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Treasury Department FSOC Recognizes Climate Change as Threat to Financial Stability | Goodwin

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REGULATORY DEVELOPMENTS

FSOC RECOGNIZES CLIMATE CHANGE AS A THREAT TO FINANCIAL STABILITY

On October 21, the FSOC released a new report formally recognizing climate change as an emerging and growing threat to US financial stability. The report acknowledged actions already taken by FSOC member agencies, including the SEC, the Federal Reserve Board of Governors, the Commodities Futures Trading Commission and the Federal Housing Finance Agency. In its report, the FSOC offered more than 30 specific recommendations to US financial regulators, outlining the actions needed to identify and address climate-related risks to the financial system and promote the resilience of the financial system to those risks.

THE GOVERNOR OF THE FEDERAL RESERVE MICHELLE BOWMAN DEFENDS COMMUNITY BANKS

On October 22, Federal Reserve Governor Michelle W. Bowman delivered a speech at the 2021 Community Bankers Symposium, hosted by the Federal Reserve Bank of Chicago, in which Governor Bowman discussed the importance of community banks for the country’s financial system, and how the lack of creation of new banks is an important issue for the banking sector. Governor Bowman noted that over 2,000 new banks were formed between 1990 and 2008, unlike the 44 de novo banks formed over the past decade, and seven new banks formed from 2009 to 2013. Governor Bowman acknowledged the economic, regulatory and market realities that discourage de novo bank formation, while also highlighting how community banks provide essential services to populations underserved by large institutions through relationship-based banking and loans. Governor Bowman concluded by noting that it is important to continue discussions on how the regulatory and supervisory framework can be further tailored to ensure that community banks remain part of the future of the US financial system.

OCC POSTS FAQS ON PROPOSED JUNE 2020 ARC RULE REVISION

On October 26, the OCC published a series of frequently asked questions (FAQs) regarding its proposal to rescind the June 2020 rule of the Community Reinvestment Act (CRA). The FAQ addresses the rulemaking process and the OCC’s consideration of potential CRA issues during any transition from the June 2020 CRA rule. The OCC’s proposal d ” cancel the OCC rule on ARC of June 2020 was published in the Federal Register September 17, 2021. If passed, the proposal would replace the June 2020 OCC rule on CRA with rules based on the 1995 CRA rules that had been jointly adopted by the OCC and ‘other federal banking agencies. Comments regarding the termination proposal must be received no later than October 29, 2021.

PAYMENT SYSTEMS: REVISED CONTROLLER MANUAL AND REVISIONS

On October 21, the OCC released the revised Comptroller’s Manual “Payment Systems” booklet. This brochure is used by OCC examiners in the examination and supervision of domestic banks, federal savings associations, and federal branches and agencies of foreign banking organizations. The brochure provides reviewers with information on payment systems, types of payments, risks associated with payment systems and associated risk management practices; discusses the requirements of 12 CFR 7.1026 regarding payment system memberships; includes expanded review procedures that reviewers can use when evaluating payment products and services; and includes additional procedures for further examination of certain payment activities.

SEC RISK ALERT REGARDING REGULATORY COMPLIANCE FOR MUTUAL FUNDS AND ETFs

On October 26, staff in the SEC’s Examinations Division (staff) issued a risk alert outlining staff observations following a series of reviews focused on mutual funds and ETFs ( collectively, the funds). Staff have conducted reviews of over 50 fund complexes, spanning over 200 funds and nearly 100 advisors to assess industry practices and regulatory compliance in areas that may impact retail investors. Staff observed gaps or weaknesses in the compliance programs of the funds and their advisers and in the disclosure to investors.

With respect to compliance programs, staff observed that the funds and their advisors have not appropriately established, maintained, updated, monitored and / or adapted their compliance programs to address various business practices, including portfolio management, valuation, trading, conflicts of interest, fees and expenses, advertising and business literature.

Staff observed that some funds did not have (1) appropriate policies in place to monitor and report accurate information to their boards, (2) provide appropriate processes for 15 (c) annual reviews, (3) perform required annual compliance reviews. programs, relating to the adequacy of policies and their effectiveness, (4) ensuring that the annual report of the Chief Compliance Officer addresses the operation of the policies and procedures of the Fund Advisor, or (5) adopting or maintaining policies and appropriate procedures for fund boards to exercise appropriate oversight over their advisers.

Regarding investor disclosures, staff noted that investor disclosures were not always accurate, complete or consistent and that the disclosures in the funds’ Supplementary Information Statement (SAI) did not include the required information. . In addition, staff have observed that some funds have inaccurate, incomplete or omitted information in advertising or sales literature that can mislead investors and disrupt investment decisions.

Finally, staff provided a list of best practices to help the funds and their advisors develop adequate compliance programs and disclosure practices. These suggestions include the following: (1) reviewing compliance programs and procedures to ensure consistency with business practices, (2) performing periodic tests and reviews to verify compliance with disclosures and assess the effectiveness of policies and compliance procedures to resolve conflicts of interest, (3) ensure compliance programs adequately address supplier oversight, (4) adopt and implement policies and procedures to ensure regulatory compliance , exemption orders and related disclosures and conflicts of interest, (5) ensuring that the information provided to the board is accurate, (6) ensuring that funds adhere to the reporting processes to the board of administration, including an annual review of the compliance program, (7) review and amend disclosures in fund prospectuses, SAIs and other communications with ec investors and update disclosures on the fund website at the same time, (8) review and test fees and expenses disclosed in fund prospectuses, SAIs and other investor communications for accuracy and completeness, and (9) review and test fund performance advertising for accuracy, relevance and completeness.

CFPB ANNOUNCES FINAL RULE FOR UPDATING DOLLAR THRESHOLDS UNDER REGULATION Z

On October 25, the CFPB issued a final rule amending official interpretations of Regulation Z, which implements the Truth in Lending Act (TILA), updating the dollar amounts of various thresholds adjusted annually based on the annual change. as a percentage of the consumer price index. For use from January 1, 2022, these new dollar amounts include:

  • For indefinite consumer credit plans under TILA, the threshold that triggers the minimum interest charge disclosure requirements;
  • For indefinite consumer credit plans under the CARD Act, changes to the TILA Safe Harbor correspond to the breach penalty fee;
  • For 1994 Property and Equity Protection Loans, the Adjusted Total Loan Amount Threshold and the Adjusted Dollar Points and Fees Trigger, for High Cost Mortgages; and
  • For qualifying mortgages, the thresholds for the difference between the annual percentage rate and the average prime rate, and the thresholds for total points and fees.

“[P]Policymakers need to strike a meaningful balance in our approach to monitoring community banks. Otherwise, community banks will continue to face an inadequate regulatory and supervisory framework with a low risk profile and less complex activities than those of large institutions.
– Governor of the Federal Reserve Board, Michelle W. Bowman


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