Greg Kilminster
Head of Product - Content
OCC publishes June enforcements
The Office of the Comptroller of the Currency (OCC) has released June’s enforcement actions taken against national banks, federal savings associations, and individuals affiliated with these institutions.
- Bank enforcement actions
This month’s enforcement actions include:
Credit Suisse AG New York Branch: The OCC entered a Formal Agreement to address compliance deficiencies related to the Bank Secrecy Act and other anti-money laundering laws. This agreement was a condition for the branch's conversion to a federal licence, aligning with a previous agreement with the Federal Reserve Bank of New York and the New York State Department of Financial Services.
Touchmark National Bank, Alpharetta, Georgia: A Formal Agreement has been made to address unsafe or unsound practices in strategic planning, board and management oversight, liquidity risk management, interest risk management, credit risk management, audit, and information technology.
- Actions against institution-affiliated parties (IAPs)
The term “institution-affiliated party” (IAP) includes bank directors, officers, employees, and controlling shareholders. Orders of Prohibition prevent an individual from participating in the affairs of a bank or similar institution.
Manuel Alejandro Ramirez Perez: An Order of Prohibition has been issued against the former Relationship Banker and Credit Solutions Advisor at Bank of America, for improperly accessing customer accounts and disclosing information to a third party.
Avianna Rivera: An Order of Prohibition has been issued against the former Personal Banker at First National Bank Texas, for embezzling $11,500 from a customer’s account.
- Termination of enforcement actions
The OCC terminates enforcement actions when a bank demonstrates compliance with all the articles of an enforcement action, when articles become outdated, or when they are incorporated into a new action.
Commonwealth National Bank, Mobile, Alabama: The OCC has terminated the Formal Agreement dated 31 January 2022, regarding unsafe or unsound practices in strategic planning, loan portfolio management, and internal audit.
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OCC releases revised HMDA reporting guide
The Office of the Comptroller of the Currency (OCC) has announced the release of the Federal Financial Institutions Examination Council’s (FFIEC) revised “A Guide to HMDA Reporting: Getting it Right!” (2024 guide). This guide, applicable from 1 January 2024, provides valuable resources for banks to ensure compliance with the Home Mortgage Disclosure Act (HMDA) and its implementing regulation (12 CFR 1003), Regulation C.
The 2024 guide is a comprehensive tool that covers various aspects, including the recent changes to the asset-size exemption threshold. It offers a summary of responsibilities, instructions for assembling necessary tools, and guidance on reporting HMDA data. It is a valuable resource for all institutions covered by Regulation C, as it outlines the requirements for collecting, recording, and reporting information related to transactions covered by Regulation C, as well as the reporting and disclosure data requirements.
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CFTC takes landmark action against commodities merchant for interfering with whistleblower communications
The Commodity Futures Trading Commission (CFTC) has issued an order against Trafigura Trading LLC (Trafigura), a global commodities merchant based in Houston, Texas, for misappropriating material non-public information, engaging in manipulative conduct affecting published benchmark rates, and impeding voluntary communications with the CFTC. As a result, Trafigura has been ordered to pay a civil monetary penalty of $55 million and implement corrective measures to ensure compliance with the Commodity Exchange Act in the future.
However, two Commissioners expressed some disagreement, particularly regarding the interpretation of Regulation 165.19, which forms the legal basis for the latter part of the order.
According to the order, between 2017 and 2020, Trafigura required its employees to sign employment agreements and former employees to sign separation agreements that contained broad non-disclosure provisions. These provisions prohibited the sharing of Trafigura’s confidential information with third parties and did not include language allowing communication with law enforcement or regulators like the CFTC.
Caroline D Pham expressed her disagreement with the Commission’s approach, stating, “The Commission once again overreaches in its zeal to fine millions of dollars for technical issues like nitpicking legal documents in the absence of a firm taking any action to ‘enforc[e] [] confidentiality and pre-dispute arbitration clauses respecting actions by potential whistleblowers in any pre-employment, employment or post-employment agreements’ as stated in the Commission’s only interpretation of Regulation 165.19 to date, in its 2016 proposed rulemaking.”
