On Friday, June 29, the Federal Deposit Insurance Corporation (“FDIC”) released the Information Technology Functional Guide (“Tech Guide”) draft Guide Version 2.0 to assist Covered Institutions (“CIs”) with the implementation of information technology systems capabilities required for Part 370.1 The following provides some context to the provisions that were materially changed from the original guide. Since the Tech Guide is in draft form with comments due August 1st, CIs should be informed by its contents, but cannot make material changes until the Tech Guide is final or having discussed those changes with the FDIC.
For the benefit of insured depository institutions with two million or more deposit accounts (a “Covered Institution” or “CI”), FDIC has recently published a compilation of frequently asked questions (“FAQs”) from the inquiries it had received from covered institutions as well as outreach meetings it had conducted with them. This publication also provides FDIC responses and staff opinions as guidance to covered institutions in implementing 12 C.F.R. Part 370 (“Part 370”).
In the publication, FDIC also notes that the Technical Guide will be updated over time, as when “new information regarding system architecture, interfaces, capabilities, and limitations may come to light resulting in additional feedback” from input from FDIC to covered institutions.
On August 8, 2017, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) extended, from December 31, 2017 to December 31, 2018, the resolution plan deadline for 21 firms, including 19 foreign banking organizations (FBOs).
On January 29, 2018, the agencies issued firm-specific feedback to these 19 FBOs based on their last resolution plans filed in 2015.1 Although the feedback letters do not identify any deficiencies or shortcomings with respect to the 2015 plans,2 they outline key supervisory expectations that must be met as the FBOs prepare to file their next plans.
FBOs with US IHCs
Eight of the 19 FBOs were required to establish US intermediate holding companies (IHCs) as of July 1, 2016.3 Accordingly, these FBOs are required to describe any changes they have made to their resolution plan resulting from the implementation of the IHC requirement.
Enhancing the second line of defense framework
Over the past several years, the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) (collectively, “the Agencies”) have shifted their focus on resolution planning, now emphasizing the capabilities that banks must demonstrate in order to have a credible plan. Through their feedback letters to institutions, guidance, and FAQs, it is evident that the Agencies are emphasizing plan execution rather than conceptual strategy.
Banks’ first lines of defense (FLOD) should demonstrate that they can execute the plan to the Agencies. By using the second lines of defense (SLOD) to review controls, manage internal testing, and provide credible challenge, banks may be able to reduce the chances of the Agencies finding a firm’s plan “non-credible.” Ultimately, banks should demonstrate that required actions are replicable in order to reduce exposure to agency criticism.
One key to success? Accurate and precise data. Banks have the opportunity to leverage data to improve resolution planning processes continuously, which captures data that demonstrates they can execute their preferred resolution strategy. That same data can be used to improve efficiencies and avoid potential identified shortfalls or deficiencies.
By embracing resolution planning’s complexity, banks can accelerate their performance to lead the industry and better navigate resolution planning challenges, especially as changes occur.
Nearly one month after the New York State Department of Financial Services issued a proposal to establish prescriptive cyber requirements for New York-domiciled financial institutions,1 three three federal banking agencies—the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) (collectively, the “agencies”)—issued an advance notice of proposed rulemaking (ANPR) on enhanced cyber risk management and resilience standards for large banking organizations.2
Specifically, the enhanced standards would apply to US bank holding companies, the US operations of foreign banking organizations, and US savings and loan holdings companies with more than $50 billion in total assets, as well as nonbank financial companies and financial market utilities designed for FRB supervision by the Financial Stability Oversight Council (FSOC), among others.
On October 4, 2016, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) (collectively, “the Agencies”) released the public sections of the “targeted submissions” that fulfill the 2016 resolution planning requirement for each of the eight US global systemically important banks (G-SIBs).1 Although these public sections are, on balance, slightly shorter than the 2015 public sections submitted in connection with the last full submissions, they contain significant new details about completed and forthcoming enhancements to resolution planning capabilities to address regulatory concerns.
In April 2016, the Agencies determined that the 2015 plans submitted by five of the eight US G-SIBs were “not credible or would not facilitate an order resolution under the Bankruptcy Code.” These institutions were required to remediate the identified deficiencies by October 1, 2016.2 In addition, the Agencies identified shortcomings in the plans submitted by the remaining three US G-SIBs, which were required to submit plans to address these issues by October 1, 2016.3 The next full plan submissions for all eight US G-SIBs are due by July 1, 2017.
On April 26, 2016, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) (the “Agencies”) approved a proposed rule1 to implement the Net Stable Funding Ratio (NSFR)—a quantitative measure of a company’s one-year funding profile—for certain US bank holding companies (BHCs) and savings and loan holding companies (SLHCs).
The Federal Reserve Board (FRB) is scheduled2 to consider the proposal on May 3, 2016.
The proposed rule would become effective on January 1, 2018 and public comments on the proposal are due by August 5, 2016.
On April 21, 2016, the National Credit Union Administration (NCUA) became the first agency to re-propose1 a Dodd-Frank-mandated rule on incentive-based compensation arrangements for covered financial institutions (the original proposed rule was issued in 2011). The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Housing Finance Agency adopted substantively identical versions of the proposal on April 26, 2016. The remaining two agencies required by Section 956 of Dodd-Frank to jointly issue the rule—the Federal Reserve Board (FRB) and Securities and Exchange Commission (SEC)—are expected to adopt the proposal shortly.
Continue reading “Agencies re-propose rule regarding incentive-based compensation at financial institutions”
Posted by Marlo Karp, Deloitte Advisory Partner on April 15, 2016.
On April 13, 2016, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) announced credibility determinations and released firm-specific feedback on the 2015 resolution plans submitted by eight US global systemically important banks (G-SIBs) under Section 165(d) of Dodd-Frank.
In conjunction with this announcement, the FRB and FDIC released guidance for the next full plan submissions for these eight US G-SIBs, which are due by July 1, 2017.
The fourth anniversary of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is a perfect opportunity to reflect on the progress that has been made since the Act’s passage in 2010 and to look forward to the required regulations that have to be implemented. The law was a direct response to the financial downturn, and was specifically designed to prevent a similar crisis from happening again. So how are things going so far?
Overall, it’s a mixed bag. Considerable progress toward implementation and reform has been made in some areas, while others are just getting warmed up.