2019 Heatmap: Regulatory Changes Under The Trump Administration

During President Trump’s campaign for presidency, he made several claims that he would roll back financial regulations. In December 2016, we created a heatmap predicting these potential roll backs. We indicated Trump’s authority over popular financial regulations and the likelihood that those regulations would change according to his agenda.

In our new heatmap below, we tracked changes to those regulations over the past two years as well as the passing of the Economic Growth, Regulatory Relief and Consumer Protection Act in 2018. Our 2019 update illustrates what actions have been taken for each of these regulations under the Trump Administration.

2019 Heatmap:


Regulatory Changes Under The Trump Administration


Dodd-Frank Rollbacks: the Crapo Bill and Volcker 2.0

In the past month, parts of the Dodd-Frank Act have been updated through the Crapo Bill and the Volcker Rule rollback. Read on for more information on these important changes.

The Crapo Bill

Date: May 24, 2018

How: President Trump signed off on the Crapo bill, which passed the Senate and House of Representatives earlier this year.

Key changes to Dodd-Frank:

  • Banks with less than $250 billion in assets will no longer be required to undergo stress tests, whereas previously, the threshold was $50 billion.
  • A few large financial institutions, like American Express and BB&T, will no longer be deemed systemically important, allowing them to avoid stringent oversight from regulators.
  • Some loan originators, including small lenders, will be exempt from certain disclosures formerly required by the Home Mortgage Disclosure Act (HMDA).

Volcker 2.0 Update

Date: May 30, 2018

How: The Federal Reserve voted to approve Volcker 2.0, a broad proposal that eases financial crisis-era regulations on risky trading. Fed Chairman, Jerome Powell said, “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.” The proposal still requires approval by four other banking regulators, but they are expected to follow the Fed’s lead.

Key changes to Dodd-Frank:

  • The level of regulator scrutiny would correspond to the amount of trading that goes on at a particular bank, which means lower compliance costs for banks with smaller trading operations.
  • Proprietary trading would still be banned under the proposed update.


8of9 Heatmap: Regulatory Changes Under President Trump

8of9 Heatmap:


Regulatory Changes Under President Trump


Spotlight on the Agency: OCC & Regulations on the Horizon

Spotlight on the Agency: OCC & Regulations on the Horizon

The Office of the Comptroller of the Currency (“OCC”) is an independent bureau of the U.S. Department of the Treasury[1] that charters, regulates, and supervises:

All National Banks

All Federal Savings Associations

Federal Branches and Agencies of Foreign Banks

The OCC ensures that all banks operating in the United States (both foreign and domestic) “run according to sound, safe practices and abide by all relevant regulations and laws. It also ensures that there is sufficient access to financial products and services and that customers are treated fairly.”[2]

 

As a result of the Dodd-Frank Act, the OCC merged with the Office of Thrift Supervision (“OTS”) in an effort to end lenders’ ability to shop regulators. Regulator shopping is the practice of banks/lenders picking and choosing amongst various state and federal regulators to find the most favorable rules and taxes. This merger saw the OCC take on supervision of 700+ institutions and gave the OCC rulemaking authority over national banks and federal thrifts.[3] Dodd-Frank also required the OCC to revise many of their rules on federal preemption of state law, limiting OCC authority. The agency is now required to determine preemptions on a case-by-case basis, which provides states with more power to protect consumers.[4]

 

Interesting things are coming from the OCC. The agency recently made a proposal to “grant special purpose national bank charters to fintech companies,”[5] which would allow the OCC to officially deem certain FinTech companies as “safe” and sufficiently compliant.[6] Keith Noreika, the new head of the OCC, recently commented that they are still in the “exploratory phase of this implementation.[7]

 

 

 

[1] “About the OCC” Office of the Comptroller of the Currency official website, https://www.occ.treas.gov/about/what-we-do/mission/index-about.html

[2] “What is the OCC?” Herold’s Financial Dictionary, https://www.financial-dictionary.info/terms/occ/

[3] Prior, Jon “OCC begins absorption of the OTS”, Housingwire, July 21, 2011, https://www.housingwire.com/articles/occ-begins-absorption-ots

