Federal Reserve Bank (Fed)
Federal Reserve, FDIC, and OCC Finalize Extension of Capital Rule Transitions
On November 21, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of Currency (OCC) finalized a rule that would extend capital requirements for mortgage servicing assets. The rule is currently being finalized in order to ensure that other rules will not take effect while the three agencies work on simplifying existing capital rules for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest. The rule will be effective as of January 1, 2018.
Federal Reserve, FDIC, and OCC Amend CRA Regulation
On November 20, the Federal Reserve, the FDIC, and the OCC amended the Community Reinvestment Act (CRA) to conform with the Home Mortgage Disclosure Act (HMDA). HMDA had been implemented through the CFPB’s Regulation C. The amendments will be effective as of January 1, 2018. Amendments to CRA will make CRA definitions of “home mortgage loan” and consumer loan in addition to requirements for public file content align with the HMDA. Moreover, the amendments to CRA will remove any references to the Neighborhood Stabilization Program.
Federal Reserve, CFPB, and OCC Announce New Threshold for Smaller Loan Exemption
On November 20, the Consumer Financial Protection Bureau (CFPB), the Federal Reserve, and the OCC announced that the threshold for smaller loan exemption would increase from $25,500 to $26,000. This new threshold would be effective as of January 1, 2018. The rules for these requirements are based on the annual percentage increase in the Consumer Price Index and will be adjusted accordingly to reflect any changes in the CPI-W.
Federal Reserve Approves Fee Schedule and the PSAF for 2018
On November 13, the Federal Reserve Board approved the fee schedule for Federal Reserve Bank payment services, and the 2018 private sector adjustment factor (PSAF) for Reserve Bank priced services. The newly approved fee schedules will be effective as of January 2, 2018. The approval is in alignment with the requirements by the Monetary Control Act of 1980 that the fees for the Federal Reserve priced services be based on recovering costs of providing priced services. This aim is to promote competition between private-sector service providers and the Reserve Banks. From these actions, the Reserve Banks expect to recover all of their priced services cost in 2018. These changes will result in an estimated increase of 1.4% in average price.
National Credit Union Administration (NCUA)
NCUA Board Approves 2018-2019 Budget
The NCUA Board held its tenth open meeting of 2017 and unanimously approved the budget for the following three items:
- Operating, capital, and Share Insurance Fund budgets for 2018 and 2019 to fund the agency’s essential activities and strategic priorities;
- A new methodology for calculating the overhead transfer rate that simplifies the calculation and reduces administrative resource needs with a Federal Register notice for posting; and
- A final rule making amendments to agency regulations governing corporate credit unions that revises provisions regarding retained earnings and Tier 1 capital.
The budget, however, is subject to adjustment at the annual mid-year review at the Board’s scheduled July 2018 open meeting. The overall 2018 budget is $321 million and $331.4 million for 2019, 0.9% and 3.2% increases, respectively. In the last year, the NCUA has taken significant steps to increase efficiency and control costs, outlined in its restructuring plan. This restructuring plan includes closing 40% of its regional offices, eliminating overlapping office functions, and re-tooling its business model.
Bank for International Settlements (BIS)
Twelfth High-level Meeting on Banking Supervision in the Americas and the Caribbean, Asunción, Paraguay, November 15-16, 2017
The Financial Stability Institute (FSI), together with the Association of Supervisors of Banks of the Americas (ASBA) and the Basel Committee on Banking Supervision (BCBS), held its 12th High-level Meeting. It was hosted by the Central Bank of Paraguay and attended by roughly 50 participants who represented various central banks, supervisory authorities, and financial institutions in the region in addition to senior officials from across the globe.
