Nutter Bank Report, August 2018

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  1. OCC to Begin Accepting Applications for Bank Charters for Fintech Companies
  2. Agencies Issue Rules Implementing 18-Month Exam Cycles for Community Banks
  3. Regulation P Amendment Includes Exception to Annual Notice Requirements
  4. Federal Reserve Expands Flexible Capital Standards for Small Holding Companies
  5. Other Developments: Municipal Securities and Criminal Offenses

1. OCC to Begin Accepting Applications for Bank Charters for Fintech Companies

The OCC announced that it will begin accepting applications for special purpose national bank charters from financial technology (“fintech”) companies that are engaged in the business of banking but do not take deposits. The OCC’s July 31 announcement was accompanied by the release of a supplement to the Comptroller’s Licensing Manual, titled Considering Charter Applications From Financial Technology Companies, that details how the agency will apply the licensing standards and requirements in existing regulations and policies to fintech companies applying for national bank charters. The supplement also describes the factors that the OCC will consider when evaluating fintech charter applications; the agency’s expectations for promoting fair access, fair treatment, and financial inclusion; and the agency’s approach to supervising those fintech companies that become national banks. For example, the supplement states that the OCC expects a fintech company seeking a national bank charter to demonstrate a commitment to providing or supporting fair access to financial services and fair treatment of customers, depending on the proposed business model, and the types of products, services, or activities it intends to provide. The supplement also states that fintech companies that receive national bank charters will be subject to capital and liquidity requirements like similarly situated national banks. Click here for a copy of the OCC’s announcement and access to the new supplement to the Comptroller’s Licensing Manual.

    Nutter Notes: A draft of the fintech charter supplement to the Comptroller’s Licensing Manual published in March 2017 included a statement that the OCC would not approve a fintech charter application “that would result in an inappropriate commingling of banking and commerce” because it “could introduce into the banking system risks associated with non-banking related commercial activities, interfere with the efficient allocation of credit throughout the U.S. economy and foster anti-competitive effects and undesirable concentrations of economic power.” That statement was notably absent from the final version of the supplement released on July 31. However, the final supplement was accompanied by the publication of the OCC’s Policy Statement on Financial Technology Companies’ Eligibility to Apply for National Bank Charters, which states that the OCC’s exercise of “existing authority to grant special purpose charters does not alter existing barriers separating banking and commerce.” The new policy statement also clarifies that the OCC will not approve proposals that include “financial products and services that have predatory, unfair, or deceptive features or that pose undue risk to consumer protection.”

2. Agencies Issue Rules Implementing 18-Month Exam Cycles for Community Banks

The federal banking agencies have jointly issued interim final rules to expand the number of banks eligible for an 18-month on-site examination cycle. The rules issued on August 23 implement authority granted by Section 210 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”), which amended Section 10(d) of the Federal Deposit Insurance Act (the “FDI Act”) to allow qualifying insured depository institutions with less than $3 billion in total assets to enjoy an extended 18-month examination cycle. Prior to enactment of the EGRRCPA, only qualifying banks with less than $1 billion in total assets were eligible for an 18-month examination cycle. Generally, banks that are under the total asset threshold and are well capitalized and well managed will qualify for an 18-month examination cycle. Public comments on the interim final rules are due within 60 days after they are published in the Federal Register, which is expected shortly. Click here for a copy of the interim final rules.

    Nutter Notes: Section 10(d)(1) of the FDI Act generally requires a bank’s primary federal bank regulator to conduct a full-scope, on-site examination of the bank at least once during each 12-month period. Section 210 of the EGRRCPA added Section 10(d)(4) to the FDI Act, which authorizes the appropriate federal banking agency to extend the on-site examination cycle to an 18-month period if the bank has total assets of less than $3 billion, is well capitalized (within the meaning of the agency’s prompt corrective action rules), is well managed as of its most recent examination, and has a composite condition of “outstanding” or, in the case of a bank with total assets of not more than $200 million, “outstanding” or “good.” In addition, a bank will not qualify for an extended 18-month examination cycle if it is subject to a formal enforcement proceeding or order by the FDIC or its primary federal bank regulator, or if it has undergone a change in control during the previous 12-month period in which a full-scope, on-site examination otherwise would have been required.

3. Regulation P Amendment Includes Exception to Annual Notice Requirements

The CFPB issued a final amendment to its consumer privacy rule that provides an exception under which banks and other financial institutions that meet certain conditions are not required to provide annual privacy notices to customers. The final amendment to the CFPB’s Regulation P released on August 10 requires that, to qualify for the exception, a financial institution must not have changed its information sharing policies and practices from those disclosed in the most recent privacy notice it has delivered to customers. A financial institution also must not share nonpublic personal information about customers, except in accordance with certain statutory exceptions, to qualify for this exception. For example, an exception allows a financial institution to share nonpublic personal information about a customer with a nonaffiliated third party to perform services on behalf of the financial institution if such information sharing is disclosed to customers and the financial institution contractually requires the service provider to maintain the confidentiality of such information. The amendments to Regulation P will become effective on September 17, 2018. Click here for a copy of the amendments to Regulation P.

