By: Nash Cullens

On April 3, 2020 FinCEN released guidance to help relieve the pressure of Bank Secrecy Act (BSA) guidelines for financial institutions due to the COVID-19 virus pandemic.  As communicated in current and previous guidance, compliance with BSA remains crucial, and  FinCEN expects financial institutions to continue following a risk-based approach to diligently adhere to their BSA obligations to detect and report potential money laundering and related crimes, including terrorism finance.  FinCEN has also indicated financial institutions should be on special alert for particular types of fraud that commonly arise following natural disasters or national emergencies, such as imposter scams, investment scams, product scams, COVID-19-related insider trading,  benefits fraud, charities fraud, and cyber-related fraud.

Due to the increasing spread of the COVID-19 virus and the affect it has on financial institutions, FinCEN has relaxed deadlines for BSA reporting requirements.  While they did not set what temporary deadlines would be, they stated that reasonable delays in reporting would be understandable.  In addition, FinCEN suspended the implementation of CTR ruling FIN-2020-R001 (“the 2020 Ruling”) for reporting transactions on sole proprietorships and entities doing business under an alternate name until further notice.

FinCEN also released guidance for completing beneficial ownership requirements for Payroll Protection Program (PPP) loans.  For all PPP loans originated for new customers, the financial institution should complete beneficial ownership procedures according to its policy and regulatory guidance.  However, the guidance provides an exception when originating a PPP loan for an existing customer. FinCEN does not require the financial institution to reverify or recertify the beneficial ownership form when a PPP loan is originated for an existing customer. Furthermore, if the financial institution has not yet collected beneficial ownership information on existing customers, it does not need to collect and verify beneficial ownership information for those customers applying for a PPP loan, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.  Specifically, FinCEN stated that although financial institutions are not specifically required to recertify beneficial ownership for existing customers they should adhere to their risk-based procedures for recertifying beneficial ownership forms.  Therefore, financial institutions should consider the risk level of each existing customer requesting to originate a PPP loan and make a risk-based decision to determine if beneficial ownership should be reverified such as for high risk customers or instances where the financial institution has knowledge of facts that would reasonably call into question the reliability of such information.  Institutions should consider amending their BSA policy to document the PPP exception as it relates to beneficial ownership on existing customers to ensure that this exclusion would not be in contravention to the current board approved BSA policy.

The previous paragraph refers only to new and existing customer requests to originate PPP loans.  All other account types being opened should be opened in accordance with the financial institution’s policy and existing regulatory guidance.  FinCEN stated that this guidance does not supersede previous rulings but is in addition to previous guidance.  Further, the PPP guidance does not change the requirement for the institution to implement its CIP on any new customer.

Existing guidance provides in general, covered financial institutions must identify and verify the identity of the beneficial owner(s) of legal entity customers at the time each new account is opened.  However, if the individual identified as the beneficial owner is an existing customer of the financial institution and is subject to the financial institution’s CIP, a financial institution may rely on information in its possession to fulfill the identification and verification requirements, provided the existing information is up-to-date, accurate, and the legal entity customer’s representative certifies or confirms (verbally or in writing) the accuracy of the pre-existing CIP information. The covered financial institution’s records of beneficial ownership for the new account could cross-reference the relevant CIP records and the verification of information would not need to be repeated.  However, record retention procedures should ensure the beneficial ownership identifying information is maintained for five years after the new account is closed and the relied upon description of any document relied on, description of any non-documentary methods and the results of any measures undertaken, and of the resolution of each substantive discrepancy is retained for five years after the certification of the accuracy of the preexisting CIP information is made. 

It should also be noted that existing guidance from FinCEN ruling FIN-2018-R004 provides exceptions, in part, to the requirement to identify and verify the identity of the beneficial owner(s) when a legal entity customer opens a new account as a result of a renewal, modification, or extension of a loan, commercial line of credit, or credit card (e.g., setting a later payoff date) that does not require underwriting review and approval.  This exception only applies to the renewal, modification or extension of any of the types of loan account listed above occurring on or after May 11, 2018 and does not apply to the initial opening of such accounts.    

