Rules and Regulations: Volcker Rule among Several Recently Released Final Rules

Agencies Request Comments on the Following Proposed Rules

OCC proposes guidelines establishing heightened standards for risk governance frameworks for certain banks

The Office of the Comptroller of the Currency (OCC) is proposing guidelines establishing minimum standards for the design and implementation of a risk governance framework for large insured national banks, insured federal savings associations and insured federal branches of foreign banks with average total consolidated assets of $50 billion or more. The proposed guidelines also outline minimum standards for a board of directors in overseeing the framework’s design and implementation. Finally, the OCC also proposes making its safety and soundness regulations applicable to both national banks and federal savings associations and to remove the comparable federal savings associations regulations. Comments are due March 28.

FRS proposes amending risk-management standards

The Federal Reserve System (FRS) is proposing to amend the risk-management standards currently in Regulation HH by adopting a common set of risk-management standards applicable to all types of financial market utilities (FMUs), in accordance with the recently revised Principles for Financial Market Infrastructures. Currently, Regulation HH has two standards: one for FMUs that operate a payment system and one for FMUs that operate a central securities depository or a central counterparty. Comments are due March 31.

FRS requests comment of payment system risk policy

The Federal Reserve Board is proposing to revise Part I of its Federal Reserve Policy on Payment System Risk Policy, which sets forth the Board’s views and related principals and minimum standards regarding the management of risk in payment, clearing and settlement systems. The proposed changes are in light of international risk-management standards, enhanced supervisory framework for designated FMUs under the Dodd-Frank Act, and compliance with Regulation HH. Comments are due March 31.

FRS proposes rule facilitating electronic check collection and return

The FRS is proposing two alternative frameworks for return collection intended to encourage banks to send and receive returned checks electronically. The first alternative would eliminate the expeditious-return requirement and require notice of nonpayment regardless of the amount of the check. Under the second alternative, the current two-day test would be retained for electronic returns but the notice of nonpayment requirement would be eliminated. Comments are also requested on a change that would apply existing check warranties to checks that are collected electronically and on new warranties and indemnities related to electronic items. Comments are due May 2.

Final Rules

Several agencies issue final rule prohibiting banking institutions from engaging in proprietary trading with hedge funds and private equity funds

On Jan. 31, the OCC, FRS, Federal Deposit Insurance Corp. (FDIC) and the Securities and Exchange Commission (SEC) issued a final rule, pursuant to Section 619 of the Dodd-Frank Act (Volcker Rule), prohibiting and restricting the ability of banking entities and nonbank financial companies from engaging in proprietary trading and from having certain interests in, or relationships with, hedge funds or private equity funds. This rule is effective April 1.

CFPB publishes revised consumer information publications

The Dodd-Frank Act requires the Consumer Financial Protection Bureau (CFPB) to publish three consumer information publications related to mortgage and home equity line of credit transactions: “What You Should Know About Home Equity Lines of Credit,” “Consumer Handbook on Adjustable-Rate Mortgages” and “Shopping for Your Home Loan: Settlement Cost Booklet.” The CFPB is making technical and conforming changes to each of the three publications in conjunction with the January 2014 effective dates for many provisions of the CFPB’s rulemakings regulating practices in mortgage origination and servicing. Those institutions that distribute the publications may immediately begin distributing the revised publications or continue distributing their current supply until exhausted. This was effective Jan. 10.

CFPB issues final rule and official interpretation on integrated mortgage disclosures under RESPA and TILA

The CFPB issued a final rule that combines certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act (TILA) (Regulation X) and the Real Estate Settlement Procedures Act (RESPA) (Regulation Z). The CFPB’s rule establishes new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property. In addition, the final rule provides extensive guidance regarding compliance with those requirements. This rule is effective Aug. 1, 2015.

CFPB issues final rule amending asset-size threshold for higher-priced mortgage loan escrow exemption under TILA

The CFPB issued a rule amending its official commentary to Regulation Z to reflect a change in the asset size threshold for certain creditors to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans. In 2014, loans made by creditors with assets of $2.2028 billion or less as of Dec. 31 that meet the other requirements will be exempt from the escrow-accounts requirement for higher-priced mortgage loans. The asset-size threshold is being increased from its previous levels, set in January 2013. This rule was effective Jan. 1.

Several agencies issue final joint rule amending Community Reinvestment Act regulations and asset-size thresholds

The FDIC, FRS and OCC issued a rule amending their Community Reinvestment Act regulations to adjust the asset-size thresholds used to define “small bank” or “small savings association” and “intermediate small bank” or “intermediate small savings association.” Beginning Jan. 1, 2014, banks and savings associations that, as of Dec. 31 in either of the prior two calendar years, had assets of less than $1.202 billion are defined as small banks or small savings associations. Small banks and small savings associations with assets of at least $300 million as of Dec. 31 of both of the prior two calendar years and less than $1.202 billion as of Dec. 31 of either of the prior two calendar years are intermediate small banks or intermediate small savings associations. This rule was effective Jan. 1.

