Federal Bank Regulators Issue Joint Statement on Collaborative BSA/AML Compliance

On October 3, 2018, a group of federal bank regulators and FinCEN announced in a joint statement that banks and credit unions could collaborate and share resources to manage their Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) obligations.  A collaborative arrangement does not modify or abrogate any of the bank’s BSA/AML obligations, and the joint statement merely provides examples and guidance for how banks can manage their obligations more effectively and efficiently.

Banks that may be best served by a collaborative arrangement are those with a community focus, and lower-risk profiles for money laundering or terrorist financing.  Utilizing a collaborative arrangement requires each bank to carefully consider its own individual risk profile.  In light of sound principles of corporate governance and bank safety and soundness, each bank should enter into such an arrangement only after conducting appropriate due diligence, including adequate documentation, evaluation of legal restrictions on such an arrangement, and establishment of appropriate oversight.

Nothing in the joint statement alters the four pillars of a bank’s BSA/AML compliance program: (1) a system of internal controls to ensure ongoing compliance; (2) independent testing of BSA/AML compliance; (3) designating a BSA compliance officer; and (4) training appropriate personnel.  With appropriate limits, each of these pillars can be addressed through a collaborative arrangement.

Sharing resources through a collaborative arrangement helps banks to meet their BSA/AML compliance obligations by providing access to specialized expertise, at reduced cost, that may be difficult to obtain in some markets.  The joint statement provides examples of how collaborative arrangements can be utilized to meet a bank’s BSA/AML compliance needs.

  • Internal Controls – Banks can work collaboratively to develop BSA/AML policies and procedures, including risk-based customer identification and account monitoring systems.
  • Independent Testing – Some banks may have difficult identifying an employee to conduct an independent set of the BSA/AML compliance program. A collaborative arrangement allows personnel at one bank to conduct the independent test at another bank.  Banks should ensure that appropriate safeguards are in place to ensure confidentiality.
  • Designating a BSA Compliance Officer – This pillar may not be appropriate for a collaborative arrangement because of the risks to the confidentiality of suspicious activity reports and the need for coordination of day-to-day BSA/AML compliance needs. Further, a BSA officer of more than one bank may have difficulty establishing effective communication channels with each bank’s board and senior management.  It may be more feasible for such an arrangement if the banks are affiliated.
  • Training Personnel – The availability and cost of an effective and qualified BSA/AML instructor may be a challenge in some markets. A collaborative arrangement may help banks to hire the right person needed to appropriately train bank personnel.

Please click here for the press release and here for the joint statement.

Fintech Week in Review – Week of September 24-28

The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.

Roundup of CFTC Resources

The Commodity Futures Trading Commission (CFTC) announced on September 20, 2018 that it would hold an open meeting on September 27, 2018 to discuss fintech cooperation agreements, among other topics not directly related to virtual currencies. The CFTC cancelled the open meeting on September 26, 2018, indicating that the agenda items were “resolved through the Commission’s seriatim process.” It is unclear how the matter on fintech cooperation arrangements was handled and whether there will be a subsequent meeting open to the public or related announcement.

The CFTC’s LabCFTC is co-hosting its first fintech conference, entitled “FinTech Forward 2018,” on October 3-4, 2018 in Washington, D.C. Speakers will include domestic and international financial regulators discussing a range of topics, from emerging technology, market and regulatory trends to the role of artificial intelligence. The conference is full but interested participants can sign up for the waitlist or watch the livestream on the CFTC’s homepage.

The CFTC’s Technology Advisory Committee (TAC) announced it will be holding a public meeting on October 5, 2018 that will be webcast live on the CFTC’s website. No definitive agenda has been released. The meeting’s primary topic appears to be RegTech, but the meeting will also involve presentations from select subcommittees of the TAC, which may include the Virtual Currencies subcommittee.

LabCFTC is going on the road with Office Hours in Austin, Texas on October 23-24, 2018, which will provide FinTech entrepreneurs, investors and others to discuss issues, ask questions or give a presentation to LabCFTC staff.

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of September 24-28, 2018 from our sister blog, VirtualCurrencyReport.

Fintech Week in Review: Week of September 10-17, 2018

The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.

State Bank Regulators and NYDFS to renew litigation against OCC

On September 12, the Conference of State Bank Supervisors (“CSBS”) announced that it would renew litigation efforts in opposition to the Office of the Comptroller of the Currency’s (“OCC”) decision to accept applications from financial technology firms for a special purpose national bank (“SPNB”) charter. A D.C. federal district court dismissed the CSBS’ first lawsuit on April 30, 2018 for failure to establish injury as the OCC had not yet determined if it would offer such a charter. In July of this year, the OCC said it would offer SPNB charters to fintech firms and it was announced earlier this month that Varo Money had received preliminary approval for the first SPNB charter. In the initial lawsuit, the CBS argued that the OCC”s 2017 proposal exceeded the authority granted to the OCC by Congress under the National Bank Act (“NBA”) and other federal banking laws to charter institutions that engage in banking. New York’s Department of Financial Services (“NYDFS”) filed a lawsuit against the OCC in federal court in Manhattan on September 14, 2018 alleging similar claims against the OCC of overstepping its authority in creating a charter.

