United States: Global Legal Insights: Banking Regulation

1 INTRODUCTION

The banking industry has long been one of the most highly regulated industries in the United States based on the "special" role that banks play in allocating credit and operating the payments system. Many current regulatory initiatives in the United States derive from the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which was enacted in 2010 in response to the financial crisis of 2007-2009. Many provisions of the Dodd-Frank Act focus on the largest financial institutions due to their perceived role in causing the financial crisis and the perception of such institutions as "too-big-to-fail".

The United States has what is called a "dual banking system," meaning that U.S. banks can be chartered by one of the fifty states or at the federal level. However, whether state or federally chartered, a bank will have at least one federal supervisor. This chapter provides an overview of the current U.S. bank regulatory framework at the federal level.

2 REGULATORY ARCHITECTURE: OVERVIEW OF BANKING REGULATORS AND KEY REGULATIONS

The Dodd-Frank Act is an enormous statutory undertaking that enhanced, reorganised, or overhauled various components of what was already a complex framework that featured a myriad of federal regulatory agencies having often overlapping responsibility for banking regulation. A brief description of the relevant regulatory agencies follows:

The Board of Governors of the Federal Reserve System ("Federal Reserve")

The Federal Reserve System is the central banking system of the United States and conducts its monetary policy. In addition, the Federal Reserve supervises bank holding companies ("BHCs"), state-chartered banks that are members of the Federal Reserve System, the U.S. activities of foreign banking organisations ("FBOs"), and certain other banking entities, and is responsible for maintaining the stability of the U.S. financial system.

The Federal Deposit Insurance Corporation ("FDIC")

The FDIC is the primary regulator for state-chartered banks that are not members of the Federal Reserve System as well as state-chartered thrifts. The FDIC also insures bank and thrift deposits and has receivership powers over banks and certain other institutions designated under the "orderly liquidation authority" provisions of the Dodd-Frank Act.

The Office of the Comptroller of the Currency ("OCC")

The OCC is an independent bureau of the U.S. Department of the Treasury led by the Comptroller of the Currency. The OCC charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks (although most non-U.S. banks operate in the United States through state-licensed branches).

The Consumer Financial Protection Bureau ("CFPB")

The CFPB is a new agency created by the Dodd-Frank Act that has primary authority to develop consumer protection regulations applicable to both banks and non-banks and to enforce compliance with such laws by banks with $10 billion or more in assets and their affiliates as well as by non-banks such as mortgage companies, payday lenders, and private education lenders.

The Financial Stability Oversight Council ("FSOC")

The Dodd-Frank Act also created the FSOC, chaired by the Secretary of the U.S. Treasury and comprising the heads of eight financial regulators and one independent member with insurance experience. Notably, FSOC is empowered to designate systemically significant nonbank financial institutions (generally referred to as SIFIs) for supervision by the Federal Reserve.

Primary federal banking statutes

• The National Bank Act (1863) created the basic framework for the U.S. banking system and the chartering of national banks.
• The Federal Reserve Act, enacted in 1914, created the Federal Reserve System.
• The Banking Act of 1933 generally separated commercial banks from investment banks and created the system of federal deposit insurance.
• The Federal Deposit Insurance Act ("FDI Act") consolidated prior FDIC legislation into one act and authorised the FDIC to act as the receiver of failed banks.
• The Bank Holding Company Act of 1956 ("BHC Act") regulates BHCs and generally prohibits them from owning or controlling entities other than banks or companies engaged in activities that are "closely related to banking," or, for BHCs that elect to be treated as financial holding companies ("FHCs"), activities that are financial in nature or complementary to a financial activity.
• The act commonly known as the Bank Secrecy Act (1970) requires all financial institutions, including banks, to establish a risk-based system of internal controls to prevent money laundering and terrorist financing.
• The International Banking Act of 1978 ("IBA") establishes the framework for federal supervision of foreign banks operating in the United States.
• The Gramm-Leach Bliley Act (1999) generally repealed the securities restrictions of the Banking Act of 1933 and authorised the creation of FHCs.
• The Dodd-Frank Act (2010) was the greatest legislative overhaul of financial services regulation in the United States since the 1930s and made significant changes to the U.S. bank regulatory framework.