Governor Carlos Gustavo Fernández Valdovinos of the Central Bank of Paraguay highlighted the importance for supervision to consider the impact of the macroeconomic environment on banks. In his remarks, he underscored the need for Basel III and showcased its implementation because it promotes macroprudential regulatory approaches that address the impact of economic fluctuations. He did note that the widespread implementation of Basel III to countries of different development levels would be challenging. In the sessions, various issues were discussed, such as (1) treatment of sovereign exposures under the Basel framework; (2) implementation of expected credit loss provisioning framework; (3) ensuring banks’ resilience to cyber risk through regulation and supervision; and (4) opportunities and risks of fintech.
Further details on the assessment of global systemically important banks
In connection with the November 17th publication by the Financial Stability Board of the updated list of global systemically important banks (G-SIBs), the Basel Committee on Banking Supervision has released further information related to the 2017 G-SIB assessment. The information includes:
- a list of all the banks in the assessment sample;
- thedenominators of each indicator used to calculate the banks’ scores;
- thecutoff score that was used to identify the G-SIBs in the updated list;
- thethresholds used to allocate G-SIBs to buckets for calculating the specific higher loss absorbency requirements; and
- links todisclosures of all banks in the assessment sample.
The Committee’s methodology assesses the systemic importance of global banks using indicator-based measurements. The indicators are calculated based on data for the previous fiscal year-end supplied by banks and validated by national authorities. In exceptional cases, the scores may be adjusted by supervisors. The final scores are mapped to corresponding buckets, which determine the higher loss absorbency requirement for each G-SIB. As agreed in 2013, the Committee is currently reviewing its methodology and expects to finalize its review in 2018.
The full amount of the higher loss absorbency requirement will come into effect from 1 January 2019, consistent with the implementation schedule for the Basel III capital conservation buffer.
Monitoring Group proposes reforms to global audit standard setting
On November 22nd, the Monitoring Group issued a consultation paper setting out options to enhance the independence, relevance, and transparency of international audit standard setting in the public interest. The Group consists of public authorities responsible for monitoring the international audit standard-setting process. The international audit standard-setting structure currently exists as a three-tier framework consisting of:
- Standard Setting Boards (“SSBs”) nominated and largely funded by the International Federation of Accountants (“IFAC”), the global organization for the accountancy profession;
- an independent oversight body ensuring that the standards are set in a transparent manner that reflects the public interest (Public Interest Oversight Board, “PIOB”); and
- a body of public authorities working in the public interest and responsible for the overall monitoring of the standard-setting process (Monitoring Group). The Monitoring Group consists of the Basel Committee on Banking Supervision, European Commission, Financial Stability Board, International Association of Insurance Supervisors, International Forum of Independent Audit Regulators, International Organization of Securities Commissions, and the World Bank.
The Monitoring Group periodically reviews the effectiveness of audit standard setting. The consultation paper is the product of the Group’s latest review, which began in 2016. The paper sets out options and recommendations to further enhance the governance and oversight of audit standard setting.
Export-Import Bank of the United States (EXIM)
Textron Financial Corporation Expedites Full Repayment of EXIM $500 Million Direct Loan
On November 17th, EXIM announced that Textron Financial Corporation (TFC) has expedited and pre-paid, in full, the $500 million direct-loan facility that was approved by EXIM in 2009. This loan allowed Textron to provide financing to international customers that received delivery of new Cessna aircraft and Bell commercial helicopters. At the time, the funding was needed to assist TFC in continuing to finance those exports with competitive repayment terms and interest rates. It also enabled EXIM to leverage its resources and support many individual U.S. exports.
This loan, paid in eight years, carried a repayment term of ten years. TFC also fully repaid two EXIM-guaranteed loans from other lenders that were authorized after 2009.
EXIM Acting Chairman and President, Charles J. Hall, spoke about the loan enabling TFC to export about 150 Textron aircraft, while supporting the jobs of thousands of U.S. workers at the companies. He said, “[t]his is an excellent example of how EXIM Bank can step in for the private sector to ensure that vital U.S. export sales go forward while ensuring that the taxpayers’’ interests are fully protected.”
