BPInsights: October 25, 2019

BPInsights: October 25, 2019

Top of the Agenda

House Passes Legislation to End Anonymous Shell Companies, Reform AML

On October 22, the House passed legislation to end anonymous shell companies and to strengthen and modernize the anti-money laundering (AML) regime by a bipartisan vote of 249-173. The House approved HR 2513, the Corporate Transparency Act of 2019, with the full text of HR 2513, the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act of 2019 (COUNTER Act). The Corporate Transparency Act, sponsored by Congresswoman Carolyn Maloney (D-NY), would prohibit anonymous shell companies, which are used by criminals to hide assets for a range of dangerous and illicit activities, including human trafficking, terrorist financing, money laundering and corruption by foreign governments. The COUNTER Act would strengthen and modernize the AML regulatory regime, including a focus on technology and increased feedback between regulators, law enforcement and financial institutions.

“Reform of AML and shell company laws would allow banks and their partners in law enforcement to better detect illegal activities,” BPI President and CEO Greg Baer said in a release. “Today’s House passage makes it clear that momentum is building to finally make these commonsense fixes.” BPI has long supported legislative efforts to end anonymous shell companies and modernize the anti-money laundering regime. A group of eight senators has introduced similar legislation to end anonymous shell companies and modernize the AML system. To review additional BPI resources on the issues, please visit www.EndAnonymousShellCompanies.com.



5 Stories Driving the Week

1. Fed, FDIC Issue Request for Information on Use and Implications of CAMELS Rating System

On October 18, the Federal Reserve and the FDIC issued a request for information (RFI) on the CAMELS rating system. Federal banking agencies use the CAMELS system to evaluate the condition of insured depository institutions according to the following six factors: (i) capital adequacy, (ii) asset quality, (iii) management, (iv) earnings, (v) liquidity, and (vi) sensitivity to market risk. The RFI specifically solicits feedback on the “consistency of ratings assigned” under the system and their use for enforcement and bank applications such as new branches and bank mergers and acquisitions transactions. The RFI is consistent with the agencies’ commitment to “increase transparency, improve efficiency, support innovation, and provide opportunities for public feedback.”  The Federal Financial Institutions Examination Council (FFIEC) first adopted the rating system in 1979 to provide supervisors with a methodology for evaluating the soundness of depository institutions on a uniform basis.  The system has not been updated since 1996.  BPI has long supported a reevaluation of the CAMLELS system and its usage in applications processes, including in April testimony before the Senate Banking Committee.


2. GAO Finds That Several Federal Reserve Guidance Documents Are Rules Under the Congressional Review Act

On October 22, the Government Accountability Office (GAO) issued two legal opinions finding that several Supervision and Regulation Letters issued by the Federal Reserve qualify as rules for the purposes of the Congressional Review Act (CRA). The Congressional Review Act requires major rules issued by federal agencies to be submitted to Congress and the Comptroller General of the GAO before they can take effect. The decision, which comes in response to requests from Senator Thom Tillis (R-NC) and other senators, applies to letters addressing “Supervisory Guidance on Model Risk Management,” “Consolidated Supervision Framework for Large Financial Institutions,”  and “Consolidated Recovery Planning for Certain Large Domestic Bank Holding Companies.”

Read Legal Opinion #1 >>
Read Legal Opinion #2 >>

3. Lawmakers Question Facebook CEO Zuckerberg over Digital Currency Plans

At an October 23rd panel hearing, lawmakers on both sides of the aisle on the House Financial Services Committee raised concerns about Facebook’s planned Libra digital currency. Lawmakers raised concerns about the Facebook platform’s existing challenges, and many suggested that those needed to be addressed first before the firm could take on the challenge of building a global payment system with its Libra network. Facebook CEO Mark Zuckerberg said Facebook would not offer Libra anywhere in the world “unless all U.S. regulators approve it.” When asked about recent departures from the project, including PayPal, Mastercard and Visa, Zuckerberg acknowledged that Libra is “a risky project and there’s been a lot of scrutiny.” Lawmakers on both sides of the aisle questioned Facebook’s preparedness to launch its digital currency, including addressing concerns on money laundering, criminal activity, data security, discrimination and currency manipulation.