Influence of supra-national regulatory regimes/regulatory bodies

Following the financial crisis, the ambit of international standard-setting groups such as the Group of Twenty, the Basel Committee on Banking Supervision ("Basel Committee") and the Financial Stability Board increased significantly. Many recent U.S. regulatory initiatives, as in most peer jurisdictions, derive from pronouncements coming out of one of these bodies. These groups increasingly use a consultative period and quantitative impact studies for their proposals, providing member jurisdictions an opportunity to shape the ultimate framework or standard.

These frameworks and standards often serve as a floor to the rules implemented by national regulators. The United States has frequently implemented a more stringent ("super-equivalent") version of the international standards including, for example, with respect to the quantitative U.S. liquidity coverage ratio. Also, as discussed below, the Federal Reserve's recent proposal establishing a risk-based capital surcharge for global systemically important banking organisations ("G-SIBs") is super-equivalent to the Basel Committee's standard.

Restrictions on activities

The BHC Act generally restricts BHCs and FHCs from engaging directly or indirectly in non-financial activities. Federal banks chartered by the OCC face similar restrictions. BHCs that successfully elect to be treated as FHCs may engage in a broader range of activities than BHCs that do not make such an election, such as securities underwriting, merchant banking, and insurance underwriting. U.S. regulators are also reassessing FHCs' authority to trade in physical commodities markets, such as oil, metals, and other raw materials, and new restrictions may be proposed this year.

3 RECENT REGULATORY THEMES AND KEY REGULATORY DEVELOPMENTS IN THE USA

U.S. banking regulators remain focused on implementing the final pieces of the post-financial crisis regulatory agenda in the following general categories:

1. strengthening the amount, quality and availability of capital and liquid assets, and particularly, reducing banks' reliance on short-term wholesale funding, especially for large banks;
2. structural requirements and activities restrictions, including ongoing regulatory reforms of the so-called "repo market"; and
3. improvements to the resolution process, including resolution planning requirements, enhancing banking organisations' total loss absorbing capacity, and international coordination of cross-border resolution processes (e.g., ISDA resolution stay protocol).

We detail several of these developments below.

Intermediate holding company ("IHC") requirement

Implementing a major change in the U.S. regulation of foreign banks, the Federal Reserve now requires FBOs with $50 billion or more in U.S. non-branch or non-agency assets to establish an IHC by July 1, 2016. The IHC must hold an FBO's U.S. BHC and bank subsidiaries and substantially all other U.S. non-bank subsidiaries. The IHC is subject to, with limited exceptions, the enhanced prudential standards applicable to U.S. BHCs. The Federal Reserve has indicated that it expects to adopt a quantitative LCR-based liquidity requirement applicable to the U.S. operations of FBOs with more than $50 billion in U.S. assets.

FBOs with at least $10 billion in total consolidated assets operating in the U.S. are subject to capital, stress testing, governance, and liquidity requirements, depending on the amount of the institution's total consolidated assets and U.S. assets.

Stress testing and capital planning

Stress testing is a key supervisory technique used by U.S. federal banking regulators. U.S. BHCs and IHCs are required to run company-run stress tests biannually and supervisory stress tests annually. The quantitative results from the supervisory stress tests are used as part of the Federal Reserve's analysis under the Comprehensive Capital Analysis and Review ("CCAR").

The CCAR is an annual exercise the Federal Reserve undertakes at the largest U.S. BHCs to evaluate a firm's capital planning processes and capital adequacy, including planned capital distributions, to ensure the firm has sufficient capital in times of stress. The Federal Reserve can object to a firm's capital plan on a quantitative (i.e., a firm's projected capital ratio under a confidential stressed scenario would not meet minimum requirements) or qualitative (i.e., inadequate capital planning process) basis. In recent years, the Federal Reserve has primarily objected to firms' capital plans for qualitative reasons.

Financial companies with $10 billion or more in consolidated assets are also required to conduct annual stress tests under baseline and adverse scenarios as required by their primary bank regulators. Community banks (generally, those with less than $10 billion in assets) are not required to conduct enterprise-wide stress tests.

Volcker rule

The Volcker Rule prohibits banking entities from engaging in proprietary trading activities and from sponsoring or investing in, or having certain relationships with, hedge funds and private equity funds ("covered funds"), subject to certain exceptions and exemptions. Final regulations to implement the Volcker Rule were adopted in December 2014. The Volcker Rule is a complex new rule that requires covered firms to undertake a detailed legal analysis of their activities and investments. Banks are required to comply with the restrictions of the Volcker Rule by July 21, 2015, and generally must adopt a compliance programme designed to ensure compliance with the Rule.