As part of its response, FinCEN has set up a direct helpline for any BSA related question that may arise due to the COVID-19 pandemic, including those related to difficulties in meeting certain BSA obligations, and the timing requirements for certain BSA report filings.  To access this helpline go to www.finCEN.gov, click on “Need Assistance” click on the drop down list and select “COVID19.”

For the full article released by FinCEN use the following link:
https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-provides-further-information-financial

For further information about beneficial ownership and PPP loans please use the following link and reference FAQ #18:
https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf

For any other beneficial ownership questions please use the following links:
https://www.fincen.gov/sites/default/files/2018-04/FinCEN_Guidance_CDD_FAQ_FINAL_508_2.pdf
https://www.fincen.gov/resources/statutes-regulations/administrative-rulings/exceptive-relief-beneficial-ownership

For additional information on detecting and preventing potentially fraudulent activity related to disaster relief efforts, please use the following link:
https://www.fincen.gov/resources/advisories/fincen-advisory-fin-2017-a007-0  

By: Matthew Waters

On July 1, 2020, changes to Regulation CC will go into effect that will require more funds to be made available to customers when certain holds are placed.  The Consumer Financial Protection Bureau and the Federal Reserve Board jointly made an amendment to Regulation CC on June 24, 2019, to increase funds availability to compensate for inflation.  These amounts will continue to be adjusted for inflation every five years using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and rounded to the nearest multiple of $25.

The July 1 changes to availability include:

• 229.10(c) – The minimum next-day availability will increase from $200 to $225.
• 229.12(d) – The cash withdrawal availability will increase from $400 to $450.
• 229.13(a) – The first $5,000 of funds availability for new account exception holds will increase from $5,000 to $5,525.
• 229.13(b) – The first $5,000 of funds availability for large deposit exception holds will increase from $5,000 to $5,525.
• 229.13(d)(2) –The $5,000 threshold for determining a repeat overdraft will increase from $5,000 to $5,525.
• 229.21(a) – The civil liability will increase from a range of $100 - $1,000 to a range of $100 - $1,100 in the case of individual action.  The bank’s liability in the case of a class action will increase from $500,000 to $552,500.

​
Financial institutions should revise their Expedited Funds Availability disclosures and policies and procedures at least by the effective date of July 1, 2020, as well as inform customers of these upcoming changes not later than 30 days after implementation on July 1.  Per the commentary in the final rule, a written change-in-terms notice is required to be sent to customers, but the notice can be included on account statements (and e-statements, as applicable). Also, remember Regulation CC applies to all transaction accounts (e.g. checking, NOW), not simply consumer accounts.  If your bank decides to send out the updated Expedited Funds Availability disclosure to satisfy the change-in-terms notice requirement, remember that the commentary to Regulation CC requires that the specific changes be highlighted in some manner to bring attention to the changes themselves.  Lastly, training should be provided to applicable staff before the effective date of the changes.
 
To access the Regulation CC final rule, use the following link:
https://files.consumerfinance.gov/f/documents/cfpb_regulation-cc-amendments-joint-fr-notice.pdf

By: Nash Cullens

On February 10, 2020, FinCEN issued guidance to help clarify a previous ruling on how to file CTRs relative to sole proprietors and entities operating with a trade name or “doing business as” name (DBA). The new rulings go in effect for discrete filers on April 6, 2020, and September 1, 2020, for batch filers.

The new ruling (FIN-2020-R001) was intended to help clarify how CTRs should be filed for sole proprietorships doing business under a single alternate name in a single location as well as for sole proprietorships doing business under multiple alternate names and locations. The ruling also helps to clarify how to file CTRs on legal entities doing business under a single alternate name in a single location as well as legal entities doing business under multiple alternate names in multiple locations.

The following links contain the rulings and guidance on how to file CTRs for each scenario.