CSBS Press Release

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of September 10-17, 2018 from our sister blog, VirtualCurrencyReport.

Fintech Week in Review: Week of September 3 – 7, 2018

The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.

Varo Bank Receives Preliminary Approval for a National Bank Charter

On September 4, the organizers of the fintech start up Varo Bank, N.A. announced that they have been granted preliminary approval by the Office of the Comptroller of the Currency (“OCC”) for their application to form a de novo national bank. The charter will allow Varo to expand its financial products across the United States, largely preempting state financial regulatory licensing processes for certain money transmission activities. The OCC announced earlier this month that it would begin accepting national bank charter applications from fintech companies. Accordingly, Varo is the first fintech to receive preliminary approval under the new application process. For more information about the OCC national bank charter application process for fintech companies please see our regulatory update here.

Please click here for the press release.

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of September 3 – September 7, 2018 from our sister blog, VirtualCurrencyReport.

Fintech in Review – Week of August 20 – 24, 2018

The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.

U.S. Chamber of Commerce Announces FinTech Innovation Initiative

The U.S. Chamber of Commerce released “FinTech Innovation Initiative: Bridging the Gap Between Tech and D.C.”  The document includes a number of guiding principles for the FinTech industry, which include, among other things, promoting “new and innovative ways to access capital, such as initial coin offerings (ICOs), while advocating for tailored oversight and strong consumer and investor protections.”  The document urges the CFTC and SEC to provide additional guidance on the regulatory treatment of token sales and “broadly consider and issue expedited no-action letters.”

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of  August 20 – 24, 2018 from our sister blog, VirtualCurrencyReport.

Fintech in Review – Week of July 30 – August 3, 2018

The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.

OCC Begins Accepting National Bank Charter Applications from Financial Technology Companies

On July 31, the Office of The Comptroller of the Currency (“OCC”) announced that it will begin accepting applications for special-purpose national bank charters from fintech companies engaged in banking. A special-purpose national bank is a national bank that engages in a limited range of banking or fiduciary activities, targets a limited customer base, incorporates nontraditional elements or has a narrowly targeted business plan. The OCC’s decision to open charter applications to fintech companies comes after over two years of extensive outreach with market participants and numerous reports from the OCC staff. The application process for fintech companies would be substantially similar to traditional national banks, with the OCC supervising capital, liquidity and financial inclusion commitments. The OCC would also subject new fintech companies that become special-purpose national banks to heightened OCC supervision consistent with other newly chartered national banks. The OCC stated in its announcement that fintech companies receiving such a charter “should not be permitted to accept FDIC-insured deposits, to reduce risks to taxpayers” and that the Federal Reserve should decide whether those firms should have access to the payments system.

The new OCC charter application process provides an alternative method for fintech companies wishing to engage in certain regulated money transmission activities in lieu of the patchwork registration process with state financial regulators. Also in its announcement, the OCC recognized the role state regulators play in managing the licensing requirements across the states. The OCC also encouraged state regulators to work together to propose a more unified system for managing lending and money transmission activities.

Please click here for the press release.

New York Department of Financial Services Voices Opposition to Regulatory “Sandboxes” and OCC Charters for Fintech Companies

On August 2, the New York State Department of Financial Services (“DFS”) Superintendent, Maria T. Vullo, issued a statement in opposition of the Department of Treasury’s endorsement of regulatory “sandboxes” for fintech companies. In the statement, the Superintendent equated companies operating in regulatory “sandboxes” with toddlers: “Toddlers play in sandboxes. Adults play by the rules. Companies that truly want to create change and thrive over the long term appreciate the importance of developing their ideas and protecting their customers within a strong state regulatory framework.”

The DFS Superintendent also rebuked the Office of the Comptroller of the Currency (“OCC”) for its decision to begin accepting applications for national bank charters for fintech companies. The DFS opposition to the OCC’s decision was also predicated on the adequacy of state regulatory rules to address the needs of fintech companies. The DFS Superintendent stated that “[A] national fintech charter will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape.”

Please click here for the DFS statement.

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of July 30 – August 3, 2018 from our sister blog, VirtualCurrencyReport.