Banking entities are defined to include insured depository institutions, BHCs, FBOs that are treated as BHCs under the IBA (which includes a non-U.S. bank that operates a U.S. branch or agency office), and any subsidiary or affiliate of any of these entities.

The ban on proprietary trading essentially prohibits a banking entity from trading as principal for its trading account in specified instruments. Exemptions are permitted for (among other activities) underwriting, market-making, hedging and, for FBOs, activities conducted solely outside of the United States.

Covered funds are generally issuers that would be considered an investment company under the Investment Company Act of 1940 but for the exemptions under Section 3(c)(1) or 3(c)(7) of such Act. Exceptions are available for (among other activities) traditional asset management activities and, for FBOs, activities conducted solely outside the United States.

Resolution plans

Under the Dodd-Frank Act, large BHCs with total consolidated assets of $50 billion or more and non-bank financial companies designated by FSOC as SIFIs are required to develop, maintain and file a resolution plan (so-called "living will") with the Federal Reserve and the FDIC. The plan must detail the firm's strategy for rapid and orderly resolution in the event of material financial distress or failure under the U.S. Bankruptcy Code.

If the Federal Reserve and the FDIC make a joint determination that a plan is not credible, a firm must resubmit its plan. If still found to be not credible, the FDIC and Federal Reserve are empowered to impose stricter regulatory requirements or restrictions on the firm. In August 2014, the FDIC made a determination that the plans of 11 large complex banking organisations required to submit such plans are not credible. The Federal Reserve did not formally make such a determination.

In addition, insured depository institutions with $50 billion or more in total assets must submit a separate resolution plan to the FDIC.

4 BANK GOVERNANCE AND INTERNAL CONTROLS

The board of directors and senior management of a banking organisation are responsible for ensuring that the institution's internal controls operate effectively in order to ensure the safety and soundness of the institution. Improving bank governance and increasing the role and responsibilities of boards of directors and the risk management function of banking organisations have been key areas of focus by U.S. banking regulators.

Board of directors

Generally, U.S. corporate law requires that boards of directors exercise a fiduciary duty of loyalty and duty of care to the corporation and its shareholders. Boards of directors of banking organisations must perform these duties with a focus on preserving the safety and soundness of the bank. Boards are generally responsible for approving policies and procedures and ensuring that the institution adheres to those policies and procedures. Most boards operate through a committee structure, and such committees are often empowered to fulfil many of the board's responsibilities.

While many regulations make it clear that the board's role is to oversee and delegate to management, bank boards of directors also have significant responsibilities for overseeing and approving many of the actions taken by the institution under a variety of statutes, regulations, and supervisory guidance. For example, boards of directors are required to approve an institution's resolution plan, various risk tolerance levels and approve policies and procedures for stress testing.

Boards of directors themselves have also recently become subject to additional prescriptive requirements regarding their structure and composition. For example, the OCC has adopted "heightened standards" applicable to large national banks that require a bank's board of directors to include two independent members and impose specific requirements on the board regarding recruitment and succession planning.

Risk management

Risk management is a critical function within banking organisations, and the function has been subject to increasingly prescriptive regulation because risk management failures were perceived to be a significant cause of the financial crisis.

U.S. BHCs with total consolidated assets of $50 billion or more must establish a risk-management framework, designate a Chief Risk Officer ("CRO"), and establish a board-level risk committee with at least one independent member and one risk management expert.

FBOs with $50 billion or more in U.S. assets as well as FBOs with $50 billion or more in U.S. non-branch assets that must create an IHC must maintain a U.S. risk committee of its board of directors or its IHC's board of directors, including one independent member and one risk management expert. Such organisations are also required to appoint a U.S. CRO that is employed by and located in the U.S. and reports directly to the U.S. risk committee and the global CRO or equivalent officials. Publicly traded FBOs with $10 to $50 billion in global assets and FBOs with $50 billion or more in global assets but less than $50 billion in U.S. assets (publicly traded or not) must establish a U.S. risk committee of its global board of directors including one risk management expert. It is unclear if there will be flexibility in how the U.S. risk committee is structured and located in light of the ability of a foreign bank with an IHC to situate its U.S. risk committee in the IHC.

Banks subject to the OCC's heightened standards guidelines are required to have one or more Chief Risk Executives who report directly to the CEO and have unrestricted access to the board and its committees to escalate risks, as well as a written risk governance framework, a risk appetite statement and a strategic plan that is reviewed and approved by the board or the board's risk committee.