Financial Stability Board (FSB)
FSB publishes 2017 G-SIB list (Global Systemically Important Banks)
On November 21, 2017, the Financial Stability Board (FSB) published the 2017 list of global systemically important banks (G-SIBs) using end-2016 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS). The list comprises 30 banks. One bank (Royal Bank of Canada) has been added to the list of G-SIBs identified in 2016 and one bank (Groupe BPCE) has been removed, and therefore the total number of G-SIBs remains the same.
FSB member authorities apply the following requirements to G-SIBs:
- Higher capital buffer: There have been a number of changes to the position of banks in relation to the buckets of higher capital buffers that national authorities require banks to hold in accordance with international standards.
- Total Loss-Absorbing Capacity (TLAC): G-SIBs are required by national authorities to meet the TLAC standard, alongside regulatory capital requirements set out in the Basel III framework.
- Resolvability: These include group-wide resolution planning and regular resolvability assessments.
- Higher supervisory expectations: These include heightened supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance, and internal controls.
FSB statement on identification of global systemically important insurers
On November 21, 2017, the Financial Stability Board (FSB), in consultation with the International Association of Insurance Supervisors (IAIS) and national authorities, has decided not to publish a new list of global systemically important insurers (G-SIIs) for 2017. The policy measures set out in the FSB’s 2016 communication on G-SIIs, as updated in February 2017 as concerns the higher loss absorbency (HLA) standard, will continue to apply to the firms listed in the 2016 communication.
House Financial Services Committee (HFSC)
HFSC, Hearing on “Implementation and Cybersecurity Protocols of the Consolidated Audit Trail”
On November 30, HFSC will be conducting a hearing at 10:00am entitled “Implementation and Cybersecurity Protocols of the Consolidated Audit Trail.” The hearing will be located at 2128 Rayburn House Office Building. National securities exchanges and FINRA (collectively, the “SROs”) are now required to work together to develop and submit a plan to the SEC for creating, implementing, and maintaining a consolidated audit trail (the “CAT”). These SROs must also include plans for maintaining the security of data collected, stored, or analyzed, once submitted to the CAT. Because protecting against cybersecurity threats has become critical for good capital market performance, SEC Chairman Jay Clayton has become one of one of many agency officials who has issued public statements about the need to prioritize cyber security.
U.S. Senate Committee on Banking, Housing, and Urban Affairs
U.S. Committee on Banking, Housing, Urban Affairs, Executive Session and Nomination Hearing
On November 28, 2017, the Committee on Banking, Housing, Urban Affairs will meet for an Executive Session and Nomination Hearing. The meeting will commence at 9:45am and will be located at 216 Hart Senate Office Building. There will be a vote on the following three nominations:
After the Executive Session, the Committee will proceed with an open session and conduct a nomination hearing for The Honorable Jerome H. Powell (R-Maryland) to be Chairman of the Board of Governors of the Federal Reserve System. A live recording will be available after the hearing starts, which can be found here.
U.S. Committee on Banking, Housing, Urban Affairs, Senators Release Text of “Economic Growth, Regulatory Relief and Consumer Protection Act”
On November 16, U.S. Senators announced the Economic Growth, Regulatory Relief, and Consumer Protection Act. The legislation is designed to provide critical consumer protections for veterans, senior citizens, and victims of fraud. Further, proponents believe it will improve the regulatory framework for smaller financial institutions and enhance economic growth in local communities. The legislation is intended to be bipartisan was supported by the following:
|Republican Co-Sponsors:||Democrat Co-Sponsors:|
U.S. Senate Committee on Finance
U.S. Senate Committee on Finance, Modernization of the North American Free Trade Agreement (NAFTA)
On November 20, the committee conducted a hearing in Texas. John Cornyn (R-Texas) and Robert P. Casey, Jr. (D-PA) provided member statements, followed by witness testimony from individuals in government, private companies, and leaders from various associations. Several witnesses spoke of their proposed goals for resolving existing concerns about NAFTA. Their testimonies are included below:
- Mr. Stephen P. Vaughn, General Counsel, United States Trade Representative Executive Office of the President (Testimony)
- Mr. Mitch Bainwol, CEO & President, Alliance of Automobile Manufacturers (Testimony)
- Ms. Paola Avila, Chair, Border Trade Alliance (Testimony)
- Mr. Richard Perez, CEO & President, San Antonio Chamber of Commerce (Testimony)
- Mr. Jeff Moseley, Chief Executive Officer, Texas Association of Business (Testimony)
- Mr. Russell Boening, President, Texas Farm Bureau (Testimony)
- The Honorable Todd Staples, President, Texas Oil and Gas Association (Testimony)
The hearing can be found here.