[4] Williamson & Heimenz, “Preemption of State Consumer

Protection Laws: Dodd-Frank Changes and the New (Old) Barnett Standard” National Consumer Law Center, November 29, 2011, https://www.nclc.org/images/pdf/conferences_and_webinars/webinar_trainings/presentations/2011-2012/preemption_webinar_nov_2011.pdf

[5] Curry, Thomas J. “Exploring Special Purpose National Bank Charters for Fintech Companies”, December 2016, https://www.occ.treas.gov/topics/responsible-innovation/comments/special-purpose-national-bank-charters-for-fintech.pdf

[6] Milanovic, Nik, “An obscure regulatory debate has put the entire U.S. fintech community on edge” Techcrunch, April 24, 2017, https://techcrunch.com/2017/04/24/an-obscure-regulatory-debate-has-put-the-entire-u-s-fintech-community-on-edge/

[7] Irrera, Anna, “U.S. banking regulator not ready for fintech charter applications”, Reuters, September 13, 2017,  https://www.reuters.com/article/us-occ-fintech/u-s-banking-regulator-not-ready-for-fintech-charter-applications-idUSKCN1BO2SA


Volcker Rule: A One Year Reprieve For Certain Foreign Banks & Investment Funds

The U.S. agencies responsible for enforcing the Volcker Rule issued  A ONE YEAR REPRIEVE FOR CERTAIN FOREIGN BANKS & INVESTMENT FUNDS,  via a joint statement on July 21, 2017.

What does this mean for the year?

  • This year is a grace period allowing agencies time to amend Volcker.
  • Foreign banking entities that engage in activities or investments with a “qualifying foreign excluded fund” within their control, will NOT be found to be in violation of the Volcker Rule.
  • A “qualifying foreign excluded fund” acquired, sponsored, or owned by foreign banking entities will NOT be treated as a bank entity,[1] therefore avoiding the impairments of Volcker.[2]
  • Non-bank entities are NOT subject to the prohibition on proprietary trading with covered funds (e.g., certain hedge funds, private equity funds, etc.).

A “qualifying foreign excluded fund” is defined as an entity that:

  • is organized, offered and sold outside of the U.S.;
  • would be a covered fund had it established itself in the US or collected funds from investors mainly to invest in financial instruments for resale, other disposition, or for trading;
  • is NOT otherwise considered a banking entity except by virtue of a foreign banking entity’s acquisition or retention of an ownership in, or sponsorship of, the entity;
  • is established and operated as part of an asset management business; and,
  • is NOT operated in a manner that enables a foreign banking entity to dodge the requirements of the Volcker Rule.

How do you figure out if you qualify for relief?

  • Are you a foreign bank that has investments in or sponsorship of “qualifying foreign excluded funds”?
  • Can you meet the “Solely Outside the United States” (SOTUS) exemption requirements?
    • The banking entity is not organized or “controlled” by a banking entity organized in the U.S.;
    • The activity or investment by banking entity is pursuant to Sec. 4(c), paragraphs (9) or (13) of the BHC Act;
    • No ownership interest in the covered fund is offered for sale or sold to a U.S. resident; and,
    • The activity or investment occurs solely outside of the United States.

It's only a temporary fix:

  • How will agencies prevent unintended consequences such as extraterritorial reach?
  • Foreign banks and funds are left asking, “Who will ultimately be subject to the Volcker Rule?”


Q&A WITH MARY KOPCZYNSKI

Family Office Insights sits down with Mary Kopczynski, the founder of 8of9, to discuss how she and her team breathe new life into regulatory issues for the financial services sector.

Read Here


8OF9 IS EVOLVING...

As technology advances and regulations change, adaptation and evolution are key to surviving inevitable regulatory storms.

 8of9 has officially transformed into an industry leading RegTech firm. Our mission is to translate complex information into simple solutions. We use specialized tools developed by subject matter experts to demystify confusing regulations. We identify and manage regulatory change and its impact on our clients while seamlessly implementing focused and cost-effective strategies at the intersection of regulation and technology.