Internal audit

The internal audit function within banking organisations generally is responsible for ensuring that the bank complies with its own policies and procedures and those required by law and regulation. In the United States, internal audit must be positioned within the institution in a way that ensures impartiality and sufficient independence.

Internal audit must maintain a detailed risk assessment methodology, an audit plan, audit programme, and audit report. The frequency of internal audit review must be consistent with the nature, complexity, and risk of the institution's activities. The audit committee is responsible for overseeing the internal audit function. The composition of the audit committee has similar requirements to that of the risk committee depending on the size of the institution and supervising federal regulator.

FDIC regulations impose specific independent audit committee requirements on depository institutions that vary by the size of the institution, with institutions having total assets of more than $3 billion subject to the most stringent requirements.

The OCC heightened standards guidelines additionally require that the audit function of banks subject to the guidelines be led by a Chief Audit Executive who must be one level below the CEO, have unfettered access to the board, and report regularly to the audit committee of the board.

Compensation

Compensation regulation in the United States originated in the mid-1990s, when the U.S. federal banking agencies adopted standards prohibiting compensation arrangements that were excessive or could lead to a material financial loss. After the financial crisis, the U.S. American Recovery and Reinvestment Act of 2009 introduced significant restrictions on compensation for senior executive officers of firms that received certain forms of government assistance, including limits on bonuses, clawback requirements, and various governance requirements.

The U.S. federal banking agencies issued guidance on sound incentive compensation policies in 2010 which applies to all banking organisations supervised by the agencies and is structured around three key principles: (i) balance between risks and results; (ii) risk controls; and (iii) strong corporate governance. The Federal Reserve has used this guidance as the basis of its ongoing horizontal review of banking organisations' compensation processes.

Following the enactment of the Dodd-Frank Act, the federal banking regulators and several other regulatory agencies issued a proposed rule in April 2011 that would generally prohibit the use of incentive compensation programmes that encourage inappropriate and excessive risk-taking for financial institutions with more than $50 billion in total consolidated assets. The agencies received thousands of comments on the proposed rule, and a final rule has not yet been issued.

Compensation continues to be a topic of significant regulatory interest, and the proper role of compensation systems has been a recurrent theme in many recent speeches by leading regulators regarding the culture of banking organisations and the role of compensation arrangements in some of the recent trading scandals involving banking organisations.

5 BANK CAPITAL REQUIREMENTS

U.S. banks and BHCs have long been subject to risk-based capital requirements based on standards adopted by the Basel Committee (the "Basel Framework"). In July 2013, the U.S. regulatory authorities adopted a sweeping overhaul (the "Revised Capital Framework") of their regulations to implement both the Basel III Accord, including both advanced approaches and standardised methodologies, and requirements set forth in the Dodd-Frank Act. The Revised Capital Framework took effect for all institutions subject to the rules (generally those with more than $1 billion in total consolidated assets) on January 1, 2015, although several provisions of the Revised Capital Framework are being phased in over a period of several years.

U.S. banking organisations with $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposure are subject to the advanced approaches methodology as well as a capital floor established under the standardised approach. Other banking organisations are subject only to the standardised approach. U.S. top-tier BHC subsidiaries of FBOs will generally be subject to minimum U.S. capital requirements beginning on July 1, 2015, although they may elect to use the U.S. standardised approach to calculate their risk-based and leverage capital ratios regardless of their size.

Components of capital

The Basel Framework and the Revised Capital Framework emphasise the importance of common equity Tier 1 capital ("CET1"). Additional Tier 1 capital instruments and Tier 2 capital instruments (e.g., subordinated debt with an original maturity of at least five years) must meet certain detailed requirements that are specified in the Revised Capital Framework. The Revised Capital Framework also implements the phase-out of the qualification of certain hybrid instruments from inclusion as capital.

Minimum capital ratios

The Revised Capital Framework sets forth the minimum risk-based capital ratios for CET1 (4.5%), Tier 1 capital (6%), and total capital (8%). In addition, when fully phased in, banks must hold a capital conservation buffer in the form of CET1 of 2.5%. An institution that fails to maintain capital in excess of the buffer will be restricted in its ability to make capital distributions or pay discretionary executive bonuses. The U.S. regulators are also authorised to impose an additional countercyclical capital buffer of up to 2.5%, but have not yet done so. As a practical matter, the binding constraint on many large banking organisations is likely to be the minimum capital required under stressed conditions as determined under the Federal Reserve's CCAR process described above.

