Compliance

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Earlier this month, the California Department of Financial Regulation and Innovation (CA DFPI) announced a new rule expanding the definition of unfair, deceptive and abusive acts and practices (UDAAP) to commercial financing. Specifically, the rule makes it unlawful “for a covered provider to engage or have engaged in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity.” The new rule also includes annual reporting requirements (described below) for any covered provider who makes more than one commercial financing transaction to covered entities in a 12-month period or who makes five or more commercial financing transactions to covered entities in a 12-month period that are “incidental” to the business of the covered provider. Importantly, this rule does not apply to banks, credit unions, federal savings and loan associations, current licensees of the CA DFPI or licensees of other California agencies “to the extent that licensee or employee is acting under the authority of” the license.

In the realm of financial crime prevention, the adoption of generative artificial intelligence (AI) technologies has the potential to revolutionize Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance. AI offers powerful tools for detecting suspicious activities, identifying patterns, and streamlining compliance processes. However, as with any transformative technology, there are both benefits and risks associated with its use. Here, we summarize key uses and risks of AI in BSA/AML compliance, shedding light on the opportunities and challenges that lie ahead in this critical area of financial regulation.

On August 8, the Office of the Comptroller of the Currency (OCC) issued guidance on the applicability of the legal lending limit (LLL) to purchased loans. This guidance applies to community banks’ purchases of loans. In short, unless an exception applies, all loans and extensions of credit made by banks are subject to the LLL.

On July 12, U.S. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) reintroduced legislation, titled the Responsible Financial Innovation Act that would establish a comprehensive regulatory framework for crypto assets. This proposed bill expands on the bill the senators introduced in 2022 by adding new consumer protections and safeguards to further strengthen the industry against fraud and bad actors, among other additions.

On June 16, The Board of Governors of the Federal Reserve System (Federal Reserve) launched its Master Account and Services Database, providing a searchable database on which financial institutions have access to the Federal Reserve master accounts and financial services. A master account is an account in which a Federal Reserve bank receives deposits…

On June 22, the Office of the Comptroller of the Currency (OCC) released Version 1.0 of its Asset Management booklet, which provides an overview of sound risk management processes for bank asset management. The OCC will apply this updated booklet to the supervision of community banks engaged in asset management activities.

Version 1.0 is a…

Mindful of the impending retirement of many millions of investors in the “baby boomer” generation, which hold a substantial amount of the world’s wealth, the Financial Industry Regulatory Authority (FINRA) continues to heavily monitor its member firms supervision of their registered financial advisors who service vulnerable and elderly investor customers. For example, last month FINRA suspended a former David Lerner Associates (DLA) branch manager for failing to properly supervise sales of interests in two illiquid oil and gas limited partnerships. The suspended manager at issue approved these transactions, which carried a high degree of risk, to some senior investors with insufficient tolerance for risk. Ultimately, FINRA concluded that the supervising branch manager failed to “conduct a reasonable analysis” of the suitability of those investments for the elderly customers or within 30 days of their risk tolerance increasing.

On June 14, the Office of the Comptroller of the Currency (OCC) published the spring edition of its Semiannual Risk Perspective, which discusses key issues facing banks. The good news is that the federal banking system saw historic growth in net interest income in 2022. However, rising interest rates weigh on other aspects of bank performance, such as noninterest income, as mortgage activity continues to slow.