The US Treasury Department (Treasury) has issued its fourth report1 in a series on the Administration’s core principles to regulate the US financial system. It signals a new regulatory approach toward nonbank financial institutions, financial technology (“FinTechs”), and financial innovation. Coupled with the Office of the Comptroller of the Currency’s (“OCC”) same day announcement2 that it is accepting FinTech special purpose charter applications, FinTechs considering entering the banking environment, through a bank charter themselves or indirectly through partnerships, can take a note of encouragement. That said, there were no big surprises relative to past statements about underlying regulations and bank charter applications at this time.
Optimizing your legal entity regulatory reporting process
Background for legal entity reporting
Depending upon the legal entity structure and headquarters of a parent bank, several different reporting forms are used to identify legal entities and associated information, including their purpose and type of legal form. This information is used for monitoring compliance with laws and regulations including by the Federal Reserve Board of Governors (“Federal Reserve”): the Dodd-Frank Act, the Sarbanes-Oxley Act, the Gramm-Leach-Bliley Act, Regulation Y (Bank Holding Companies and Change in Bank Control), Regulation YY (Enhanced Prudential Standards), and Regulation QQ (Resolution Plans). This information is also an important component in regulators determining an institution’s level of complexity.
As events occur that affect a firm’s organizational structure, a report is filed to record the event driven (FR Y-10, Report of Changes in Organizational Structure). Annually, the end of the parent company fiscal year, a report is submitted that includes an organization chart and information concerning shareholders and public financial statements (FR Y-6, Annual Report of Holding Companies1, and FR Y-7, Annual Report of Foreign Banking Organizations2). The information from the event-driven forms are compared to the annual organizational chart. All of this information is commonly referred to as banking structure data.
The Federal Financial Institutions Examination Council (FFIEC) recently announced significant changes to bank regulatory reporting requirements (including the “Call Report”) that are expected to result in reduced reporting burden. The changes originated in December 2014, when the FFIEC launched an initiative to reduce burdens associated with the Call Report. Since then, the FFIEC and its member agencies—the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), and National Credit Union Administration (NCUA)—have taken several actions to meet this goal, including the creation of a new streamlined Call Report for smaller institutions (FFIEC 051) that took effect with the March 31, 2017 report date.
The goals underlying this initiative coincide with a focus on simplifying, rationalizing, and recalibrating aspects of the regulatory framework, including regulatory reporting. In support of the burden efforts, the Treasury Department urged regulators to “streamline current regulatory reporting requirements for all community financial institutions” by focusing their efforts on the applicability of each line item.1
Below is an overview of three recent developments with respect to the Call Report,2 the FFIEC 002 (Report of Assets and Liabilities of US Branches and Agencies of Foreign Banks) and FFIEC 002S (Report of Assets and Liabilities of a Non-US Branch that is Managed or Controlled by a US Branch of Agency of a Foreign (Non-US) Bank),3 and the FR Y-9C (Consolidated Financial Statements of Holding Companies), as well as the key takeaways for covered institutions.4
In the weeks following the 2016 Presidential election, members of the incoming Administration clearly expressed their views that certain aspects of Dodd-Frank, including the Volcker Rule, are overly complex. Specifically, then-Treasury Secretary-nominee Steven Mnuchin argued that the “number one problem with the Volcker Rule is that it’s too complicated and people don’t know how to interpret it.”1
On June 12, 2017, the Treasury Department took a significant step on financial regulatory issues by releasing its first report pursuant to President Trump’s executive order setting forth “Core Principles” for regulating the US financial system. Among other things, the report argues that the Volcker Rule requires “substantial amendment” and that its implementation has “hindered market-making functions necessary to ensure a healthy level of market liquidity.”2 Accordingly, the report proposes several changes—some of which could be implemented by the regulatory agencies and some of which would require Congressional action to amend the underlying statute—designed to “reduce the scope and complexity” of the rule.3
On August 2, 2017, the Office of the Comptroller of the Currency (OCC) issued a notice and request for comment4 on whether certain aspects of the regulation implementing the Volcker Rule should be revised to “better accomplish the purposes of the statute” while decreasing the compliance burden on banking entities and fostering economic growth.
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 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 Robert Burns, Deloitte Advisory Director on January 21, 2016.
On December 17, 2015, the Office of the Comptroller of the Currency (OCC) proposed Guidelines to establish standards for recovery planning that would apply to insured national banks, insured federal savings associations, and insured federal branches of foreign banks with more than $50 billion in assets.
Continue reading “OCC Proposes Guidelines to Expand Recovery Planning Requirements to the Largest National Banks”
On September 2, 2014, the Office of the Comptroller of the Currency (OCC) finalized new standards that formalize “heightened expectations” for risk governance on the banks over $50 billion it regulates — and in turn, impose new levels of responsibility on the board and executive leaderships of those institutions for the risk decisions they make.
Now, banks must codify “strong risk management practices” at the bank legal entity level, including governance policies, procedures, structures and even board composition. What some banks have had to do as the result of individually targeted Matters Requiring Attention (MRAs) is now applicable to all, albeit on a phased basis according to size. All banks with more than $50 billion in assets must comply with the new rules within 18 months. Those whose assets total between $100 billion and $750 billion have six months and those with more than $750 billion must comply within two.