G-SIB Surcharge

The eight largest U.S. banking organisations, which are G-SIBs, would be subject to an additional capital surcharge (the "G-SIB Surcharge") under rules that have been proposed, but not yet finalised by the Federal Reserve. The amount of the surcharge would be the higher of two measures that banks must calculate. The first method adheres to the Basel Committee's framework and is calculated based on the firm's size, interconnectedness, substitutability, complexity and cross-jurisdictional activity. The second method diverges from the Basel Framework, and would be calculated using a banking organisation's reliance on short-term wholesale funding instead of the substitutability factor. The estimated U.S. G-SIB Surcharge would range from 1.0% to 4.5% and would thus exceed the 1.0% to 2.5% surcharge contemplated by the Basel Framework.

Risk-weighted assets

Although the Revised Capital Framework is largely consistent with the Basel Framework, one important difference arises from the absence of the use of external credit ratings for the risk-weighting of assets in the Revised Capital Framework due to the prohibition in Section 939A of the Dodd-Frank Act on the use of external credit ratings. More generally, comparability of risk-weighting of assets across institutions and jurisdictions has become a matter of significant regulatory attention.

Market risk capital charge

The Revised Capital Framework also includes a market risk capital charge (implementing the Basel II.5 Framework) for assets held in the trading book that applies to banks and BHCs with significant trading positions. Unlike the Basel II.5 Framework, the U.S. rules do not rely on credit ratings to determine specific capital requirements for certain instruments. However, the Basel Committee is currently reviewing the market risk framework to address perceived shortcomings in its risk measurement methodologies, and it is possible that the framework will be replaced with a new methodology.

Leverage ratio

U.S. banking organisations have long been subject to a minimum leverage ratio. The Revised Capital Framework includes two separate leverage requirements. The 4% minimum leverage ratio requirement represents a continuation of a ratio that has been in place for years (in general, Tier 1 capital divided by average consolidated assets, less deductions). The other applies only to large banking organisations subject to the advanced approaches methodologies and is based on the 3% supplementary leverage ratio in the Basel Framework, which includes certain off-balance-sheet exposures in the calculation of required capital.

In addition, the largest U.S. banking organisations (those with at least $700 billion in total assets or $10 trillion in assets under custody) will be subject to an "enhanced" supplementary leverage ratio beginning January 1, 2018. Covered BHCs that do not maintain a ratio of at least 5% will be subject to limitations on capital distributions and discretionary bonus payments, while depository institutions will be required to maintain a ratio of at least 6% under the prompt corrective action framework (described below).

Consequences of capital ratios

The U.S. prudential bank regulatory framework has several components based on an institution's capital ratios. For example, in order for a U.S. BHC to qualify as an FHC, it must meet a well-capitalised standard. Similarly, FBOs that seek FHC status must demonstrate that they meet comparable standards under their home country's capital requirements. Capital levels also form the basis for the level of deposit insurance premiums payable to the FDIC by depository institutions, the ability of depository institutions to accept brokered deposits, qualification of banking organisations for streamlined processing of applications to make acquisitions or engage in new businesses, as well as other filings with bank supervisors under various laws and regulations. Capital levels also form the basis for the prompt corrective action framework applicable to depository institutions (which provides for early supervisory intervention in a depository institution as its capital levels decline). As of January 1, 2015, the minimum ratios for a depository institution to be "well-capitalised" under the prompt corrective action framework are the following: (i) total risk-based capital of 10.0%; (ii) Tier 1 capital of 8.0%; (iii) CET1 of 6.5%; and (iv) a leverage ratio of 5.0%.

6 RULES GOVERNING BANKS’ RELATIONSHIPS WITH THEIR CUSTOMERS AND OTHER THIRD PARTIES

Deposit-taking activities

As a general matter under U.S. federal and state banking law, deposit-taking is limited to duly chartered banks, savings associations, and credit unions. Properly licensed non-U.S. banks also have the same general authority to accept customer deposits as U.S. banks, except that non-U.S. banks (other than several grandfathered branch offices) that wish to accept retail deposits must establish a separately chartered U.S. bank subsidiary.

