Regulatory Compliance Update March 2019

Regulatory Compliance Update

By: Hickman Beckner, Senior Vice President

We have reviewed the Compliance News for February 2019. The banking regulators (Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency) have proposed changes. The FFIEC has announced changes in the Call Report and the NCUA has published changes in the Credit Union Call Report.

Banking Regulators – Proposed several changes to rules covering real estate appraisals:

Raising the exemption threshold for an appraisal to $400,000 loan amount
Exempting loans secured by residential property in rural areas
Requiring appraisals to be subject to review and compliance with Uniform Standards of Professional Appraisal Practice (USPAP) as required by Dodd-Frank.

The banking regulators also announced that the Call Report changes proposed in November 2018 will be adopted. The regulators have also proposed changes to the Bank Call Report to align the regulatory reporting with the revised FASB accounting standards for allowance for credit losses. The revisions apply to Schedule RI-C, to combine the detail for mortgage back securities, and to Schedule RC-R, to use revised terminology in the forms and instructions.

NCUA – Has announced changes in the Credit Union Call Report. The changes reflect the changes in the Bank Call Reports for allowance for credit losses. The changes will also align the Credit Union Call Report with the Bank Call Report as amended.

Significant Dates:

March 6, 2019 – Effective date of the FDIC’s final rule that exempts certain reciprocal deposits from being considered “brokered deposits” for certain insured institutions.

March 18, 2019 – Comments due on the CFPB’s proposal to delay the effective date for “ability to repay” provisions of the final rule covering payday loans, vehicle title loans and certain high-cost installment loans.

March 31, 2019 – Comments due on FDIC’s request for information regarding the deposit insurance application process. The date has been extended from February 11, 2019.

April 1, 2019 – Effective date for CFPB rules for Prepaid Accounts which implement changes to Regulation Z and Regulation E. The date was extended from April 1, 2018.

April 1, 2019 – Effective date of the final interagency regulatory capital rules regarding the implementation and transition of the new FASB methodology for expected credit losses.

August 19, 2019 – Published Compliance date for CFPB’s final rule for payday loans.

Emerging Issues:

End Banking For Human Traffickers Act – would direct the banking regulators to cooperate with law enforcement to combat the use of the financial system for human trafficking. The Act would also protect victim’s access to bank accounts.

Flood Insurance Rate Map Interagency Technology Act – would improve mapping under the National Flood Insurance Program.

Bank Service Company Examination Coordination Act – would require coordination of federal and state banking regulatory agencies in the regulation and examination of the activities of bank service companies. The Act also provides for sharing of information among federal and state regulators.

Financial Reporting Threshold Modernization Act – would raise the currency transaction reporting threshold to $30,000 from $10,000, the suspicious activity reporting threshold to $10,000 from $5,000 and the suspicious activity reporting threshold to $3,000 from $2,000.

What is happening to LIBOR?

LIBOR Being Replaced by SOFR in 2021

Regulators are replacing the London Interbank Offered Rate (LIBOR) with a new benchmark known as the Secured Overnight Financing Rate (SOFR) in 2021. SOFR is based on overnight reverse repurchase agreements that offer a deep and liquid market with actual transactions to use as a base. SOFR, an overnight rate based on Treasury repurchase transactions, is the preferred alternative rate for USD LIBOR. SOFR daily trading activity is at around $800 billion, which is about 1,500 times daily LIBOR quotations. In a repurchase transaction U.S. Treasury securities are exchanged for a cash loan with the agreement that the securities will be repurchased by the borrower at a set date in the future. The Treasury securities serve as the collateral for the loan.

Why do they want to get rid of LIBOR?

For decades, Libor provided a reliable way to determine the interest rate for a wide variety of credit instruments from student loans and mortgages to highly complex derivatives. It’s derived from a daily survey of about 20 large banks that estimate how much it would cost to borrow from each other without putting up collateral. The LIBOR rate quoted is an estimate and not an actual transaction, and LIBOR was becoming more theoretical than real. That was vastly compounded by the discovery of rampant manipulation by U.S. and European lenders that were forced to pay billions of dollars to settle rigging and other charges. All this is why the United Kingdom’s Financial Conduct Authority (FCA) pledged to stop compelling firms to provide estimates by the end of 2021, and why regulators around the world are rushing to establish alternatives.

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