Weekly Fintech Focus
- Federal financial regulators for banks and non-banks reduce supervisory burdens and encourage covered entities to work with consumers that are affected by COVID-19
- Regulators encourage contactless payment innovations to work towards sanitary payments in stores.
- FinCEN issues an advisory on FATF-identified jurisdictions with AML/CFT deficiencies.
- Goldman Sachs and Morgan Stanley are approved for majority stakes in China ventures.
- Russian Prime Minister introduces a bill to allow fintech sandboxes.
Federal Financial Regulators Continue to Provide Guidance to Respond to COVID-19
The past two weeks have seen a flurry of activity by the prudential bank regulators in the United States and around the world as they work to clarify their positions on regulatory oversight in light of COVID-19 and to encourage financial institutions to work with customers during this time.
Following the interagency statement from March 22, 2020 that encouraged financial institutions to work with borrowers affected by COVID-19 to modify loans, the federal financial regulatory agencies have issued numerous statements and guidance for responding to the challenges posed by the COVID-19 pandemic. The Federal Financial Institutions Examination Council (FFIEC) announced that it is actively discussing and identifying measures to maintain safety and soundness and protect consumers. We expect further announcements in the coming weeks as the financial regulators better understand the challenges facing financial institutions.
The five federal financial regulatory agencies issued a statement that encouraged financial institutions to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19. These loans should be offered fairly to consumers and should be consistent with safe and sound practices. If a borrower experiences unexpected circumstances and cannot repay a loan, then the financial institutions are encouraged to consider workout strategies.
To support financial institutions’ modified lending practices and other changes to operations during this time, the federal financial regulatory agencies are also modifying their supervisory approach to minimize disruption and focus on outreach and monitoring. This should allow financial institutions to focus on heightened risks and have more time to resolve noncritical existing supervisory findings.
CFPB Provides Flexibility Because of COVID-19
The Consumer Financial Protection Bureau (CFPB) announced that it is providing flexibility to financial companies working with customers that are facing challenges as a result of COVID-19. The CFPB is postponing certain data collection activities, including information related to credit card and prepaid accounts subject to the Truth in Lending Act, Regulation Z, and Regulation E, such as annual submissions of credit card agreements between issuers and institutions of higher education, quarterly submissions of consumer credit card agreements, and submission of prepaid account agreements.
The CFPB will not cite in an examination or initiate an enforcement action against an entity that fails to submit such information. The CFPB will be updating covered entities about submission timelines at a later date.
Finally, the CFPB will also work with affected financial institutions to schedule examinations and other supervisory activities in order to minimize disruption and burden during this time.
The EBA Encourages Contactless Payments
Practices and habits in the payments space are changing rapidly in response to the COVID-19 pandemic as consumers forgo in-store shopping and banking, and instead more often utilize online options. For in-store payments, the interaction between the consumer and the point-of-sale often involves the passing of a payment instrument between the consumer and the sales clerk or touching of a point-of-sale payment terminal. In an age of social distancing and hand sanitizer, communal services and close interactions between people are avoided or at least a cause for anxiety.
As part of the European Banking Authority’s (EBA) recent guidance to financial institutions, the EBA focused on sanitary payments. The EBA encourages payment service providers to work towards making payment capabilities that do not require physical contact, including through use of an exemption from strong customer authentication available for contactless payments. The EBA also encourages consumers and merchants to use contactless or remote payments when possible.
FinCEN Advisory on FATF-Identified Jurisdictions with AML/CFT Deficiencies
This week, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions of updates to the Financial Action Task Force (FATF) list of jurisdictions that exhibit strategic anti-money laundering (AML) and combating the financing of terrorism (CFT) deficiencies. FinCEN recommends that financial institutions particularly consider its categorization of jurisdictions when financial instructions review their obligations and risk-based policies, procedures, and practices (e.g., AML Program and due diligence efforts) in those jurisdictions.
FATF’s list categorizes jurisdictions into two categories: (1) High-Risk Jurisdictions Subject to a Call for Action, which identifies jurisdictions that are subject to the FATF’s call for countermeasures and/or enhanced due diligence because of their significant strategic AML/CFT deficiencies; and (2) Jurisdictions under Increased Monitoring, which identifies jurisdictions that are actively working with FATF to address strategic AML/CFT deficiencies.
| Jurisdictions with Strategic AML/CFT Deficiencies | |
| High-Risk Jurisdictions |
· Democratic People’s Republic of Korea (DPRK) · Iran |
| Jurisdictions under Increased Monitoring |
· Albania* · The Bahamas · Barbados* · Botswana · Burma (Myanmar)* · Cambodia · Ghana · Iceland · Jamaica* · Mauritius* · Mongolia · Nicaragua* · Pakistan · Panama · Syria · Uganda* · Yemen · Zimbabwe |
*Newly Added
Among other things, FinCEN reminds financial institutions that they must comply with U.S. restrictions and prohibitions on opening or maintaining any correspondent accounts (directly or indirectly) with North Korean or Iranian financial institutions under section 312 of the USA PATRIOT Act (existing sanctions and FinCEN regulations already prohibit such correspondent account relationships with both countries). An overview of section 312 can be found here.
If you have any questions or comments regarding FinCEN’s advisory, please contact FinCEN at frc@fincen.gov or the authors of this posting (Sam Boro at Sboro@perkinscoie.com or Nick Lundgren at Nlundgren@perkinscoie.com).
International Developments
Goldman Sachs and Morgan Stanley Are Approved for Majority Stakes in China Ventures
Both Goldman Sachs and Morgan Stanley announced that they have received final regulatory approval to take majority stakes in their respective China securities joint ventures. These approvals coincide with China’s recent trend of opening their economy to foreign investment.
China Securities Regulatory Commission has approved Goldman Sachs and Morgan Stanley to increase their respective ownership interest in Goldman Sachs Gao Hua Securities and Morgan Stanley Huaxin Securities from 33% to 51% and 49% to 51% respectively. While both exercised significant managerial control, neither bank previously held a majority interest in their Chinese operations.
This announcement follows UBS’s approval in 2018 and Nomura Holdings and JPMorgan’s approval last year. Credit Suisse is still waiting for approval of its application.
Russian Prime Minister Introduces Bill to Allow Fintech Sandboxes
Mikhail Mishustin, the Prime Minister of Russia, recently introduced a bill (in Russian) to enable the live testing of new technologies in medicine, transportation, distance learning, financial markets, and e-commerce in an effort to deal with novel tech in a flexible manner. The sandbox environments relating to fintech would be supervised by the Bank of Russia, Russia’s central bank.
Among other things, fintechs operating in these sandbox environments would be subject to lighter regulation regarding cash reserves, financial reporting, and foreign currency controls per representations of the Economic Development Ministry in Russia.
While the Bank of Russia has maintained skepticism towards cryptocurrencies and has even stated that it is involved in drafting legislation that would block cryptocurrency marketplaces from operating in Russia, this bill contains an explanatory note that mentions distributed ledger technologies as being one that could be explored in the sandbox environment. Notwithstanding, Center for Advanced Governance in Moscow Director Mikhail Komin hypothesized that Russia is unlikely to become more accepting of cryptocurrencies: “The Bank of Russia is interested in lowering uncertainty in the financial and foreign currency markets caused by the volatility of the Russian ruble, and it believes cryptocurrencies would add even more uncertainty.”