Virtually all U.S. commercial banks are required to be insured by the FDIC. Deposits are generally insured up to $250,000 per depositor in each ownership capacity (such as in an individual account and a joint account). Except for grandfathered offices, U.S. branch offices of non-U.S. banks are not eligible for FDIC insurance. Funds on deposit in a non-U.S. branch office of a U.S. bank are not treated as FDIC-insured deposits and are not entitled to the benefits of the depositor preference provisions of the FDI Act unless such deposits are by their terms dually payable at an office of the bank inside the United States.

Brokered deposits have become a matter of supervisory concern, and a bank's reliance on brokered deposits can have a number of adverse supervisory consequences.

Consumer deposit accounts are subject to CFPB regulations that require banking organisations to make disclosures regarding interest rates and fees and certain other terms and conditions associated with such accounts. Deposit accounts are also subject to Federal Reserve regulations regarding funds availability and the collection of checks. In recent years, fees associated with various types of overdraft protection products have generated significant litigation and regulatory initiatives.

In addition, banks are generally subject to reserve requirements with respect to their transaction accounts. Accounts that are not transaction accounts, such as money market deposit accounts, have limitations on the number of certain types of withdrawals or payments that can be made from such an account in any one month.

Lending activities

The lending activities of banks are subject to prudential and consumer protection requirements. Banks are generally limited to extending credit to one person in an amount not exceeding 15% of the bank's capital. Banking laws generally permit banks to extend credit equal to an additional 10% of capital if the credit is secured by readily marketable collateral. Lending limits also now generally include credit exposure arising from derivative transactions, and in the case of national banks and U.S. offices of non-U.S. banks, securities financing transactions. The lending limits applicable to the U.S. offices of non-U.S. banks are based on the capital of the parent bank.

Lending to consumers is generally subject to a number of U.S. federal and state consumer protection statutes that require the disclosure of interest rates, other loan changes, and other terms and conditions related to the making and the repayment of an extension of credit. A more recent rule requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling.

Banking organisations are generally required under the Community Reinvestment Act to meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. The Home Mortgage Disclosure Act requires banks (and certain non-bank lenders) located in metropolitan areas to collect and report data about their residential mortgage lending activities (e.g., loan applications, approvals, and denials).

Anti-tying statutes generally prohibit a bank from extending credit (or providing other services) to any person on the condition that the person also obtain some other product or service (other than certain traditional bank products) from the bank or an affiliate.

Complaints

Consumers can submit complaints about banks (and other consumer product providers) online through the CFPB's website. Banks are generally required to respond to complaints and are expected to resolve most complaints within 60 days. The CFPB publishes a database of (non-personal) complaint information.

Investment services

Banks with trust powers are generally permitted to provide fiduciary services and investment advisory services to clients. Banks also have limited authority to provide specified securities brokerage services to clients. Full-service brokerage services are typically provided by a broker-dealer affiliate or subsidiary of a bank.

Proprietary trading activities

Subject to the limitations of the Volcker Rule, banks generally have the authority to engage in proprietary trading with respect to a range of financial instruments, subject to certain limitations. For example, banks are typically confined to purchasing securities that qualify as investment securities under specified criteria. Banks also generally are not authorised to underwrite or deal in securities, subject to certain exceptions. However, subject to the Volcker Rule, FHCs generally may engage in such activities through broker-dealer subsidiaries.

Money laundering

Banks are subject to extensive and evolving obligations under anti-money laundering laws and economic sanctions requirements. Basic anti-money requirements include know-your-customer (and know-your-customer's-customer) obligations, suspicious activity reporting, and currency transaction reporting. Compliance with U.S. requirements has proved to be an ongoing challenge for banking organisations, particularly for non-U.S. banks. Deficiencies can result not only in administrative sanctions, but criminal proceedings involving law enforcement authorities. Recent enforcement actions have often required banking organisations to dismiss certain specified personnel identified as responsible for compliance deficiencies.

7 CONCLUSION

Banking regulation in the United States remains an evolving and increasingly complex area as regulations and supervisory guidance implementing the Dodd-Frank Act and standards coming from international bodies continue to be put in place. Navigating the new framework requires not only a deep understanding of the complexity and nuances of U.S. banking laws but an alert eye to ongoing developments.

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8 ACKNOWLEDGMENT

The authors would like to acknowledge Jennifer T. Scott, an associate in the Financial Institutions Advisory & Financial Regulatory Group of Shearman & Sterling, for her assistance in preparing this chapter.

Originally published in the Second Edition of Global Legal Insights: Banking Regulation, by Global Legal Group Ltd.

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.