Use the following link to access the full article released by FinCEN:
https://www.fincen.gov/sites/default/files/administrative_ruling/2020-02-10/FinCEN_CTR_Form112_508_1.pdf

Also, for examples on how to complete a CTR for each scenario, please reference the CTR FAQs # 26:
https://www.fincen.gov/frequently-asked-questions-regarding-fincen-currency-transaction-report-ctr
​
For E-Filing instructions, please reference Page 90, Items 17 and 18 of the following links:
https://bsaefiling.fincen.treas.gov/docs/XMLUserGuide_FinCENCTR.pdf

By: Nash Cullens

On October 1, 2019, FinCEN issued new guidance to all E-Filers of discrete and XML batch filed Currency Transaction Reports in regard to completing Item 2 (Person involved in transaction) of Part I of the CTR form. Previously, FinCEN stated that if more than one option for Part I Item 2 applied, the bank was to only complete a single Part I (Person involved in transaction) for that person involved in the transaction and to aggregate all transactions conducted by that person in Item 21 (Cash in) or Item 22 (Cash out) of Part I for the transactor.

Due to CTRs being rejected and users of the BSA information not being able to fully understand how the transactions were being conducted, FinCEN has amended how line 2 of the CTR should be submitted. Now, for CTRs in which more than one option applies for Item 2 of Part I, the Bank should complete a separate Part I for each option of Item 2 that applies for the person involved in the transaction.

FinCEN issued this example to help clarify:

For example, if the Part I person makes a $5,000 deposit into their personal account and a separate
$7,000 deposit into the account of another person/entity, there will be one Part I on that person reporting option 2a on the personal deposit with that amount and account number in Item 21 “Cash in amount”. There will be a second Part I on that person reporting option 2b on the person/entity account transaction with that amount and account number in Item 21.

The effective date for this amendment has been extended from February 1, 2020, to September 1, 2020.

For the full article published by FinCEN, please use the following link:
https://bsaefiling.fincen.treas.gov/docs/FinCENNoticetoE-FilersRegardingCTRMultipleTransactionsEffectiveDate.pdf

For further clarification and examples, please use the following link and click FAQ #16:
https://www.fincen.gov/frequently-asked-questions-regarding-fincen-currency-transaction-report-ctr
 
Additionally, on November 22, 2019, FinCEN amended a recent statement released on October 1, 2019, in regard to indicating multiple transactions and aggregated transactions on Currency Transaction Reports. Previously, FinCEN stated that if a reportable transaction occurs such as a deposit, and a non-reportable transaction occurs such as a withdrawal under the $10,000 threshold, the Bank should indicate on Part I Item 3 (multiple transactions) that multiple transactions occurred. FinCEN amended this stating that multiple transactions should only be indicated if the multiple transactions that occurred are included in the CTR reportable amount. For instance, if multiple deposits occurred totaling over $10,000 dollars, multiple transactions should be indicated. However, if one deposit over $10,000 occurred as well as a withdrawal under $10,000, multiple transactions should not be indicated.

FinCEN released the following example to help clarify:

Item 3 Multiple transactions: Check Item 3 if multiple cash transactions of any
amount totaling more than $10,000 as cash in or more than $10,000 as cash out
(cash in and cash out transactions should not be combined) were conducted in a
single business day by or for the person recorded in Part I. For example, if a
customer makes a $12,000 deposit and a $300 deposit on the same day, item 3
should be checked. However, if a customer makes a $12,000 deposit and a $300
withdrawal, item 3 should not be checked.

Additionally, FinCEN further clarified that even though Item 3 of Part I (Multiple Transactions) and Item 24 of Part II (Aggregated Transactions) can be related, aggregated transactions should only be indicated if all the underlying requirements are satisfied.

For the full article published by FinCEN, please use the following link:​
https://bsaefiling.fincen.treas.gov/docs/FinCENNoticetoE-FilersRegardingCTRMultipleTransactionsInstructions.pdf

By: Nash Cullens

On December 3, 2019, the Board of Governors of the Federal Reserve System, the FDIC, FinCEN, the OCC in consultation with the Conference of State Bank Supervisors issued a statement regarding the legal status of commercial growth and production of hemp and requirements of Banks relative to the Bank Secrecy Act.  Due to the 2018 Farm Bill removing hemp from the Schedule I controlled substance list under the Controlled Substance Act, Banks are no longer required to file Suspicious Activity Reports on legal hemp related activities solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. Banks are still required to follow standard SAR filing procedures and/or file a SAR in the case any suspicious activity arises.  Bank customers participating in hemp-related business activities are responsible for complying with the requirements of the 2018 Farm Bill and applicable state regulations.  Banks should consider filing SARs as appropriate when hemp related businesses are found to be operating in contravention of state and federal requirements.