Summer K Mersinger also raised concerns, mentioning that the settlement order does not adequately address the fact that Regulation 165.19(b) does not require a company’s non-disclosure agreement to explicitly inform employees that they can make voluntary disclosures to the Commission. Furthermore, she noted that this duty is not properly discussed in the rulemaking record in the Federal Register regarding the Commission’s adoption of Regulation 165.19(b).
Despite the dissenting opinions, Brian Young, the Director of the Whistleblower Office, has strongly emphasised the significance of the CFTC’s action: “This is the first CFTC action charging a company for interfering with whistleblower communications. This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate attempts to silence potential witnesses.”
How did FINRA use its 2023 fines revenue?
The Financial Industry Regulatory Authority (FINRA), has published its issued its report looking at how its 2023 financial penalty revenue was utilised. During the year. Fines totalling $85.5 million were issued. The report notes fines are integral to FINRA's mission of promoting investor protection and market integrity and goes on to examine the use of these fines within the framework of FINRA’s Financial Guiding Principles.
Unlike other regulatory bodies, FINRA does not include fine revenues in its operating budget. Hence fines are not a source of operational funding, thereby potential conflicts of interest are avoided. The use of fine monies is governed by the Financial Guiding Principles, which stipulate that fines are allocated towards specific initiatives enhancing regulatory oversight, compliance, and investor education.
Utilisation of fine revenue in 2023
For 2023, FINRA reported $97.8 million in fines-eligible expenditures, exceeding the fines issued. The shortfall of $12.3 million was covered by FINRA’s reserves and excess operating results. These expenditures are categorised into two broad areas: capital initiatives and nonrecurring strategic expenditures, and activities promoting compliance and education.
Examination, investigation, and disciplinary programmes
During 2023 FINRA invested $53.8 million to enhance its examination, investigation, and disciplinary tools. Key investments include:
- Examination and investigation tools: $22.3 million was allocated to modernising examination platforms, improving high-risk firm analysis, and developing an analytics toolset for investigations.
- Advanced analytics transformation: $20.3 million was invested in a centralised data services and analytics platform supporting regulatory programmes.
- Enforcement digital transformation: $8.9 million was directed towards modernising systems for case management, real-time data reporting, and investigative tools.
- Risk monitoring platform: $2.3 million was spent on enhancing data consistency and sharing to improve risk assessment.
Modernising securities industry infrastructure
FINRA allocated $7.4 million to modernise systems supporting broker regulation by FINRA, the SEC, state regulators, and other SROs.
Key projects include:
- Registration, testing, and dispute resolution enhancements: $3.8 million was invested in transforming qualification exam platforms and enhancing dispute resolution systems.
- Continuing education transformation: $3.6 million was spent on initiatives such as the CE Marketplace programme and the Maintaining Qualifications Programme.
Strengthening market surveillance
FINRA dedicated $6.7 million to strengthen its ability to monitor trading across markets. This included:
- Market surveillance patterns and reviews: $4.0 million was allocated to enhancing detection patterns for compliance issues and suspicious conduct.
- Transparency systems: $2.7 million was invested in improving the Multi-Product-Platform for data collection and dissemination across markets.
Improving compliance platforms
FINRA invested $5.8 million in enhancing its external-facing digital platform and compliance filing systems, which help firms manage compliance tasks and interact with FINRA more effectively.
Helping firms comply with rules
FINRA spent $11.6 million on tools and resources to help firms improve compliance. This included virtual and in-person conferences, educational programmes, and the FINRA Institute at Georgetown Certified Regulatory and Compliance Professional (CRCP)® programme.
Training FINRA staff
To ensure staff are prepared for new regulatory challenges, FINRA allocated $8.3 million for regulatory-focused training for its Member Supervision, Market Regulation, and Enforcement departments.
