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August 2018 - Compliance Alert

The Federal Reserve

Federal Reserve Board barred CEO of NBRS Financial from Working in the Banking Industry

The Federal Reserve Board recently barred the former president and CEO of NBRS Financial from working in the banking industry.

The Board found that the former president and CEO had been involved in self-dealing transactions with bank loans and was keeping information from the NBRS board of directors. The Board considers these practices as unsafe and unsound, violating the law, as well as a failure in his duties to NBRS Financial.

The Board issued this prohibition order by default and the former CEO did not respond to the notice of enforcement.


Federal Reserve Board Will Begin TDF Testing in August

The Federal Reserve has been periodically testing the Term Deposit Facility (TDF). The purpose of this testing is to ensure the TDF is ready and giving qualified institutions opportunities to familiarize themselves with deposit practices.

The Federal Reserve began one of these operations on August 23rd, which included multiple actions, all of which can be found here.


The Office of the Comptroller of the Currency (OCC)

The OCC Issues Enforcement Actions

The Office of the Comptroller of the Currency issued several enforcement actions. These actions included the following: Cease and Desist Orders, Civil Money Penalty Orders, and Removal/Prohibition Orders.

For a full list of the institutions and banks, as well as the full copies of the final actions, view the full press release from the OCC.



Other Regulatory Bodies

FINRA Issues First Annual Industry Snapshot

To increase awareness about the industries and practices that FINRA regulates, they release an Annual Industry Snapshot. This Snapshot includes important data regarding the brokerage firms, registered individuals and market activity that FINRA regulates. See the full Snapshot here.



July 2018 - Compliance Alert

The Federal Reserve

Federal Reserve Board removes regulatory hurdles for some smaller banking organizations

The Federal Reserve Board will no longer hold smaller, less complex financial institutions to Dodd-Frank enhanced prudential standards in compliance with the newly enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

The threshold for prudential standards was raised from $50 billion to $100 billion in total consolidated assets for bank holding companies under the EGRRCPA. As a result, certain regulations conflict with the new law and required the board to act.

This led to the board’s decision to enforce certain regulations and reporting requirements for firms with less than $100 billion in total consolidated assets, such as rules implementing enhanced prudential standards and the liquidity coverage ratio requirements.


The Office of the Comptroller of the Currency (OCC)

The OCC issued a statement on the 'Impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act'

Federal banking agencies issued a statement regarding changes in company-run stress testing, resolution plans, the Volcker rule, high volatility commercial real estate exposures, examination cycles, municipal obligations as high-quality liquid assets, and other provisions.

These changes are a result of the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). A pdf was released by the Federal Reserve Board, which details these changes. 

These banking agencies will continue to monitor and regulate the financial institutions that they are charged with to ensure the health and the stability of the banking system. More banking laws may be amended in the future because of EGRRCPA.


Other Regulatory Bodies

U.S. Commodity Futures Trading Commission

The CTFC issues report on Chicago Mercantile Exchange's agricultural block trades

The Commodity Futures Trading Commission (CFTC) issued a report analyzing the first three months of block trading in grains, oilseeds, and livestock markets on the Chicago Mercantile Exchange (CME).

Trading for agricultural futures and option products began on January 2018 and the CFTC studied how block trades are affecting liquidity from the central limit order book and price transparency.

Block trades are privately negotiated futures and options transactions.

The study found that these block trades occur in nearby months with future expirations happening within the next 90 days.

While occurring on specific dates and for certain contract months, these block trades occupy a very small portion of the agricultural markets. Moreover, market makers are offsetting much of the block volume.

The biggest take away from the study is all the reviewed block trades fell within the CME’s rule for “fair and reasonable” prices.





June 2018 - Compliance Alert

Financial Crimes Enforcement Network (FinCEN)

FinCEN Issues Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and Their Financial Facilitators

The Financial Crimes Enforcement Network (FinCEN) issued an advisory to U.S. financial institutions, warning of the connection between corrupt senior foreign political figures and their enabling of human rights abuses.

The use of financial facilitators is one way that corrupt senior foreign political figures

By gaining access to the U.S. and international financial systems through the use of financial institutions, corrupt senior foreign political figures are able to move or hide illicit proceeds while evading U.S. and global sanctions.