Key points per the joint press release:

• Consistent with the USDA interim final rule, hemp may be grown only with a valid USDA issued license or under a USDA-approved state or tribal plan. Research and development initiatives authorized under the Agricultural Act of 2014 (2014 Farm Bill) remain in effect until one year after the effective date of the USDA interim final rule.
• A state or tribal government may prohibit the production of hemp, even though it is legal under federal law. The 2018 Farm Bill provisions related to USDA-approved state or tribal plans did not preempt state or tribal laws regarding the production of hemp that are more stringent than federal law.
• Separately, marijuana is still a controlled substance under federal law. The 2018 Farm Bill amended the definition of marijuana only to exclude hemp from the Controlled Substances Act.

​
For more guidance in relation to Marijuana Related Businesses Banks should reference FinCEN guidance FIN-2014-G001.

For more information relative to SARs and legal hemp related activities please refence the following link. https://www.fdic.gov/news/news/press/2019/pr19115.html

If your bank operates in Georgia, the Department of Agriculture’s website notes that hemp related agriculture licenses are not available at this time and will not be available until the state finalizes its hemp guidelines. http://agr.georgia.gov/georgia-composing-plan-to-comply-with-federal-and-state-hemp-guidelines.aspx

 By James M. Moore, CRCM
 
One more year has passed, and we are faced with the new challenges of 2020.  Anyone with a compliance background understands there is no such thing as a fresh start for a new year.  The following is a list of reminders and updates to make sure you are heading in the right direction for the New Year. 
 
Deposit Compliance:

• Regulation CC training should have been provided during 2019 and make plans to provide Reg. CC training during 2020.
• Annual privacy training should have been provided for 2019 to all bank personnel and make sure annual privacy training is scheduled for 2020.  Furthermore, ensure that the Board of Directors has received privacy training.
• Ensure annual privacy disclosures will be mailed during 2020 or verify the bank’s exemption status for 2020.   
• Determine the number of remittance transfers under Regulation E from the previous calendar year to ensure the institution has not exceeded the threshold for “normal course of business.”
• Ensure the ID Theft Program administrator has reported to the Board annually on the status of the ID Theft Program.

 Loan Compliance:

