rainy day funds for emergencies. We are also interested in services that help consumers smooth volatile incomes, avoid overdrafts, or reduce reliance on expensive short-term credit."
- "We have met with a number of innovators that seek to expand access to credit by looking to alternative forms of data and newer methods -- such as machine learning -- of analyzing this data to assess creditworthiness."
- "Many exciting products we see through the lens of Project Catalyst depend on consumers permitting companies to access their financial data from financial providers with whom the consumer does business. We recognize that such access can raise various issues, but we are gravely concerned by reports that some financial institutions are looking for ways to limit, or even shut off, access to financial data rather than exploring ways to make sure that such access, once granted, is safe and secure."
- "Let me state the matter as clearly as I can here: We believe consumers should be able to access this information and give their permission for third-party companies to access this information as well. In the Dodd-Frank Act, Congress likewise stated that, subject to regulations issued by the Bureau, consumers should be able to access information maintained by a financial provider about the consumer’s use of their products. Congress also specified that the information “shall be made available in an electronic form usable by consumers.” We look forward to productive engagement with all stakeholders on this topic to find solutions that put consumer interests first."
- SEC to hold forum on financial technology innovation in the financial services industry on Nov. 14 in Washington DC.
- Forum designed "to foster greater collaboration and understanding among regulators, entrepreneurs and industry experts into Fintech innovation and evaluate how the current regulatory environment can most effectively address these new technologies."
- Agenda not yet available.
- Announcement available at https://www.sec.gov/news/pressrelease/2016-195.html.
- Opening remarks on Government Securities Settlement by Federal Reserve Governor Powell at The Evolving Structure of the U.S. Treasury Market: Second Annual Conference (Oct. 24).
- Discussion of settlement structure for U.S. government securities.
- JPMorgan Chase to exit the business of settlement services; only Bank of New York Mellon will remain.
- BNYM to be held to standards of important financial market utilities, as well as those of systemically important banks.
- Remarks available at http://www.federalreserve.gov/newsevents/speech/powell20161024.htm.
- "Prioritizing Regulatory Enhancements for the U.S. Treasury Market," keynote address by SEC Chair White at The Evolving Structure of the U.S. Treasury Market: Second Annual Conference (Oct. 24).
- Address available at https://www.sec.gov/news/speech/white-keynote-us-treasury-market-conference-102416.html.
- Remarks by Comptroller Curry before the Tenth Annual FDIC Accounting and Auditing Conference (Oct. 25).
- Benefits of collaboration among regulatory agencies.
- Remarks available at https://occ.gov/news-issuances/news-releases/2016/nr-occ-2016-134.html.
- FDIC releases interagency examination procedures to reflect Defense Department's 2015 amendments to regulations implementing the Military Lending Act of 2006 (Oct. 17).
- FIL-65-2016 available at https://www.fdic.gov/news/news/financial/2016/fil16065.html.
- CFPB releases Annual report of the CFPB Student Loan Ombudsman: Transitioning from default to an income-driven repayment plan (Oct. 17).
- Report projects that one in three rehabilitated borrowers could re-default within two years.
- Report also criticizes servicing practices.
- Report available at http://www.consumerfinance.gov/about-us/newsroom/cfpb-projects-one-three-rehabilitated-student-loan-borrowers-will-re-default-within-two-years/.
Too Big to Fail
- Federal Reserve affirms countercyclical capital buffer at current level of 0% (Oct. 24).
- Announcement available at http://www.federalreserve.gov/newsevents/press/bcreg/20161024a.htm
- Banking agencies release ANPR on cybersecurity standards for large banking firms. For details, see Cybersecurity above.
- Oct. 27
- FDIC Atlanta Region Regulatory Conference Call, Reasonably Expected Market Area, Trade Area, and Assessment Area: Where Do They Fit under CRA and Fair Lending?
- Oct. 27-28
- OFR and Center on Finance, Law, and Policy, Big Data: Improving the Scope, Quality, and Accessibility of Financial Data, Ann Arbor, MI.
- Oct. 28
- FDIC 6th Annual Consumer Research Symposium.
- Oct. 31
- FFIEC webinar, Getting the Most Out of Your FS-ISAC Membership.
- Nov. 9
- FDIC Banker Teleconference Series: Overdraft Practices webinar.
- OCC Directors Workshop, "Compliance Risk", Cincinnati OH.
- Nov. 10
- OCC Directors Workshop, "Operational Risk", Cincinnati OH.
- Nov. 14
- SEC FinTech forum, Washington DC.
- Nov. 15
- OCC Directors Workshop, "Compliance Risk", Little Rock AR.
- Nov. 16
- OCC Directors Workshop, "Operational Risk", Little Rock AR.
- Nov. 17
- FDIC San Francisco Region Bankers' Forum, Detecting Compliance Risk in Products, Services, and Operations.
- Nov. 29
- FDIC Community Banking Initiative: De Novo Outreach Meeting, Atlanta GA.
- OCC Directors Workshop, "Risk Governance", Houston TX.
- Nov. 30
- OCC Directors Workshop, "Credit Risk", Houston TX.
Regulatory Comment Deadlines
- Oct. 27 – FDIC: third-party lending guidance.
- 45 days after publication in NYS Register – NY Dep't of Financial Services: cybersecurity requirements.
- Nov. 14 – OCC: receiverships of uninsured national banks (with implications for possible FinTech charter).
- Nov. 14 – OCC: prohibition from dealing and investing in industrial and commercial metals.
- Nov. 25 – Federal Reserve: changes to capital planning and stress testing for large, noncomplex banking firms.
- 90 days after publication in Federal Register – Federal Reserve: limits on physical commodity activities of financial holding companies.
For more information, contact Dwight Smith, email@example.com, or 202.545.2885.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.