 We prides ourselves on being the right experts who use innovative thinking, cutting edge RegTech products, and trained human capital to help our clients weather any regulatory storm.

 8of9 is a nerd farm: we’re always upgrading our knowledge to analyze and interpret complex information to ease the burden on our clients.

We have cultivated a wide range of trusted relationships across the entire regulatory ecosystem and we look forward to building a solution that is tailored to your needs.

Translation: 8of9 turns regulatory chaos into opportunity

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REASONS INDUSTRY LEADERS ARE TURNING TO 8OF9

1. Experience: From RWA Reductions, to Living Will, to FATCA and more, our team has a global breadth of exposure to cross-teams and in all regions.

2. History: Clients who are overwhelmed by the technology and infrastructure aspects of regulatory compliance most often retain 8OF9. We have a history of managing the mess, and creating opportunity.

3. Thought Leadership: 8OF9 commissioned by IBM and top software companies including Seal Software and Exari to write white papers on change strategy for a variety of financial regulation topics.

4. Regulatory Change Skills: We have specialized regulatory expertise coupled with practical business analyst skills.

5. Technical Skills: 8OF9 has exposure to dozens of technology platforms, including collateral, credit, legal, and trade booking systems. We have helped test many of them for new regulations already!

6. Major Nerdery: Many of our Nerds have dual graduate degrees and we think financial regulation is fun. No Joke.

7. Affordable: Thanks to our lean and mean infrastructure, our day rates are very competitive.

8. Practical Project Support: 8OF9 identifies the next steps AND gets them done. We do not waste time by allowing problems to surface, we identify, manage and solve!

9. FUN: We are a nerdfarm of charismatic leaders who make [*]it happen!

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THE ROLE OF TREASURY

8of9’s Regulatory Executive Education Program ensures that 8of9 project managers to have a front-to-back understanding of a bank and all of its functions and departments. Given the importance and difficulty of Recovery and Resolution planning, 8of9 brought in a Treasury expert to speak with us.

The Treasury department of a bank is responsible for balancing and managing the daily cash flow to and from the variety of departments within the bank. The department also handles the bank’s investments, assets, and liabilities. Ultimately, the key responsibility for the Treasury department is liquidity management. Treasury must ensure that the bank has adequate funds to continue its activities in all circumstances, particularly in stressed scenarios. In order to be successful in this area, the Treasury department must monitor, manage and report the bank’s liquidity position. This includes both defining a liquidity profile and reporting.

In order to define a liquidity profile, the Treasury department must continually assess several critical factors such as the amount of a liquidity buffer to maintain, the mix of short-term vs. long-term debt, whether that debt is at a fixed rate or a floating rate, and whether certain deals involve a mix of different currencies. In order to meet reporting requirements, Treasury must monitor certain information that is required by regulation including contractual and contingent liabilities, the amount of cash on hand, and the amount unencumbered liquid assets.

The speaker explained to us that the difference between liquidity and funding is that liquidity is the governance framework of the bank’s funds whereas funding is the execution of that framework. Treasury’s key task in funding is to execute funding transactions at the lowest cost. This involves developing a funding plan, which requires an understanding of the available funding opportunities in both unsecured and secured markets. Unsecured funding tends to come from deposits (both retail and institutional banking), interbank borrowings, commercial paper and medium term notes, long-term debt (senior and capital notes), funded swaps, and intraday and overnight loans from clearing banks. Secured funding can be found in repurchase agreements, securities lending and secured bonds.

Treasury is also responsible for ensuring that regulatory and business capital requirements are met. With respect to the regulatory capital requirements, Treasury has to ensure capital buffers are maintained for the Financial Stability Board’s total loss-absorbent capacity (“TLAC”) and stress testing for CCAR. For a bank’s capital structure, Treasury must ensure that a capital structure and capital actions are in place.

Overall, our discussion of the Treasury department’s role at a bank was a valuable experience. We learned how essential the Treasury department of the bank is to daily operations. The discussion also highlighted how important regulatory change management is to Treasury.  Much like project management, the success of Treasury depends on planning and execution.

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