• The 2019 HMDA LAR and CRA LAR for large institutions must be submitted by March 1, 2020.
• Check the historic examples for HELOC and/or ARM application disclosures to ensure the most recent 15 years are used in the examples.
• The CRA Public File should be updated by April 1, 2020.
• Check the accuracy of the affiliated business disclosures to ensure all affiliated businesses are disclosed along with the current range of fees and the current ownership interest of each affiliated business.
• The 2020 HOEPA points and fees test will use the following:
  • > 5% of loan amounts of $21,980 or more
  • > lesser of 8% of loan amounts under $21,980 or $1,099
• The 2020 QM points and fees test will use the following:
  • For a loan amount greater than or equal to $109,898: 3% of the total loan amount
  • For a loan amount greater than or equal to $65,939 but less than $109,898: $3,297
  • For a loan amount greater than or equal to $21,980 but less than $65,939: 5% of the total loan amount
  • For a loan amount greater than or equal to $13,737 but less than $21,980: $1,099
  • For a loan amount less than $13,737: 8% of the total loan amount
• The 2020 Truth In Lending threshold increases to $58,300 for loans not secured by real property and private education loans.
• The 2020 “small creditor” threshold is $2.202 billion as of December 31, 2019.
• The 2020 “small loan” exemption for HPML appraisal rules is $27,200.
• If the creditor allows borrowers to shop for any required services for TRID loans, it should update (as necessary) the written list provided with the Loan Estimate to identify at least one available provider for each settlement service for which the consumer is permitted to shop. 
• Ensure that bank personnel have received fair lending and CRA training for 2019.  Further, ensure that the Board of Directors has received annual fair lending and CRA training for 2019.  Training should be planned for 2020.
• CRA asset size thresholds for 2020 are under $326 million for small bank, at least $326 million up to $1.305 billion for intermediate small bank, and $1.305 billion and over for large bank (based on the last two calendar years).
• The HMDA asset size threshold for depository institutions for 2020 is $47 million.
• In addition to meeting the above HMDA asset threshold, an institution must have in each of the two preceding calendar years, originated at least 25 or more covered closed-end dwelling secured loans to report closed-end loans.  Dwelling secured open-end lines of credit must be reported in 2020 if a covered institution originated 500 or more covered dwelling secured open-end lines of credit in each of the previous two calendar years.  Ensure a review of 2018 and 2019 transaction data is conducted for 2020 reporting requirements. 
• Ensure procedures are in place for performing escrow account analyses and that the bank has implemented procedures for providing annual escrow account notices.
• Ensure loan officers completed S.A.F.E. Act license renewal procedures.
• Ensure an annual independent S.A.F.E. Act audit has been performed.
• Ensure lenders who receive compensation based on insurance sales (credit life/disability) complete license renewal procedures.
• Ensure the bank has documented whether or not they meet the definition of a small servicer and that documentation of the determination is retained for record retention.
• Ensure the bank has documented whether or not they meet the definition of a small creditor and that documentation of the determination is retained for record retention.
• Review the final list or rural or underserved counties for 2019, calculate rural or underserved status by address on the CFPB’s website for covered loans, and ensure the bank has documented whether or not it qualifies for the rural / underserved TILA exemption by originating at least one covered loan in a rural or underserved area and that documentation of the determination is retained for record retention.

 BSA Compliance:
​

• Schedule a Board review and approval of current BSA/AML and OFAC program policies.
• Update the BSA/AML and OFAC Risk Assessments.
• Ensure annual training was conducted for all employees during 2019 and is scheduled for 2020.  Furthermore, the Board of Directors should also be receiving annual BSA training, which should be documented in the Board minutes.
• Annual reviews should be conducted of all exempt customers for suspicious activity and continued eligibility.
• Update procedures for monitoring high-risk customers and reevaluate the risk levels of each customer designated as high risk.
• Ensure annual due diligence is completed for MSBs, remote deposit capture, private ATM customers, and deposit brokers in accordance with the bank’s BSA/AML program.

By: Brad Washburn, CRCM, CAMS

On Wednesday, December 18, 2019, the CFPB published two guides on preparing TRID disclosures for construction-only and construction-permanent loans as required by Regulation Z.  Under Regulation Z, a creditor may treat a construction-permanent loan as either one combined transaction or as two or more separate transactions.  If the loan is treated as one combined transaction, the creditor discloses both the construction phase and the permanent financing phase combined on each disclosure.  If the loan is treated as separate transactions, the creditor provides a separate set of disclosures for each phase of the construction-permanent loan.  The “Combined Guide” provides guidance for disclosing the construction and permanent phases together and the “Separate Guide” provides guidance for disclosing the phases separately, including disclosures for construction only loans.

The Construction Loan Guides (the Guides) were designed to address industry requests for clarification or more formal guidance on the completion of TRID disclosures for construction loans due to the complexity of disclosures for such transactions.  The Guides break down the regulatory requirements for each section of the form into plain language and provide examples to illustrate compliant completion of the forms based upon various scenarios.  The Guides work with other CFPB general TRID resources, including the TILA-RESPA Integrated Disclosure Small Entity Compliance Guide and the TILA-RESPA Integrated Disclosure Guide to the Loan Estimate and Closing Disclosure Forms, to review how to provide particular disclosures on the TRID forms for construction-only and construction-permanent loans.

