Tag: Financial Services Law

COVID-19 Pandemic: Streamlining Financial Institution Regulation to Encourage Lending

In recent weeks, regulators of U.S. financial institutions have heeded calls to relax or provide temporary relief from a wide array of regulations that are viewed as impediments to lending in the current crisis environment.  Some of these actions were mandated (or reinforced) by provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  Many of the relevant regulations were enacted following the 2008/2009 financial crisis with the goal of strengthening the capital and liquidity positions of financial institutions and limiting their risk taking. The current economic and credit crisis has brought into clear relief the tensions between protecting and limiting risk-taking of financial institutions, and ensuring that those financial institutions have the capacity to lend to support the economy in a crisis, and the changes below make clear that market participants and regulators are increasingly concerned that certain regulations may limit flexibility and credit formation in a crisis like the COVID-19 pandemic.  Below we present a summary of some of the most significant recent changes that have been enacted by regulators or via statute. If you have questions about what these changes mean for your business or a financial institution you transact with, please reach out to the listed authors or your regular Polsinelli contacts.

Regulatory Streamlining Changes That Have Been Recently Adopted:

  • Changes to Financial Institution Capital Requirements in Connection with Paycheck Protection Program Lending Facility and Paycheck Protection Program (PPP):  Existing capital requirements may constrain lending by increasing the amount of equity or other capital that banks must have to support expanded lending, particularly loans that would be assigned a higher risk weighting under existing capital rules.  Additionally, the Federal Reserve’s PPP Lending Facility operates by lending to banks against PPP loans they have originated, which would also have a regulatory capital impact to participating institutions.  To provide liquidity to small business lenders and relief to small businesses, a provision in the CARES Act [1], as implemented with a joint interim final rule issued by the Federal Reserve and other banking regulators [2], (1) provides that PPP loans guaranteed by the Small Business Administration (SBA) will be assigned a zero risk weight under the risk-based capital rules and (2) effects changes to the regulatory capital treatment of utilizing the PPP Lending Facility, which, together, should neutralize the regulatory capital effect of banks increasing lending under the PPP and financing those loans via the Federal Reserve’s PPP Lending Facility.

  • Limiting Troubled Debt Restructurings (TDRs) Determinations: Generally, under U.S. GAAP, lenders are required to treat loans modified due to borrower financial distress as TDRs, which triggers additional reporting obligations and accounting requirements.  Federal and State bank regulators have acted to collectively encourage financial institution to work with borrowers have indicated that they and will not direct supervised institutions to automatically categorize COVID-19 related loan modifications as troubled debt restructurings (TDRs). [3]  Additionally, the CARES Act allows lenders to suspend such determinations, with certain limitations, with respect to loan modifications from March 1, 2020 through the earlier of December 1, 2020 and 60 days after the end of the declared public health emergency. [4]

  • Delay of Application of Current Expected Credit Loss (“CECL”) to Financial Institutions: FASB auditing standards require that financial institutions recognize the inherent losses in their loan and lease portfolios. CECL is a new methodology for measuring the inherent losses, and requires lenders to estimate and report expected credit losses at origination of a loan, rather than when a loan becomes distressed. The Federal Reserve and other banking agencies issued a joint interim final rule authorizing an extension in the transition period for implementing the full effects of CECL, which is intended to delay any impact that CECL might have on regulatory capital (and therefore lending). [5]  Additionally, the CARES Act specifies that insured depository institutions, bank holding companies and affiliates would not be required to adopt the standard prior to the earlier of December 31, 2020 and the termination of the declaration of national emergency—however market participants have raised questions about whether that would still require them to comply for the 2020 reporting period. [6]  Separate adoption dates apply for smaller financial institutions, and have also been delayed.

  • Temporary Change to Federal Reserve Supplementary Leverage Ratio Rule: The Supplementary Leverage Ratio applies to large financial institutions to limit their total leverage exposure. The change would exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation until March 31, 2021, and would therefore allow those institutions to expand their balance sheets and potentially provide additional credit to households and businesses. [7]

  • Temporary Change to Community Bank Leverage Ratio: Under existing law, qualifying community banking organizations have the option to adopt a simplified 9% leverage ratio in lieu of complying with the full panoply of BASEL III capital rules (those financial institutions meeting the leverage ratio requirement are generally deemed to be well capitalized for prompt corrective action purposes). A provision of the CARES Act, [8] as implemented by interim final rules of the Federal Reserve and other banking regulators, temporarily reduces the applicable leverage ratio to 8% (with a graduated transition to 8.5 % in 2021 and back to 9% thereafter) and provides for a grace period for covered institutions whose leverage ratios fall below the applicable requirement. [9]