European Securities and Markets Authority (ESMA)
ESMA Highlights Initial Coin Offering (ICO) Risks for Investors and Firms
On November 13, ESMA issued two statements on ICOs based both on the organizations recognition of the rapid growth of ICOs globally and concern that investors may be unaware of ICO risks. The first statement alerts investors of the large risk of losing all the capital they invest into ICOs due to the “highly speculative” and “extremely volatile” nature of the coin/token market. ESMA also identifies the risk that ICOs may fall outside the jurisdiction of EU laws, precluding the protections that those regulations provide.
The second statement from ESMA concerns rules applicable to firms involved with ICOs, following mounting concern that such firms may not conduct their activities in compliance with EU legislation. ESMA explains that when an ICO qualifies as an issuance of financial instrument, the ICO must comply with relevant legislation as a regulated investment activity.
International Organization of Securities Commissioners (IOSCO)
Call for Comments on Reforms to the Global Audit Standard-Setting Process
On November 9, IOSCO called for comments on reforms to the global audit standard-setting process. The Monitoring Group (MG) – a group of international financial institutions and regulatory bodies – is responsible for the overall governance of the international audit-related standard setting process. The MG recently issued a consultation paper, aimed at eliciting the views of stakeholders on how best to safeguard the independence of the standard setting process through standard setting boards. The consultation includes options to change several elements related to standard setting boards. MG encourages stakeholders, when considering reforms, to reflect on public interest, independence, credibility, cost effectiveness, relevance, transparency and accountability of current standard setting procedures. Comments on this consultation paper should be submitted by February 9, 2018.
IOSCO Reports on Implementation of G20/FSB Recommendations to Strengthen Securities Markets
On November 8, IOSCO published a report designed to provided clarity and recommendations on the implementation of the previously published G20/FSB post-crisis recommendations. Since 2010, the Financial Stability Board (FSB) has conducted an Implementation Monitoring Network (IMN) survey of compliance with agreed G20/FSB recommendations. For the implementation report published on November 8, IOSCO collaborated with FSB to analyze the response to the 2017 IMN survey. IOSCO’s implementation report finds that most responding jurisdictions have taken steps to implement the G20/FSB recommendations with implementation being the most advanced among hedge funds, structured products, and securitization, as well as the oversight of credit rating agencies. IOSCO reported that while progress in implantation has lagged in the area of safeguarding the integrity and efficiency of markets, jurisdictions that responded to the survey have reported taking strides to harmonize and strengthen their rules.
Commodities Futures Trading Commission (CFTC)
CFTC’s Division of Market Oversight Extends Time-Limited No-Action Relief for Swap Execution Facilities from Certain Block Trade Requirements
On November 14, CFTC’s Division of Market Oversight (Division) issued a no-action letter, extending limited relief to swap execution facilities (SEFs) from certain requirements in the definition of “block trade” in CFTC regulation 43.2. Regulation 43.2 defines a “block trade” as a publicly reportable swap transaction that “occurs away from the registered SEFs or designated contract market’s (DCM) trading system or platform and is executed pursuant to the registered SEF’s or DCM’s rules and procedures.” In the no-action letter the Division granted relief to SEFs from the “occurs away” requirement under regulation 43.2 until November 15, 2020 at 11:59 pm EST. This extension will allow the Division to develop permanent solutions to screening bloc trade orders for compliance with risk-based limits and amendments to CFTC regulations.