Several agencies issue final rule amending appraisal requirements for higher-priced mortgage loans under TILA

The CFPB, FRS and OCC issued a final rule revising TILA (Regulation Z) by requiring appraisals for higher-priced mortgage loans. On Aug. 8, the agencies published a proposed rule exempting certain transactions from the appraisal requirements, namely transactions secured by existing manufactured homes and not land, certain “streamlined” refinancings and transactions of $25,000 or less. Also proposed was a modified definition of a “business day” and some technical corrections. The final rule adopts, in part, the proposed rule. Specifically, the agencies are adopting exemptions for certain types of refinancings and transactions of $25,000 or less (indexed for inflation) and a temporary exemption of 18 months for all loans secured in whole or in part by a manufactured home. The agencies are not adopting the proposed definition of “business day.” A revision to the exemption for “qualified mortgages” is adopted that is similar to the proposed revision, as well as a few proposed nonsubstantive technical corrections. The rule was effective Jan. 18.

FDIC issues final rule rescinding certain regulations related to recordkeeping and confirmation requirements for securities transactions

The FDIC issued a rule rescinding and removing 12 CFR part 390, subpart K, which was transferred from the Office of Thrift Supervision to the FDIC in 2011, regarding recordkeeping and confirmation requirements for securities transactions. The FDIC is also amending part 344 to clarify that the section applies to all insured depository institutions. The proposed rule was published in the Federal Register on Sept. 4. This rule was effective Jan. 24.

FRS issues final rule amending market risk capital rule

The FRS issued a rule revising its market risk capital rule by addressing recent changes to country risk classifications, clarifying the treatment of certain traded securitization positions, making technical amendments and clarifying timing requirements. This rule is effective April 1.

CFPB issues final rule amending annual threshold adjustments under the CARD Act and HOEPA

The CFPB issued a final rule implementing annual adjustments under the CARD Act and HOEPA, which are amendments to the TILA. The CFPB final rule establishes the 2014 annual minimum interest charge disclosure threshold and penalty safe harbor fees under the CARD Act and establishes the 2014 HOEPA annual threshold adjustment for certain closed-end home mortgage loans and the revised fee trigger, as enacted January 2013. This rule was effective Jan. 1.

HUD issues final rule defining “qualified mortgage” for HUD insured and guaranteed single-family mortgages under TILA

The Department of Housing and Urban Development (HUD) issued a final rule adopting a definition of “qualified mortgage” for HUD-insured single-family residential loans. The definition aligns with the statutory ability-to-repay criteria of TILA and the CFPB. This rule was effective Jan. 10.

CFPB issues final rule defining larger participants of the student loan servicing market

The CFPB issued a final rule identifying larger participants of the student loan servicing market who are covered persons subject to CFPB supervision. The rule amends the existing larger participant rule found at 12 CFR 1090. This rule was effective March 1.

FRS and Treasury issue final rule amending definitions of transmittal of funds and funds transfers under the Bank Secrecy Act

Under the Bank Secrecy Act (BSA), banks and nonbank financial institutions are required to collect and retain information on certain funds transfers and transmittals of funds. Section 919 of the Electronic Fund Transfer Act (EFTA) created a comprehensive new system of consumer protections for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries. The definitions of funds transfers and transmittals under the EFTA would result in certain transactions falling outside the scope of the BSA. This final rule amends the definitions of “funds transfers” and “transmittal of funds” to avoid currently covered transactions from being excluded from BSA requirements. This rule was effective Jan. 3.

CFPB and FRS issue final rule adjusting exemption threshold under the Consumer Leasing Act

The CFPB and FRS issued rules amending Regulation M (which implements the Consumer Leasing Act), including the revisions to the threshold for exempt transactions. This rule adjusts the exemption threshold to $53,500 and was effective Jan. 1.

CFPB and FRS issue final rule adjusting threshold for exempt consumer credit transactions under the Truth in Lending Act

The Dodd-Frank Act amending TILA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually for inflation. The FRS and CFPB adjusted the exemption threshold to $53,500 and was effective Jan. 1.

CFPB issues homeownership counseling organizations lists interpretive rule

On Jan. 31, 2013, the CFPB published a final rule pursuant to Regulation Z and RESPA requiring lenders to provide federally related mortgage loan applicants with a reasonably complete or updated list of homeownership counseling organizations located in the area of the lender. This final rule describes data instructions for lenders to use in compliance with this requirement to provide a homeownership counseling list using data made available by HUD. This rule was effective Jan. 10.

FHFA issues final rule removing references to credit ratings in various Federal Home Loan Bank regulations

The Federal Housing Finance Agency (FHFA) issued a rule removing references to credit ratings issued by nationally recognized statistical rating organizations in certain regulations affecting Federal Home Loan Banks (FHLBs) related to the assessment of the credit worthiness of a security or money market instrument. The FHFA is also adopting new provisions that would require the FHLBs to apply internal analytic standards and criteria to determine the credit quality of a security or obligation. This rule is effective May 7.

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