  • Technical Changes to Total Loss Absorbing Capital Rules (“TLAC”): TLAC rules require global systemically-important  banks to maintain loss-absorbing long term debt and other tier 1 capital at specified levels.  The Federal Reserve System revised the definition of eligible retained income for purposes of the TLAC rules. This technical change allows covered companies to continue to lend and utilize their capital buffers in a gradual manner without severely constraining their ability to distribute capital. [10]

  • Deferral of Appraisals and Evaluations for Real Estate Transactions Affected by COVID-19: The federal banking agencies have issued a final interim rule [11] allowing lenders to defer certain appraisals and evaluations for up to 120 days after closing of residential or commercial real estate loan transactions to provide temporary relief by enabling regulated institutions to continue to close loans even if they are unable to arrange an appraisal/evaluation ahead of closing. [12] Real estate transaction involving acquisitions, development and constructions are excluded from the scope of the interim final rule. The temporary relief provisions will expire on December 31, 2020, unless extended. The National Credit Union Administration (NCUA) will consider a similar proposal on April 16, 2020. [13] The federal agencies along with NCUA and the Consumer Financial Protection Bureau have issued a joint statement offering guidance and describing temporary changes to Fannie Mae and Freddie Mac appraisal standards to provide assistance to lenders. [14]

  • Federal Reserve Regulatory Reporting Relief for Small Institutions: The Federal Reserve will not take action against a financial institution with $5 billion or less in total assets for submitting its March 31, 2020, Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) or Financial Statements of U.S. Nonbank Subsidiaries of U.S. Bank Holding Companies (FR Y-11) after the official filing deadline, as long as the applicable report is submitted within 30 days of the official filing due date. [15] The federal financial institution regulators and state regulators also offer similar relief to financial institutions affected by COVID-19. [16]

  • Temporary Modification to Wells Fargo Growth Restriction Order: One of the consequences of the Wells Fargo account opening scandal was a 2018 Consent Order that, among other things, restricted Wells Fargo’s asset growth until it met certain requirements. In light of the extraordinary events related to the COVID-19 pandemic, the Federal Reserve amended that order to temporarily lift the asset restriction to allow Wells Fargo to continue lending without violating the limits in the order. [17]

  • Six-Month Delay of the Federal Reserve’s Revised Control Framework:  The Revised Control Framework would have changed the determination of “control” for purposes of the Bank Holding Company Act and therefore the application of certain bank regulatory requirements.  The delay moves the effective date to September 30, 2020 to give additional time for implementation as well as for institutions to consult with the Federal Reserve on the effect of the change. [18]

  • Early adoption of Standardized Approach for Measuring Counterparty Credit Risk Rule (“SA-CCR”): SA-CCR is a new methodology for measuring counterparty credit risk of derivatives contracts for regulatory capital purposes, The Federal Reserve and other banking regulators issued a joint notification allowing the companies early adoption of SA-CCR by banks and bank holding companies, with the intent that the early adoption could reduce regulatory capital requirements and therefore encourage lending. [19]

[1] 26 U.S.C. §1102.

[2] Federal Reserve, Interim Final Rule, Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans (amending Sections 32 and 131 of the capital rule) https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200409a1.pdf.  See, 12 CFR 3.2, 12 CFR 3.32(a)(1)(iii), 12 CFR 3.131(e)(3)(viii) and 3.305 (OCC); 12 CFR 217.2, 12 CFR 217.32(a)(1)(iii), 12 CFR 217.131(e)(3)(viii) and 12 CFR 217.305 (Federal Reserve); 12 CFR 324.2, 12 CFR 324.32(a)(1)(iii), 12 CFR 324.131(e)(3)(viii) and 12 CFR 324.304 (FDIC).

[3]  Federal Reserve et al. Press Release, Agencies Provide Additional Information to Encourage Financial Institutions to Work with Borrowers Affected by COVID-19 (March 22, 2020) https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200322a.htm. See, also, Federal Reserve et al. Press Release, Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (March 22, 2020) https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200322a1.pdf; Federal Reserve et al. Press Release, Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised) (April 7, 2020) https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200407a1.pdf.

[4] 26 U.S.C. §4013.

[5] Federal Register, Regulatory Capital Rule: Revised Transition of the Current Expected Credit Losses Methodology for Allowances (March 31, 2020) https://www.federalregister.gov/documents/2020/03/31/2020-06770/regulatory-capital-rule-revised-transition-of-the-current-expected-credit-losses-methodology-for.

[6] 26 U.S.C. §4014.

[7] Federal Reserve Press Release, Federal Reserve Board announces temporary change to its supplementary leverage ratio rule to ease strains in the Treasury market resulting from the coronavirus and increase banking organizations’ ability to provide credit to households and businesses (April 1, 2020) https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200401a.htm.

[8] 26 U.S.C. §4012.