The Guides do not provide a complete review of the TRID Rule, but instead highlight particular sections of the Loan Estimate and Closing disclosures based on the questions received by the CFPB regarding correct form completion for construction loan disclosures.  At the end of the Guides, there is more information about the TRID Rule and related implementation assistance from the CFPB that can support any of the other pieces not addressed by these guides.

While the Guides pertain to compliance with the TRID Rule, they are not a substitute for the rule.  Only the TRID Rule, its Official Interpretations (also known as commentary), and Appendix D provide complete and definitive information regarding the requirements for construction loans.  However, the discussions, tables, and examples in the Guides provide citations to the sections of the TRID Rule on the subject being discussed for proper reference.

Financial institutions that offer construction only loans and construction-permanent loans may find the Guides helpful to better understand the Loan Estimate and Closing Disclosure requirements for these complex transactions.
 
Follow the link below to access the Combined Guide:
https://files.consumerfinance.gov/f/documents/cfpb_trid-combined-construction-loan-guide.pdf    

​Follow the like below to access the Separate Guide:
https://files.consumerfinance.gov/f/documents/cfpb_trid-separate-construction-loan-guide.pdf 

By: Brad Washburn, CRCM, CAMS

​On December 13, 2019, the FDIC and OCC issued a joint Notice of Proposed Rulemaking (NPR) to comprehensively amend the Community Reinvestment Act's (CRA) implementing regulations, which have not been significantly changed in nearly 25 years.  This proposal builds upon previous efforts by the U.S. Department of the Treasury who released recommendations on April 3, 2018 to modernize the CRA, and previous efforts by the OCC who released an Advanced Notice of Proposed Rule (ANPR) on August 28, 2018 seeking comment on the best ways to modernize the regulatory framework implementing the CRA.
​
Per the NPR, the proposed revisions would seek to modernize and update CRA regulations to better achieve the law's underlying purpose of encouraging banks to serve their communities and are intended to make the regulatory framework more objective, transparent, consistent, and easy to understand. 
 
Consistent with the current CRA framework, the proposed rule would include different performance standards applicable to banks of different sizes by total assets. The proposal would also allow small banks, redefined as banks with $500 million or less in total assets, to continue to be evaluated under the current CRA small bank test or opt into the new general performance standards.  Banks with total assets over $500 million would be evaluated under the new general performance standards and the proposed rule would not include a separate classification for intermediate small banks.  Finally, the proposed regulations would include a strategic plan option available to address the unique needs of banks of any size with business models that could not be effectively evaluated under the proposed standards, such as banks that do not have retail domestic deposits or small banks that do not originate retail loans. 
 
The NPR would seek to modernize the CRA regulations by:
 

• Clarifying and expanding what qualifies for CRA credit

 
Specifically, the proposal provides that the agencies would maintain a publicly available non-exhaustive, illustrative list of examples of qualifying activities that meet the criteria in the rule, as well as examples of activities that the agencies have determined, in response to specific inquiries, do not qualify.  In addition, the proposal would establish a process for a bank to submit a form through the agency’s website to seek agency confirmation that an activity is a qualifying activity.
 

• Expanding where CRA activity counts by creating additional "assessment areas" tied to where deposits originate

 
To ensure that CRA activity continues to have a local community focus where banks maintain a physical presence and conduct a substantial portion of their lending activity, the proposal would still require banks to delineate “facility based” assessment areas around their main office, branches, or non-branch deposit-taking facilities as well as the surrounding areas where banks have originated or purchased a substantial portion of their loans.  However, to recognize the evolution of modern banking services (e.g. mobile banking, online banking, Internet banks, etc.) and the fact that many banks receive large portions of their deposits from outside their facilities-based assessment areas, the proposed rule would require some banks to delineate additional, non-overlapping “deposit-based” assessment areas where they have significant concentrations of retail domestic deposits as defined in the rule, if applicable. 
 