They directly or indirectly participate in human rights abuses, devastating citizens, societies, and economic development.

U.S. financial institutions that hold the accounts of these corrupt figures expose themselves to great risks, whether it is directly or indirectly via banking relationships.

Financial institutions, under the Bank Secrecy Act, are obligated to report suspected illicit activity by these facilitators.


The Federal Reserve

Federal Reserve Board releases results of supervisory bank stress tests

The Federal Reserve found that the largest bank holding companies in the U.S. are poised to lend to the nation’s households and businesses in case of a severe global recession.

In their supervisory stress test, one of eight since 2009, they found that under the most severe scenario losses would total in $578 billion for 35 of the participating banks with U.S. unemployment rising to 10 percent.

The Federal Reserve cited a few factors that affected the post-stress capital ratios:

  • Credit card balances are higher
  • Recent tax code changes
  • The elimination of some beneficial tax treatments

Roughly 80 percent of all banking assets operating in the U.S. are owned by the 35 firms who were tested.


The Office of the Comptroller of the Currency (OCC)

OCC Reports First Quarter 2018 Bank Trading Revenue

The Office of the Comptroller of the Currency (OCC) reported trading revenue of U.S. commercial banks and federal savings associations of $8.2 billion in the first quarter of 2018.

The report shows that the first quarter of 2018 was 62.8 percent higher than the fourth quarter in 2017, that’s an increase of $3.2 billion, and compared to the first quarter in 2017, it was an increase of 15 percent.

While four large banks held 89.8 percent of the total banking industry notional amount of derivatives, a total of 1,357 insured U.S. commercial banks and savings associations held derivatives at the end of the first quarter 2018.

Derivative contracts remained concentrated in interest rate products, which represented 76.3 percent of total derivative notional amounts.

The percentage of centrally cleared derivatives transactions increased slightly to 39.8 percent in the first quarter 2018.


The Department of Justice

FTC and DOJ Approve Procedural Changes to HSR Form Instructions

The Federal Trade Commission, with the concurrence of the Antitrust Division of the U.S. Department of Justice, has approved amendments to the Hart-Scott-Rodino Premerger Notification Rules.

The instructions for filling out the form used by companies to report a proposed merger, acquisition, or similar transaction under the Hart-Scott-Rodino Antitrust Improvements Act have also been changed.

To review the potential of any anticompetitive impact of these proposed transaction the FTC and the Antitrust Division of the DOJ created the Premerger Notification and Report Form, also referred to as the HSR Form.

The amendments have been introduced to clarify some language used in the Rules and the instructions and enable the use of email for specific instances, such as in granting early termination.

Enacted by Congress in 1976, the Hart-Scott-Rodino Antitrust Improvements Act gives the federal government the opportunity to investigate and challenge mergers that are likely to harm consumers before injury occurs.


Other Regulatory Bodies

U.S. Commodity Futures Trading Commission

CTFC Orders JPMorgan Chase Bank, N.A. to Pay $65 Million Penalty for Attempted Manipulation of U.S. Dollar ISDAFIX Benchmark Swap Rates

The Commodity Futures Trading Commission (CFTC) settled charges against JPMorgan Chase Bank, N.A. (JPMC) for attempted manipulation of the ISDAFIX benchmark and required JPMC to pay a $65 million civil monetary penalty.

Over a five-year period, beginning in January 2007 through January 2012, JPMC made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX).

It is a leading global benchmark referenced in a range of interest rate products, to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps.

The CFTC found that certain JPMC traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates:

  1. trading attempted manipulation
  2. submission attempted manipulation







The Federal Reserve Eases Volcker Rule Regulation


There are big changes coming out of the Federal Reserve for financial institutions. The Federal Reserve will be easing the Volcker Rule in an upcoming decision.

The rule was created almost five years ago as a part of the Dodd-Frank financial regulation law that reduced the risk-taking on Wall Street. A major contributor to the 2008 financial crisis was how financial institutions used customers’ funds in high risk trades. 

The aim of the Volcker Rule was to reduce that kind of behavior and ideally, prevent another financial crisis and bank bailouts funded by taxpayers. 

The Federal Reserve is preparing to ease a rule aimed at defusing the kind of risk-taking on Wall Street that played a role in triggering the 2008 financial meltdown.