[9] Federal Reserve, Interim Final Rule, Regulatory Capital Rule: Temporary Changes to the Community Bank Leverage Ratio Framework, (amending 12 CFR Chapters I, II and III), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200406a1.pdf; Federal Reserve, Interim Final Rule, Regulatory Capital Rule: Transition for the Community Bank Leverage Ratio Framework, (amending 12 CFR Chapter I, II and III), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200406a2.pdf

[10] Federal Register, Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations: Eligible Retained Income (March 26, 2020) https://www.federalregister.gov/documents/2020/03/26/2020-06371/total-loss-absorbing-capacity-long-term-debt-and-clean-holding-company-requirements-for-systemically.

[11] Federal Reserve, Interim Final Rule, Real Estate Appraisals (amending 12 CFR 34, 12 CFR 225 and 12 CFR 323), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200414a1.pdf. See, 12 CFR 34.43 (OCC); 12 CFR 225.63 (Federal Reserve); 12 CFR 323.3 (FDIC).

[12] Federal Reserve et al., Press Release, Federal Banking Agencies to Defer Appraisals and Evaluations for Real Estate Transactions Affected by COVID-19 (April 14, 2020) https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200414a.htm. 

[13] Id.  

[14] Federal Reserve et al., Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus (April 14, 2020) https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200414a2.pdf.

[15] Federal Reserve Press Release, Federal Reserve offers regulatory reporting relief to small financial institutions affected by the coronavirus (March 26, 2020) https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200326b.htm.

[16] FFIEC Press Release, Financial Regulators Highlight Coordination and Collaboration of Efforts to Address COVID-19 (March 25, 2020) https://www.ffiec.gov/press/pr032520.htm.  

[17] Consent Order, In the matter of Wells Fargo & Company, Docket No. 20-007-B-HC, United States of America before the Board of Governors of the Federal Reserve System Washington, D.C., filed April 8, 2020, https://www.federalreserve.gov/newsevents/pressreleases/files/enf20200408a1.pdf.

[18] Federal Reserve Press Release, Federal Reserve Board announces it will delay by six months the effective date for its revised control framework (March 31, 2020) https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200331a.htm. 

[19] Federal Register, Standardized Approach for Calculating the Exposure Amount of Derivatives Contracts (March 31, 2020) https://www.federalregister.gov/documents/2020/03/31/2020-06755/standardized-approach-for-calculating-the-exposure-amount-of-derivative-contracts

© Polsinelli PC, Polsinelli LLP in California

For more on COVID19 related lending, see the Coronavirus News section of the National Law Review.

Foreign Correspondent Banking – The Good, The Bad and The Ugly

Foreign correspondent accounts have long been used by financial institutions to facilitate cross-border transactions. However, as a result of its susceptibility to money laundering and terrorist financing, this practice is encountering heightened concern among U.S. banking regulators. In this rigorous environment, it is increasingly important for financial institutions to take positive actions designed both to safeguard their operations against illicit transactions and, in the event their correspondent business comes under regulatory scrutiny, to establish a defensible position.

What is a foreign correspondent account?

A “correspondent account” is statutorily defined as “an account established to receive deposits from, make payments on behalf of a foreign financial institution, or handle other financial transactions related to such institution.”1 Laying the foundation for its Anti-Money Laundering (AML) guidance on foreign correspondent accounts, the Federal Financial Institutions Examination Council (FFIEC) adds some detail explaining, “An ‘account’ means any formal banking or business relationship established to provide regular services, dealings, and other financial transactions. It includes a demand deposit, savings deposit, or other transaction or asset account and a credit account or other extension of credit.”2 Moving from that neutral view, the FFIEC later takes a more positive tone, stating, “Foreign financial institutions maintain accounts at U.S. banks to gain access to the U.S. financial system and to take advantage of services and products that may not be available in the foreign financial institution’s jurisdiction. These services may be performed more economically or efficiently by the U.S. bank or may be necessary for other reasons, such as the facilitation of international trade.”3

The Good: Benefits of foreign correspondent banking

The concept of foreign correspondent banking is an accepted practice that can be very beneficial to financial institutions and their customers. Correspondent banks essentially act as a domestic bank’s agent abroad in order to service transactions originating in foreign countries. Championing a positive view, the Bank for International Settlements observes, “Through correspondent banking relationships, banks can access financial services in different jurisdictions and provide cross-border payment services to their customers, supporting international trade and financial inclusion”.4