4. Bipartisan Lawmakers Urge FSOC to Study CECL Accounting Standard

On October 18, a bipartisan group of 28 House members sent a letter to Treasury Secretary Steven Mnuchin urging the Financial Stability Oversight Council to require the Office of Financial Research to study the financial stability effects of the Current Expected Credit Loss (CECL) accounting standard. “Numerous industries and organizations have voiced concern over the impact CECL will have, not only on businesses, but on the individuals and families they serve,” the lawmakers said in the letter. At a House Financial Services Committee hearing on October 22, Secretary Mnuchin said he saw the lawmakers’ letter and FSOC would be discussing CECL at their next meeting. “We’re pleased at least there are certain delays in implementation,” Mnuchin said. “And I will be discussing your request at the next FSOC meeting to see if the committee thinks we should do this.”


5. SCOTUS to Hear Challenge to CFPB’s For-Cause Removal Provision 

On October 18, the U.S. Supreme Court granted certiorari in Selia Law v. CFPB, agreeing to hear arguments on the constitutionality and severability of the clause in Title X of the Dodd-Frank Act permitting the President to remove the CFPB Director only for cause. The decision comes after the CFPB announced last month that it would no longer defend the agency’s structure in legal challenges to its constitutionality and urged the Court to grant certiorari in the case.



In Case You Missed It

Judge Rules Against OCC FinTech Charter 
On October 21, a Southern District of New York judge ruled that the OCC cannot issue bank charters to institutions that do not take deposits, dealing a blow to the agency’s attempt to offer a limited national charter to financial technology firms. The case was brought by the New York Department of Financial Services. The U.S. District Court of D.C. ruled in September that a similar lawsuit brought by the Conference of State Bank Supervisors did not have standing since no charter had yet been issued. The OCC announced October 22 that it will appeal the Southern District of New York’s decision.

BPI, ABA, and SIFMA Provide Recommendations to NIST on Draft Privacy Framework
On October 24, BPI, through its technology policy division known as BITS, along with the American Bankers Association (ABA) and the Securities Industry and Financial Markets Association (SIFMA), submitted a comment letter to the U.S. Department of Commerce regarding the National Institute of Standards and Technology’s (NIST) preliminary draft of the Privacy Framework. The Privacy Framework is a voluntary tool designed to help organizations of all sizes identify and assess privacy risk and implement solutions to better protect consumers.  “We believe that the NIST Privacy Framework can serve as a valuable tool that organizations may use to build and adapt a privacy program that fits the size, complexity, risk profile, and unique attributes of a particular institution and their sector,” the associations wrote in their letter.

US Financial Regulators Join Global Financial Innovation Network
The CFTC, FDIC, OCC and the SEC announced on October 24 that they are joining the Global Financial Innovation Network. The Network consists of 46 other financial authorities, central banks and international organizations working together to foster greater cooperation among financial authorities on a variety of innovation topics, regulatory approaches, and lessons learned. Separately, the CFTC also announced on October 24 at its Fintech Forward Conference that LabCFTC will become an independent operating office of the CFTC, reporting directly to Chairman Heath Tarbert. LabCFTC is charged with engaging with fintech innovators and promoting responsible innovation.

The full press releases can be viewed here:

Upcoming Events

  • 10/29/2019 — House Financial Services Subcommittee Hearing on LGBTQ+ Discrimination in Lending and Financial Services
  • 10/29/2019 — Federal Reserve FOMC Meeting
  • 10/29/2019 — House Financial Services Committee Markup
  • 10/31/2019 — American Action Forum Panel Event on “The Federal Reserve and Real-Time Payments” with BPI’s Mike Lee and Rep. Ted Budd (R-NC)
  • 11/06/2019 — CFPB Hosts Small Business Lending Marketplace
  • 11/14/2019 — Fed’s Clarida Delivers Keynote Remarks at Cato Monetary Policy Conference 
  • 11/14/2019 — AEI Event titled “Can the Federal Reserve manage the next economic crisis?”
  • 11/19/2019 — The Clearing House + BPI 2019 Annual Conference: The Clearing House and BPI will host the 2019 Annual Conference from November 19 to 21.  The event provides a forum for the industry’s leaders to examine the changing dynamics of the bank regulatory and payments landscapes with two and half days of high-level keynote speakers, in-depth expert panels, and networking. Registration ends soon.


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