The Federal Reserve is instituting a series of changes to the rule in the hope that it will make complying for financial institutions easier and simpler.

The majority of the rule will remain, and continue to stop the trading of depository funds of customers.

Some critics fear the changes will go too far and we’ll end up in a similar situation as 2008. They worry the checks placed on Wall Street for their questionable trading practices will be watered down to the point they are no longer effective or will work as intended.

Regulation of Wall Street is a highly politicized issue, and with Republicans in control of Congress and the White House, these kinds of deregulatory changes will be a talking point for Democrats for the upcoming mid-term elections.

Many voters are still recovering from the losses they suffered in 2008, despite the economic gains of the last few years.

However, it seems the major change is the omission of a word from a part of the Volcker Rule. The removal of the word – “demonstrably” -- from the section is intended to ease the burden on financial institutions to show regulators how their trades act as hedges.

Under the current iteration of the rule, financial institutions can only count complex trades as hedges if they can “reasonably be expected to demonstrably reduce or otherwise significantly mitigate the specific, identifiable risk(s).”

Furthermore, it is expected that the Federal Reserve will allow foreign banks to practice higher risk trades, as long as, that any trading done in the U.S. is in compliance with the Volcker Rule.





May 2018 - Compliance Alert

Financial Crimes Enforcement Network (FinCEN)

Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Automatic Rollovers or Renewals

The Financial Crimes Enforcement Network (FinCEN) issued a ruling to provide limited exceptive relief to covered financial institutions from the requirements of the Beneficial Ownership Requirements for Legal Entity Customers aka the Beneficial Ownership Rule. It will be a 90-day period that covers some financial products and services, like a CD or a loan, that were created before the rule’s applicability date, May 11, 2018.

This exception begins, retroactively, on May 11, 2018, and will expire on August 9, 2018.


The Federal Reserve

Federal Reserve Board issues a Report on the Economic Well-Being of U.S. Households

The Federal Reserve Board's latest Report on the Economic Well-Being of U.S. Households finds that economic well-being has improved 10 percentage points from its first survey in 2013. 

The Fed reports that 74 percent of adults surveyed said they were doing OK financially in 2017.
However, there are still noticeable differences in economic well-being across race, ethnicity, education groups, and locations.

Many Americans are still struggling to repay college loans, small emergency expenses, and manage retirement savings.


Other Regulatory Bodies

Federal Financial Institutions Examination Council

FFIEC Issues New Customer Due Diligence and Beneficial Ownership Examination Procedures

The Federal Financial Institutions Examination Council (FFIEC) issued new examination procedures on the final rule, “Customer Due Diligence Requirements for Financial Institutions,” issued by the Financial Crimes Enforcement Network (FinCEN) on May 11, 2016.

The new examination procedures replace those in the current “Customer Due Diligence — Overview and Examination Procedures” section of the FFIEC’s Bank Secrecy Act/Anti-Money Laundering Examination Manual. In addition, a new overview and examination procedures were developed for the beneficial ownership requirements for legal entity customers.

These examination procedures apply to banks, savings and loan associations, savings associations, credit unions, and branches, agencies, and representative offices of foreign banks.


Federal Trade Commission

FTC Obtains Preliminary Injunction Against Mortgage Relief Operation That Deceived Homeowners

A mortgage relief operation has been charged by the Federal Trade Commission (FTC) with deceiving homeowners by claiming to make their mortgages more affordable and prevent foreclosure.

Those in the operation claimed a 99 percent success rate and promised results no matter a homeowner’s predicament. Moreover, they falsely stated they worked with certain lenders and government mortgage assistance programs.

A federal court froze the mortgage relief operation’s assets and temporarily halted their scheme at the request of the FTC.


U.S. Commodity Futures Trading Commission

CTFC Staff Issues Advisory for Virtual Currency Products

Exchanges and clearinghouses registered with the U.S. Commodity Futures Trading Commission (CFTC) issued an advisory on listing virtual currency derivative products by its Division of Market Oversight and its Division of Clearing and Risk.

The advisory gives guidance on improvements when listing derivative contracts based on virtual currencies. Furthermore, it clarifies the CTFC’s expectations in its review of new virtual currency derivatives.








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