AML/CTF, Sanctions and Insider Trading
US Financial Crimes Enforcement Network Releases Customer Due Diligence FAQs
On April 3, 2018, the U.S. Financial Crimes Enforcement Network released answers to 37 frequently asked questions regarding its final rule on Customer Due Diligence Requirements for Financial Institutions, which was published in the Federal Register on May 11, 2016 and amended on September 29, 2017. This is the second series of FAQs FinCEN has released. The FAQs cover various topics in connection with the requirement that financial institutions obtain beneficial ownership information for legal entity customers, including the beneficial ownership threshold and its interaction with other AML program obligations, collection and verification of identifying information, particularly for legal entity customers with complex ownership structures and the definition of "legal entity customer," including the treatment of foreign financial institutions. The FAQs also provide guidance regarding the beneficial ownership certification requirement, including when a single customer opens multiple accounts and in respect of product or service renewals, obligations to update beneficial ownership information and requirements to understand the nature and purpose of the customer relationship.
The FinCEN FAQs are available at: https://www.fincen.gov/sites/default/files/2018-04/FinCEN_Guidance_CDD_FAQ_FINAL_508_2.pdf.
Bank Prudential Regulation & Regulatory Capital
US Department of the Treasury Releases Report Outlining Community Reinvestment Act Recommendations
On April 3, 2018, the U.S. Department of the Treasury issued recommendations to the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation regarding the modernization of the Community Reinvestment Act. The report is a follow-up to Treasury's 2017 report to the President entitled A Financial System That Creates Economic Opportunities: Banks and Credit Unions. The recommendations are intended to allow financial institutions to better serve the communities where they operate, while maintaining safe and sound operations. The report notes that since the enactment of the CRA 40 years ago, the banking industry has undergone significant organizational, operational and technological changes, and that regulatory expectations have failed to keep pace.
The Treasury report focuses on four key areas. First, Treasury recommends modernizing the definitions of geographic assessment areas to correspond to changes, including changes in technology and customer behavior. Second, the report identifies a number of perceived weaknesses in the CRA performance evaluation process, including inconsistent examination staffing, practices and procedures, and lack of clear guidance for examination criteria. In response to these perceived weaknesses, the report recommends improving the flexibility and transparency of the CRA performance evaluation process, including providing more clarity with respect to examination guidance. Third, the Treasury report recommends improvements to the CRA examination process, including standardization of CRA examination schedules and changes to promote more timely evaluations and ratings. Finally, the Treasury report recommends changes to better incentivize CRA performance, given that the CRA itself does not have explicit penalties for non-performance (although other statutes do penalize unsatisfactory performance under the CRA).
The Treasury report is available at: https://home.treasury.gov/sites/default/files/2018-04/4-3-18%20CRA%20memo.pdf.
US Federal Financial Regulators Issue Final Rule Exempting Commercial Real Estate Transactions of $500,000 or Less from Appraisal Requirements
On April 2, 2018, the OCC, Board of Governors of the Federal Reserve System and the FDIC issued a final rule that exempts commercial real estate transactions of $500,000 or less from the appraisal requirements promulgated under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The final rule raises the threshold from $250,000 to $500,000, for which appraisals are not required in connection with commercial real estate transactions. The agencies originally proposed to increase the threshold to $400,000, but they determined that an increase to $500,000 would not pose a threat to the safety and soundness of financial institutions, and would result in a material reduction in the compliance- related regulatory burden for financial institutions. For purposes of the final rule, "commercial real estate transaction" is defined as "a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property." The final rule clarifies that construction loans of $500,000 or less secured by a single 1-to-4 family residential property are not exempted from the appraisal requirement. In lieu of an appraisal, financial institutions are required to obtain an evaluation of the collateral that is sufficient to support the institution's decision to engage in the transaction and consistent with safe and sound business practices. The final rule took effect on April 9, 2018.
The full text of the final rule is available at: https://www.gpo.gov/fdsys/pkg/FR-2018-04-09/pdf/2018-06960.pdf.
To view the article please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