Fintech Week in Review: Week of July 9, 2018

FINRA Issues a Regulatory Notice for Firms to Let FINRA Know About Digital Asset Activities

On July 6, the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization that primarily oversees the regulation of broker-dealers, issued a new Regulatory Notice to encourage firms to notify FINRA if they engage in activities related to digital assets.

For FINRA, the Regulatory Notice is part of a greater effort to determine the extent of FINRA member involvement relating to digital assets.  To achieve its fact-finding mission, the Regulatory Notice asks that firms subjected to FINRA’s jurisdiction to notify FINRA if they or their affiliates are currently, or intent in the future to engage in any activities related to digital assets.  The Regulatory Notice provides a comprehensive list of the types of activities that might qualify as “related to digital assets,” including the purchases, sales or executions of transactions in digital assets or derivatives tied to digital assets, and the custody of digital assets.  FINRA’s request for information through the Regulatory Notice extends until July 31, 2019.  Finally, to the extent that FINRA has already been in contact with a firm about its digital asset activities, the Regulatory Notice requests that the firm notify FINRA of any changes to the firms’ activities.

Please click here to find the Regulatory Notice.

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of July 9, 2018 from our sister blog, VirtualCurrencyReport.

Court Rules That Consumer Financial Protection Bureau Is Unconstitutional

Summary of SDNY order holding that CFPB is unconstitutional

CFPB v. RD Legal Funding, LLC, 17-cv-890 (June 21, 2018, S.D.N.Y.)

Last week, a federal court in New York ruled that the entire Consumer Financial Protection Bureau (“CFPB”) is unconstitutional. The CFPB was established by Congress in response to the 2007-2008 financial crisis to regulate financial institutions and protect consumers, especially with respect to mortgages, credit cards, and student loans. Although the CFPB has refrained from regulating virtual currencies and other distributed ledger technologies, that could change as these technologies are applied to mortgages, loans, and other areas of consumer finance.

The court’s ruling is notable for its lack of analysis. Although it exceeds 100 pages, the court devotes fewer than 2 pages to the constitutionality of the CFPB. The analysis begins by rejecting, without explanation, a recent federal court of appeals decision in PHH Corp. v. CFPB, which held that the CFPB is, in fact, constitutional.

Instead, the ruling combines different parts of two dissenting opinions in PHH Corp. It adopts the legal reasoning of the first dissent but rejects its remedy. Its preferred remedy—striking down the entire CFPB—comes from the second dissent, which was supported by only 1 of 10 judges who decided PHH Corp. In other words, the analysis consists of opinions already rejected by the court of appeals.

Typically, this ruling would have few practical consequences. It is not precedent for other courts and, given its contradiction of the court of appeals, will likely be overturned. The Trump administration, however, is critical of the CFPB and may choose to accept the ruling. Doing so might encourage more lawsuits against the CFPB, embolden the agency’s critics, and make it easier for other courts to find the CFPB unconstitutional.

These outcomes, if they occur, could affect how companies offer consumer financial services in the future, including those based on distributed ledger technology. We will report on these developments as they occur. For now, though, the CFPB will continue to operate as it has.

Continue to check our blog for updates on this issue.

Fintech in Review – Weeks of April 21st through May 4th, 2018

Below is a summary of some of the significant legal and regulatory actions that occurred over the past weeks. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Weeks of April 21st through May 4th, 2018 from our sister blog, VirtualCurrencyReport.

CFTC Issues Request for Input on LabCFTC Prize Competitions

LabCFTC of the Commodity Futures Trading Commission (CFTC), tasked with leading the Commission’s FinTech initiative, issued a Request for Input in which it solicited the general public for ideas and topics for innovation competitions Under the Science Prize Competition Act, which became law in 2017, government agencies may hold competitions and award prizes, which the CFTC seeks to do in the areas of FinTech and RegTech, to promoting market-enhancing development.  LabCFTC is seeking input specifically on (i) areas/topics of focus for potential innovation competitions; and (ii) how best to structure competitions to maximize their impact in financial markets.  The Request for Information mentions possible competition topics including automated trading, “big data” analysis and interpretation (developing data visualization tools), the use of AI in trade execution, smart contracts that calculate payments in real-time, behavioral biometrics to detect and combat online fraud, and blockchain/DLTs.  All comments must be received by July 24, 2018 in the Federal Register on the CFTC’s website.

CFTC Press Release 4.24.18; CFTC Request 2018-08673

SEC Requests Comment on Bitcoin Futures ETFs

On March 23, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued an order instituting proceedings to determine whether it will approve or disapprove a proposal for Bitcoin futures exchange-traded funds (“ETFs”) (the “Order”).Commenters will have until April 19, 2018 to submit comments.  Those with rebuttals to the comments will have until May 3, 2018 to submit rebuttals.

Read more on our sister blog Derivatives & Repo Report

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