• Providing a more objective method to measure CRA performance by establishing activity thresholds as a percentage of domestic deposits

 
The new general performance standards would assess two fundamental components of a bank’s CRA performance: (1) the distribution (i.e. number) of qualifying retail loans to low-to-moderate income (LMI) individuals, small farms, small businesses, and LMI geographies; and (2) the impact of a bank’s qualifying activities, measured by the value of a bank’s qualifying activities relative to its retail domestic deposits.  Both components would be compared to specific benchmarks and thresholds that would be established prior to the beginning of a bank’s evaluation period.  Banks evaluated under the general performance standards would also be required to meet a minimum community development lending and investment requirement in each assessment area and at the bank level to achieve a satisfactory or outstanding rating.  The proposal would preserve and standardize consideration of performance context in concluding the overall rating, which would allow the agencies to recognize and account for specific facts and circumstances relating to a bank’s CRA capacity and opportunities in a transparent manner.
 

• Revising data collection, recordkeeping, and reporting requirements

 
The proposal would require banks evaluated under the small bank performance standards to collect and maintain, but not to report, data related to their retail domestic deposits so that the agencies could validate their deposit-based assessment area delineations, as applicable.  Banks evaluated under the general performance standards would be required to collect, maintain, and report certain data related to their qualifying activities, certain non-qualifying activities, retail domestic deposits, and assessment areas.  Those banks would also be required to use that information to make the calculations necessary to determine their ratings, based on the application of the performance standards in the proposal.  Prior to a CRA performance evaluation, the evaluating agency would validate the data used in determining a bank’s ratings.  The agencies would provide additional guidance on the data that banks need to collect and maintain under the proposed rule that would standardize the information collected and help banks ensure that they meet the requirements of the rule.  The agencies have also indicated that the data-based evaluation method would reduce the lag time in preparing CRA exam reports.
 
The proposal would also retain many of the current regulation’s provisions related to the public file, planned examination schedules, public notice by banks, and the CRA notice.  Banks would still need to provide public notice to the communities they serve that community members are entitled to CRA-related information. Banks would also need to provide the requested CRA-related information to the community members. CRA-related information would still include information about banks’ branches, locations, and services, comments received from the public related to assessment area needs and opportunities, and responses to those comments. However, banks would not have to provide data reported through HMDA in the public file because the proposal would collect home mortgage data directly instead of relying on HMDA data.  Additionally, recognizing the advances in technology over the past couple of decades, banks would no longer be limited to providing public notice or making available the CRA information through physical means. Instead, banks would have the option to provide public notice or make available CRA-related information on their websites. If a community member who has requested CRA-related information does not have access to the Internet, banks could offer to print out the information at that person’s expense, instead of copying the information from a physical file.
 
Many stakeholders agree the CRA rules need to be modernized to continue working intended, but there have been differences on the recommendations on exactly how to change the rules.  Noticeably absent from the joint proposal is the Federal Reserve who has not yet weighed in on CRA reform by joining this proposal or issuing its own proposal.  If the OCC and FDIC move forward without agreement from the Federal Reserve, banks could be faced with different rules to achieve CRA compliance depending on their primary federal regulator.  However, there is still the possibility that a final interagency rule that includes the Federal Reserve can be achieved, which would provide a consistent regulatory framework for all banks.
 
All financial institutions should carefully review the proposal and begin planning for potential significant impacts to compliance programs and strategic direction stemming from CRA regulatory reform rule changes.  Financial institutions should also consider issuing comments to the regulators to consider improving the rules before finalizing the proposal.  Comments on the NPR must be received  no later than 60 days after publication in the Federal Register.
 
We will closely monitor for additional developments in the CRA reform efforts and will issue an updated newsletter addressing this topic in the future as necessary. 
 
View the entire notice at the following link:
 
https://www.fdic.gov/news/board/2019/2019-12-12-notice-dis-a-fr.pdf

By: Joseph Herald

With the implementation of the new Beneficial Ownership Rule on May 11, 2018, the Financial Crimes Enforcement Network (FinCEN) required all covered financial institutions to collect and verify from specific non-exempt legal entities information about the beneficial owners of the entity at the time in which the account is opened. This rule has now been in effect for approximately eighteen months and we have found a few common misconceptions and mistakes when testing for compliance with the rule. Below are some FAQs based on our sampling in according with this rule:

