On May 24, 2018, President Donald Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). The Act is effective immediately except as otherwise stated in certain provisions.
The Act makes many significant modifications to the postcrisis financial regulatory framework, although it leaves the core of that framework intact.
One major consequence of the Act may be an increased potential for mergers, acquisitions and organic growth among regional and midsize banks, as well as community banks, because of provisions that increase the thresholds that must be met before various financial regulatory requirements apply.
On April 3, 2018, the Financial Crimes Enforcement Network (FinCEN) issued new frequently asked questions (FAQs) regarding its customer due diligence rule (CDD Rule).
The CDD Rule applies to banks, broker-dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities (collectively, covered financial institutions or CFIs).
The CDD Rule includes four core elements of customer due diligence, each of which should be included in the anti-money-laundering (AML) program of a CFI: (1) customer identification and verification, (2) beneficial ownership identification and verification, (3) understanding the nature and purpose of customer relationships to develop a customer risk profile and (4) ongoing monitoring for reporting of suspicious transactions and, on a risk basis, maintaining and updating customer information. The second element — the beneficial ownership requirement — is new. FinCEN has described the other elements as preexisting AML program requirements for CFIs, although the third and fourth prongs were, at most, implicit requirements.
FinCEN issued new FAQs on the CDD Rule on July 19, 2016. These FAQs are timely because the May 11, 2018 compliance date for the CDD rule is fast approaching.
Here, we summarize several key takeaways regarding the beneficial owner requirement from the new FAQs.
On March 15, 2017, the Office of the Comptroller of the Currency published a draft supplement to the Comptroller’s Licensing Manual that sets forth details of the OCC’s proposal to accept applications from financial technology companies for special purpose national bank charters. The OCC’s guidance makes clear that it intends to hold fintech companies to the same chartering standards as entities seeking a traditional national bank charter and that there will be no “light-touch” supervision of chartered fintechs. While there may be debate over whether the guidance provides a viable alternative for organizing fintech firms, the OCC’s move signals their desire to modernize their licensing framework to keep pace with an evolving financial services industry. The OCC invites comment on the draft supplement through close of business on April 14, 2017.
The Office of the Comptroller of the Currency (OCC) has confirmed its intention to explore issuing limited-purpose national bank charters to fintech firms engaged in banking activities — commonly called the “fintech charter.” Earlier this year, the OCC had signaled this possibility. Now, through the release of a policy paper titled “Exploring Special Purpose National Bank Charters for Fintech Companies” (FinTech Paper) and a speech by the Comptroller on Dec. 2, the OCC has taken a more formal step.
On Oct. 19, the Board of Governors of the Federal Reserve System (the Board), the Office of the Comptroller of the Currency (the OCC) and the Federal Deposit Insurance Corporation (the FDIC, and collectively with the Board and the OCC, the Agencies) issued a joint advanced notice of proposed rulemaking (ANPR) inviting comment regarding enhanced cyber risk management standards for large and interconnected entities under their supervision and those entities’ service providers. As financial technology continues to advance, the largest, most complex financial institutions have relied more and more on technology to carry out their banking activities and to provide critical services to the financial sector and the U.S. economy. In the event of a cyber attack on a covered entity, the ANPR is intended to enhance the covered entity’s ability to continue to function and to reduce the overall impact on the financial system resulting from interconnectedness.
On Tuesday, Sept. 13, the Office of the Comptroller of the Currency (OCC) published a notice of proposed rulemaking and request for public comment (the Proposed Rule) introducing a regulatory regime to govern the receivership of national banks that are not insured (uninsured banks) by the Federal Deposit Insurance Corporation (FDIC). See OCC, Receiverships for Uninsured National Banks, 81 Fed. Reg. 62,835, 62,835 (Sept. 13, 2016) (the Proposed Rule). While the Proposed Rule would apply to the existing pool of 52 uninsured national trust banks, its broader impact would be to establish a receivership regime that would support the creation of new forms of limited purpose, uninsured banks for the financial technology (FinTech) industry. The Proposed Rule would not apply to uninsured federal branches and agencies of foreign banks under the International Banking Act of 1978. Proposed Rule at 62,838. (more…)
*This article originally appeared in the FinTech Law Report, Volume 19, Issue 2 for March/April 2016.
On November 18, 2015, the Federal Trade Commission (FTC) issued final amendments to the Telemarketing Sales Rule (TSR) banning payment methods that the FTC believes are disproportionately used by scammers (Final Rule). The Final Rule was published in the Federal Register on December 14, 2015.
On March 21, the federal banking agencies and the Financial Crimes Enforcement Network (collectively, the Agencies) published interagency guidance to issuing banks on the application of the joint regulations implementing the customer identification program (CIP) requirements set forth in Section 326 of the USA PATRIOT Act (the CIP Rule) to their prepaid cards. The guidance clarifies that a bank should apply its CIP to the cardholders of certain prepaid cards issued by the bank and other prepaid access devices that meet the criteria in the guidance. The guidance is largely consistent with current industry practice.
On November 18, the Federal Trade Commission (FTC) issued final amendments to the Telemarketing Sales Rule (TSR) banning payment methods that the FTC believes are disproportionately used by scammers (the Final Rule). The Final Rule follows the notice of proposed rulemaking (NPRM) that the FTC published on July 9, 2013. While the Final Rule makes some modifications to the proposed amendments to the TSR that were included in the NPRM, the NPRM was not modified significantly and continues to ban remotely created payment orders (including remotely created checks), cash-to-cash money transfers and cash reload mechanisms in both inbound and outbound telemarketing.
In particular, the FTC rejected many industry comments on the grounds that the commenter did not provide examples or data to support its claims, highlighting the importance of hard evidence in making a case during the FTC’s rulemaking process. Moreover, although the American Bankers Association (ABA) argued that the proposed rule would be a direct and impermissible regulation of banks that exceeds the FTC’s authority, the FTC rejected the ABA’s position.
This Sidley Update briefly summarizes the key components of the Final Rule and the FTC’s analysis in support of its rulemaking.