    Nutter Notes: Regulation P requires, among other things, that a financial institution provide an annual privacy notice to customers that describes its privacy policies and practices with respect to the disclosure of nonpublic personal information to third parties. The CFPB’s amendment implements a provision of the Fixing America's Surface Transportation Act (“FAST Act”), which amended Title V of the Gramm-Leach-Bliley Act in December 2015 to provide an exception to the annual privacy notice requirement for financial institutions that meet certain conditions. As part of its implementation of the annual notice exception under the FAST Act, the CFPB’s amendment to Regulation P also provides timing requirements for delivery of annual privacy notices in the event that a financial institution that qualifies for the annual notice exception later changes its privacy policies or practices in such a way that it no longer qualifies for the exception. The CFPB’s amendment removes a provision of Regulation P that allows for use of an alternative delivery method for annual privacy notices because the CFPB believes the alternative delivery method will no longer be used in light of the annual notice exception.

4. Federal Reserve Expands Flexible Capital Standards for Small Holding Companies

The Federal Reserve has issued an interim final rule that expands the applicability of its Small Bank Holding Company Policy Statement (“Small BHC Policy Statement”) from bank holding companies and savings and loan holding companies with less than $1 billion in total consolidated assets to holding companies with less than $3 billion in total consolidated assets. This expansion of the applicability of the Small BHC Policy Statement announced on August 28 implements a provision of the EGRRCPA. As a result, bank holding companies and savings and loan holding companies with less than $3 billion in total consolidated assets that satisfy the requirements of the Small BHC Policy Statement will not be subject to the regulatory capital requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This exemption does not apply to any depository institution subsidiary of either a small bank holding company or a small savings and loan holding company. The interim final rule takes effect upon publication in the Federal Register, which is expected shortly. Public comments on the interim final rule will be due within 60 days after publication. Click here for a copy of the interim final rule.

    Nutter Notes: The Small BHC Policy Statement, which is Appendix C to Part 225 of the Federal Reserve's rules and regulations, currently allows bank holding companies and savings and loan holding companies with less than $1 billion of assets that are not engaged in any nonbanking activities involving significant leverage and that do not have a significant amount of outstanding debt held by the general public to follow less-stringent regulatory standards when acquiring other financial institutions. The Small BHC Policy Statement also allows qualifying small holding companies to incur comparatively greater amounts of debt than larger holding companies in order to acquire other financial institutions. In addition to expanding the asset threshold for the Small BHC Policy Statement, the interim final rule makes related and conforming changes to the Federal Reserve’s regulatory capital rule (Regulation Q) and requirements for bank holding companies (Regulation Y). In connection with these changes, the Federal Reserve is modifying the respondent panel for certain holding company financial reports to reduce reporting requirements for holding companies that qualify under the Small BHC Policy Statement.

5. Other Developments: Municipal Securities and Criminal Offenses

  • Certain Municipal Securities to Be Treated as High-Quality Liquid Assets

The federal banking agencies on August 22 issued an interim final rule amending the agencies’ liquidity coverage ratio rules to treat liquid and readily-marketable, investment grade municipal securities as high-quality liquid assets. The interim final rule implements Section 403 of the EGRRCPA.

    Nutter Notes: The interim final rule takes effect upon publication in the Federal Register, which is expected shortly. Public comments on the interim final rule will be due within 30 days after publication. Click here for a copy of the interim final rule.

  • FDIC Modifies its Statement of Policy for Section 19 of the FDI Act

The FDIC published on August 3 a revised Statement of Policy for Section 19 of the FDI Act, which prohibits, without the prior written consent of the FDIC, a person convicted of any criminal offense involving dishonesty, breach of trust, or money laundering, or who has entered into a pretrial diversion or similar program in connection with such an offense, from participating in the affairs of an FDIC-insured institution.

    Nutter Notes: Among the changes to the Statement of Policy, the de minimis exceptions it establishes, under which the FDIC's consent is automatically granted and an application is not required, have been expanded to include convictions related to bounced checks of moderate aggregate value, small dollar simple theft, and isolated minor offenses committed by young adults. Click here for a copy of the revised statement of policy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Updated: May 25, 2018:

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Privacy Officer
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10 Liberty Ship Way, Suite 300
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