Investor education
FINRA invested $4.2 million in various investor education programmes, including oversight and administrative support for the FINRA Investor Education Foundation. The Foundation released research reports on Gen Z investors, military veterans, and new investors, and partnered with numerous organisations to build financial capability and protect against fraud.
FINRA's use of its fines revenue in 2023 emphasises its stated commitment to enhancing regulatory oversight, promoting compliance, and educating investors. The investments in examination and investigation tools, market surveillance, compliance platforms, and education initiatives reflect a strategic approach to maintaining market integrity and protecting investors. By adhering to its Financial Guiding Principles, FINRA ensures that fines are used effectively to support its regulatory responsibilities and mission.
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FCA data shows increase in whistleblowing reports
The Financial Conduct Authority (FCA) has released its whistleblowing data for the first quarter of 2024. This data covers the number of new whistleblowing reports received from January to March 2024, as well as the closure of existing reports during that time. It provides details on how the reports were received, the nature of the reports, and the level of action taken.
Key highlights from Q1 2024:
- The FCA received 298 new whistleblowing reports, which marks an increase compared to previous quarters. In the same period of 2023, they received 280 reports; in Q4 2023 (October to December), they received 249 reports.
- These new reports contained 801 allegations, with the top five relating to compliance (154), culture (108), consumer detriment (99), and system and controls (50).
- The FCA closed 253 whistleblowing reports. Nine reports (4%) resulted in significant action, 138 reports (55%) led to action to reduce harm, such as firm visits, and 13 reports (5%) were not considered indicative of harm, but the information was still recorded and will be available for future reference.
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Speech: Australian retail payments review
In a speech at the Merchant Risk Council (MRC) Conference, Ellis Connolly, Head of Payments Policy, Reserve Bank of Australia (RBA) provided a useful summary of ongoing retail payments regulation evolution in Australia.
Much of the speech considered cost implications for payment processing, particularly for merchants, how to promote competition amongst payment services companies and standardisation for tokenisation in online card payments, but before addressing those issues, Connolly outlined some of the key reforms underway.
Regulatory reform in payments
Connolly discussed the collaborative efforts between the Australian Government and the RBA to modernise the Payment Systems (Regulation) Act 1998 (PSRA). The reforms aim to update definitions within the Act to encompass new payment systems and participants such as payment gateways, digital wallet providers, and ‘buy now, pay later’ (BNPL) services. The RBA will maintain its broad mandate to enhance efficiency, competition, and safety within the payments system.
Upcoming review of retail payments regulation
Following the implementation of PSRA reforms, Connolly said the RBA will launch a comprehensive review of retail payments regulation. This review will involve extensive consultations to identify areas where regulation is necessary to promote safety, competition, and efficiency. The review will be guided by key principles including transparency, business choice in payment methods, accurate price signals, fair access, and innovation.
Focus areas for the review
Connolly noted the following for consideration.
- Transparency of payment services: Enhancing fee transparency to aid merchants in making informed choices and to stimulate competition among payment service providers.
- Merchant payment costs: Addressing the higher service fees faced by small businesses and promoting the adoption of least-cost routing (LCR) for debit transactions to reduce costs.
- Surcharging: Reevaluating the current surcharging framework in light of shifts in payment behaviours and growing public concern.
- Mobile wallets: Examining the transparency of fees charged by mobile wallet providers and addressing competition issues, particularly access to near-field communication (NFC) technology.
- Cross-border payments: Assessing potential policy actions to reduce costs and improve transparency for cross-border transactions, which remain significantly higher than domestic payments.
Connolly concluded his speech by noting the rapid changes in the payments landscape, with new business models and technologies emerging, particularly in online retail payments. He reminded the audience that the RBA has been working with the Government to modernise the regulatory framework and is preparing to launch a holistic review of retail payments regulation once the PSRA reforms are in place. He urged all stakeholders to input fully into the review process.