The relief is subject to the following conditions under CFTC Letter No. 17-60:
- The block trade is no executed on the SEF’s Order Book functionally, as defined in CFTC regulation 37.3(a)(3)
- The SEF adopts rules pertaining to cleared blocks that indicate that the SEF is relying on the relief provided in the no-action letter and that require each cleared block trade executed on a non-Order Book trading system or platform to comply with the other requirements in the block trade definition in CFTC regulation 43.2;
- The FCM completes the pre-execution credit check pursuant to Commission regulation 1.73 at the time the order for block trade enters the SEF’s non-Order Book trading system or platform; and
- The block trade is subject to void ab initio requirements where the swap is rejected on the basis of credit.
CFTC’s Division of Market Oversight Issues No-Action Relief from Certain Timing Requirements Regarding SEF Chief Compliance Officer Annual Compliance Reports and Fourth Quarter Financial Reports
On November 20, CFTC’s Division of Market Oversight (Division) issued no-action relief to swap execution facilities (SEF) from the timing requirements found in CFTC regulation 37.1501(f)(2), which requires chief compliance officers of SEFs to submit annual compliance reports (ACR) to the CFTC no later than 60 days after the SEF’s fiscal year end. The no-action relief letter also provides relief from the timing requirements under CFTC regulation 37.1306(d), so that SEFs have an additional 30 days to concurrently file the COO ACR and fourth quarter financial reports with the CFTC no later than 90 days after the end of the SEF’s fiscal year. The no-action relief commences on November 20, 2017 and expires on November 30, 2017.
International Swaps and Derivatives Association (ISDA)
ISDA and FIA Prepare an Explanatory Memorandum to Give an Overview of Time Frames of
Information for Cleared Derivatives Transactions
On October 17, ISDA and Futures Industry Association (FIA) prepared an explanatory
memorandum to provide factual overview of the time frames for the transfer of information for
cleared derivatives transactions that are concluded between parties under RTS 26 MiFIR of the
ISDA/FIA Cleared Derivatives Execution Agreement. The memorandum discusses timeframes
under Article 4 of RTS 26 and provides illustrative examples of how the timeframes operate in
respect to cleared derivatives transactions that are concluded between parties on a bilateral basis.
Consumer Financial Protection Bureau (CFPB)
CFBP announces threshold regulation updates
On November 8, the CFPB with the Board of Governors of the Federal Reserve System announced threshold adjustments to Regulation Z and M lease transactions. The adjustments are made according to the Dodd-Frank Act and are based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. As a result, the protection will apply to transaction less than $55,800 for 2018.
CFBP files suit against Freedom Debt Relief
On November 8, the CFPB filed a lawsuit against Freedom Debt Relief for violations of the Dodd Frank Act, the Consumer Protection Act and Telemarketing Sales Rule. The CFPB complaint alleges that Freedom Debt relief; mislead consumers about creditor’s willingness to negotiate; deceived consumer about the services and fees provided, and failed to disclose to the consumer’s their right to funds.
CFBP files suit against Think Finance
On November 15, the CFPB filed a suit against Think Finance for violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB’s complaint alleges that Think Finance deceived consumers about nonexistent loan payments owed and collected loan payments from nonexistent debt.
CFBP announces threshold exemption update
On November 20, the CFPB, the Board of Governors of the Federal Reserve System and the OCC announced an exemption for special appraisal for mortgage loans in 2018. The threshold for exempting the mortgage loan will be $26,000 in 2018.
CFPB fines Xerox
On November 20, the CFBP issued a consent order that requires Xerox to pay $1.1 million in civil penalties, explain its mistake to lenders, and to fix its faulty software. Xerox’s software led to inaccurate information being reported to consumer credit agencies by the lender. More than one million customers of the lender’s that used that software were affected.