• When do the Beneficial Ownership Certifications have to be completed?
  • Section 1010.230 makes it clear that Beneficial Ownership certifications must be completed at the time of account opening. Financial Institutions are reminded to ensure that the certifications are both signed and dated since the burden of proof is on the customer to certify that the information that they are providing is correct.  The date on the form will evidence that the certification was completed at the time the account was opened.
• Is the financial institution required to complete both the ownership and control prongs if both individuals are the same person?
  • Yes, FinCEN expects that the Bank complete both the ownership prong and control prong even if the individual beneficial owner is the same person.
• What if the covered entity is owned (25% or more) by a legal entity?
  • In this case, it is the financial institutions responsibility to “find a heartbeat”. In circumstances where this arises the Bank will be required to go through the layers of corporate ownership until they find an individual and if through indirect ownership, the individual owns 25% or more of the covered entity then they should be identified as a beneficial owner. Please see FAQ Question #3 of link 1 below.
• What are some common policy exceptions in relation to Beneficial Ownership?
  • Some of the common areas that are found to be incomplete are that financial institutions’ policies do not specify that non-profit organizations and pooled investment vehicles are only subject to the control prong requirement of the rule. Further, banks should ensure that written risk-based procedures for updating Beneficial Ownership information are in place (for example: existing customer opening new accounts, renewing a loan (if any underwriting occurs), or if the Bank has knowledge that a change has occurred in the covered entity).
• What is required for Non-Profit entities?
  • For non-profit entities, FinCEN has determined to exclude all non-profit entities (tax-exempt or not) from the ownership prong of the requirement. However, the requirement to identify an individual for the control prong is still present for non-profit entities and should be obtained.

For additional guidance / FAQs in relation to the Beneficial Ownership Rule, please use the following links:

1. FinCEN “Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions
​Click Here.

2. FinCEN “Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions” p.2
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3. The full Beneficial Ownership Rule is Available:
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By: Joseph Herald

On May 9, 2019, FinCEN issued guidance relating to business customers who deal with money transmission through a substitute for currency and even more specifically those deemed convertible virtual currencies (CVCs) and how those businesses can be defined as an Money Service Business (MSBs).

The 2011 MSB Final Rule clearly defined that persons who accepted or transmitted that which is a substitute for currency, such as virtual currency, would be deemed a money transmitter and would be required (like all money transmitters) to register with FinCEN as an MSB and comply with AML program, recordkeeping, monitoring, and reporting requirements (such as the filing of SARs and CTRs).

The guidance also contains examples of how the money transmitter regulations apply to some of the more common business models that would involve convertible virtual currencies (CVCs) such as natural persons providing CVC money transmission or P2P exchangers (4.1), CVC wallets (4.2), CVC money transmission services provided through electronic terminals (CVC “Kiosks”, “ATMs”, or “Vending Machines”)(4.3), CVC money transmission through decentralized applications (DApps)(4.4), anonymity-enhanced CVC transactions (4.5), payment processing services involving CVC money transmission (4.6), and CVC money transmission performed by internet casinos.

It is highly recommended that all financial institutions, regardless of size, be mindful of the regulatory guidance regarding these types of MSBs. Cryptocurrency is not limited to metro-areas or larger institutions due to the easy obtainability of several types of CVCs. Financial Institutions should begin performing due diligence on their existing customer base and include questions on account opening questionnaires to help anticipate customers who could be engaged in CVC activity.

Finally, FinCEN is expecting that financial institutions who introduce some of these more innovative products and services to an area that is highly regulated (money transmission) will ensure that they will comply with the regulatory framework for such activities before taking these new innovations to market.

The complete guidance may be found at: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

FinCEN also issued an advisory on illicit activity involving CVCs which details out some of the risks posed by these types of currency, the types of marketplaces in which this currency can be abused, valuable information in reporting suspicious activity involving virtual currencies, and some red flag indicators that CVC-focused MSBs could be abusing virtual currencies.
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​The full advisory can be found at: https://www.fincen.gov/sites/default/files/advisory/2019-05-10/FinCEN%20Advisory%20CVC%20FINAL%20508.pdf