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EIOPA annual report 2023: key achievements
The European Insurance and Occupational Pensions Authority (EIOPA) has published its annual report, outlining its accomplishments over the past year. Despite facing significant challenges, including geopolitical conflicts, high interest rates, inflation, and market volatility, the report notes EIOPA successfully met its strategic objectives. The report highlights several key achievements in sustainable finance, digitalisation, supervision, policy development, risk assessment, financial stability, and governance.
Sustainable finance
EIOPA has made substantial progress in sustainable finance, focusing on measuring and closing protection gaps. Notable developments included:
- Natural catastrophe dashboard: This tool provides valuable insights into insurance protection gaps for natural disasters, enabling better risk assessment and mitigation strategies.
- Climate-related adaptation measures: EIOPA promoted the integration of climate adaptation measures in non-life underwriting practices, ensuring that insurers are better prepared for climate-related risks.
- Greenwashing initiatives: Efforts to identify and combat greenwashing were further developed, enhancing the credibility of sustainability claims in the insurance sector.
- Sustainable Finance Disclosure Regulation (SFDR): EIOPA continued its work on disclosure requirements, ensuring that financial market participants provide transparent and reliable information about their environmental, social, and governance (ESG) impacts.
Digitalisation
In 2023, EIOPA closely monitored the adoption of digital technologies, including artificial intelligence and open insurance. Key initiatives in this area included:
- Digital Operational Resilience Act (DORA): Together with the European Supervisory Authorities (ESAs), EIOPA worked on policy mandates within DORA, aimed at strengthening the IT security of financial entities.
- New digital strategy: EIOPA adopted a comprehensive digital strategy to support consumers, markets, and the supervisory community through digital transformation, ensuring that the sector remains resilient and innovative.
Supervision
EIOPA continued to enhance supervision and supervisory convergence, focusing on consumer protection and financial health. Key actions included:
- Supervisory and oversight tools: EIOPA utilised its supervisory tools, including active engagement with national competent authorities (NCAs) and third-country parties, to enhance the quality and effectiveness of supervision.
- Value for money and consumer health: EIOPA's efforts aimed at reducing consumer detriment, ensuring that financial products offer value for money and contribute to overall financial health.
Policy development
EIOPA's policy work in 2023 included significant contributions to ongoing regulatory reviews and technical advice. Highlights include:
- Solvency II review: EIOPA supported the continuing review of Solvency II, focusing on ensuring the framework remains robust and relevant.
- Insurance sector recovery and resolution: Discussions on recovery and resolution frameworks for the insurance sector aimed at enhancing sector resilience.
- IORP II directive review: EIOPA provided technical advice on the review of the Institutions for Occupational Retirement Provision (IORP) II Directive, addressing prudential and governance adequacy, cross-border activity, and sustainability aspects.
Risk assessment and financial stability
EIOPA continued to assess the risks and vulnerabilities facing the insurance and occupational pensions sectors. Key assessments included:
- Impact of inflation and interest rates: EIOPA examined how high inflation and interest rates affected the market and consumers, providing crucial insights into sector stability.
- Risk and vulnerability monitoring: Ongoing monitoring of risks ensured that EIOPA remained vigilant in safeguarding financial stability and consumer protection.
Governance
In 2023, EIOPA chaired the EU Agencies Network, a forum that brings together all 51 EU agencies and joint undertakings across Europe. This role emphasised EIOPA’s leadership and commitment to fostering collaboration and effective governance within the EU regulatory framework.
Looking ahead
The report notes EIOPA remains committed to ensuring the stability and effective regulation of the insurance and pensions industry. This ongoing approach aims to benefit policyholders, beneficiaries, businesses, and the broader economy. By continuing to address emerging risks, fostering innovation, and enhancing supervisory practices, EIOPA strives to maintain a robust and resilient financial sector.
Click here to read the full RegInsight on CUBE’s RegPlatform