The Securities & Exchange Commission (SEC)
SEC Announces the Formation and Inaugural Members of Fixed Market Structure Advisory Committee
On November 9th, the SEC announced the formation and first members of its Fixed Income Market Structure Advisory Committee. The committee will study the efficiency and resiliency of the corporate bond and municipal securities markets and recommend potential regulatory improvements to the Commission. Led by Michael Heaney of Legal and General Investment Management Americas, the committee is comprised of a diverse group of retail and institutional investors, small and large issuers, trading venues, and self-regulatory organizations. The committee was formally established on November 15 for an initial two-year term, which can be renewed by the Commission.
SEC Enforcement Division Issues Report on Priorities and FY 2017 Results
On November 15, the SEC’s Enforcement Division issued a report highlighting its priorities for the coming year and a review of enforcement actions that took place during FY 2017. The report listed a number of core principles that will guide future enforcement decisions, including focusing on the Main Street investor and keeping pace with technological change. The report also confirmed that fiscal year 2017 was a successful and impactful year for the Enforcement Division, which returned a record $1.07 billion to harmed investors.
SEC Announces Agenda and Panelists for 36th Annual Small Business Forum
On November 16, the SEC announced the agenda and panelists for the 36th Annual Government-Business Forum on Small Business Capital Formation. The event will begin at 9 a.m. on November 30 with opening remarks from SEC Chairman Jay Clayton and Commissioners followed by a morning panel discussion that will explore how capital formation options are working for small businesses. After the morning panel, attendees will work in groups to formulate specific policy recommendations related to small business capital formation, including exempt securities offerings and smaller registered offerings. This year’s event is hosted in partnership with the Herb Kelleher Center for Entrepreneurship, Growth, and Renewal at the McCombs School of Business at the University of Texas at Austin. The forum will be open to the public and webcast live.
SEC Names Paul G. Cellupica as Deputy Director of the Division of Investment Management
On November 20, the SEC named Paul G. Cellupica Deputy Director of the agency’s Division of Investment Management. As a senior advisor to Director Dalia Blass, Mr. Cellupica will oversee a number of the division’s strategic, rulemaking, and industry engagement initiatives. Mr. Cellupica served as Assistant Director of the SEC’s Division of Investment Management from 2001 to 2004 and received the SEC’s Martha Platt Award in 2002 in recognition of his exceptional dedication.
SEC Charges Long Island Town and Former Top Official with Defrauding Municipal Investors
On November 21, the SEC charged Oyster Bay, New York, and its former top elected official, John Venditto, with defrauding investors in the town’s municipal offerings by hiding the existence and potential financial impact of side deals with a businessman who owned and operated restaurants and concession stands at several town facilities. The SEC filed a complaint in U.S. District Court for the Eastern District of New York alleging that Oyster Bay and Venditto deliberately concealed the indirect loan guarantees when they should have been disclosed in connection with the town’s 26 securities offerings from August 2010 to December 2015. The U.S. Attorney’s Office for the Eastern District of New York also filed a parallel superseding indictment that included securities fraud charges against Venditto.
Financial Industry Regulatory Authority (FINRA)
FINRA Announces Enhancements to Advisory Committees to Increase Transparency, Improve Effectiveness
On November 15, FINRA announced several changes to its advisory committee to increase transparency around the committees and improve their effectiveness as a vehicle for firms to provide input on key issues to FINRA, including advice regarding existing and proposed rules. These changes occurred as the first phase of a series of FINRA Board of Governors transparency initiatives and address feedback FINRA received in response to a Special Notice on its engagement programs issued in March.
FINRA Introduces Improved Fund Analyzer
On November 21, FINRA introduced a new and improved version of its Fund Analyzer tool to help investors and financial professionals understand the impact of fees and discounts on mutual funds, exchange-traded funds, exchange-traded notes and money market funds. The Fund Analyzer’s live data feed allows investors to research and compare more than 30,000 products by running a variety of investment scenarios. The tool also allows users to calculate how a fund’s fees, expenses and discounts will impact the value of a fund over time.