The Bad: Challenges of foreign correspondent banking

Notwithstanding the benefits related to foreign correspondent banking, this practice also presents significant challenges, with regulatory burden featured prominently. Extensive rules governing foreign correspondent accounts implement the provisions found in USA PATRIOT Act sections 312 (imposing due diligence and enhanced due diligence requirements on U.S. financial institutions maintaining foreign correspondent accounts), 313 (preventing foreign shell banks from having access to the U.S. financial system) and 319(b) (authorizing federal law enforcement to investigate any foreign bank maintaining a U.S. correspondent account). The decline in correspondent banking relationships has much to do with the challenge of regulatory compliance, as recently noted by the American Bankers Association, “[O]ne key factor leading to the decline in correspondent/respondent banking relationships is the heightened regulatory burden on banks related to anti-money laundering and counter terrorism compliance.”5

The Ugly: Foreign correspondent banking as a means to launder money and finance terrorism

The regulatory strictures are not without good reason. There have been instances of foreign correspondent accounts being used to launder money and to potentially finance terrorism. Even in the early rush to implement the USA PATRIOT Act, the OCC, though taking a balanced view, expressed its concern, stating, “Although [correspondent] accounts were developed and are used primarily for legitimate purposes, international correspondent bank accounts may pose increased risk of illicit activities.”6 In recent years, the U.S. government has sent a strong message to financial institutions that fail to create a process to prevent criminal behavior. Financial institutions that disregard their obligations under the Bank Secrecy Act or operate without effective anti-money laundering programs have been the subject of enforcement actions resulting in hefty penalties. In 2012, a Virginia-based bank that allowed itself to be used to launder drug money flowing out of Mexico agreed to pay a record $1.92 billion to U.S. authorities, including hundreds of millions of dollars in civil money penalties to the Office of the Comptroller of the Currency, the Federal Reserve, and the Treasury Department.7 In 2015, a German-based bank and its U.S. branch accused of violating laws barring transactions with Iran, Sudan, Cuba and Myanmar, as well as abetting a multi-billion dollar securities fraud, agreed to pay $1.45 billion in fines.8 In both of these high-profile cases, government authorities cited Bank Secrecy Act violations including: (1) failure to have an effective AML program, (2) failure to conduct adequate due diligence or to obtain “know your customer” information with respect to foreign correspondent bank accounts, and (3) failure to detect and adequately report evidence of money laundering and other illicit activity. Mirroring the U.S. actions, the international Financial Action Task Force has sounded this stern warning in addressing the cross-border financial activities of Iran and North Korea: “Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices … .”9

The Solution: How financial institutions can best protect themselves from a harmful correspondent banking relationship

In order to meet its obligations to measure, monitor and control risks, a financial institution should consider the following actions:

1. Ensure BSA/AML policies and procedures are reviewed at least annually and adjusted to address any new risks related to correspondent banking activities.

2. Perform an annual risk assessment to determine the adequacy of its BSA/AML/OFAC program, especially as it relates to correspondent banking.

3. Conduct due diligence on counterparties to understand the nature and extent of the various aspects of the correspondent’s business, including, but not limited to, ownership, products, services, customers, locations, etc. Due diligence should be ongoing based upon the nature and scope of the correspondent activities and should include periodic validation of the counterparties and their activities by the correspondent bank.

4. Ensure that adequate expertise and resources are available to establish a BSA/AML/OFAC program capable of effectively and timely monitoring the volume and nature of activities processed through the correspondent account.

5. Ensure that the correspondent bank, and not the initiating bank, administers the systems used to process correspondent banking transactions, thus allowing the correspondent bank to independently identify exceptions, generate reports and analyze data to support its BSA/AML/OFAC program.

6. Perform monitoring of processed correspondent banking transactions in a timely manner, preferably through the use of an automated system that can effectively aggregate transactions and create “alerts” in order to identify potentially suspicious transactions.

7. Ensure that the correspondent bank establishes an enhanced due diligence (EDD) protocol that will be followed for investigative purposes when transactions trigger a BSA/AML alert in the monitoring system.

Steven Szaroleta and Walter Donaldson are co-authors of this article.

Article By Frank A Mayer, III, Richard M. Berman, Jonathan L. Levin & Molly K. Lampe of Dinsmore & Shohl LLP
Steven Szaroleta and Walter Donaldson are co-authors of this article.
© 2016 Dinsmore & Shohl LLP. All rights reserved.

1 31 U.S. Code § 5318A(e)(1)(B)
2 https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_027.htm
3 http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_047.htm
4 http://www.bis.org/cpmi/publ/d136.pdf
5 http://www.aba.com/Advocacy/commentletters/Documents/cl-BIS-CorrespondentBanking2015Dec.pdf
6 http://www.occ.gov/topics/bank-operations/financial-crime/money-laundering/money-laundering-2002.pdf
7 http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20121211
8 http://www.justice.gov/opa/pr/commerzbank-ag-admits-sanctions-and-bank-secrecy-violations-agrees-forfeit-563-million-and
9 http://www.fatf-gafi.org/documents/documents/public-statement-october-2015.html#DPRK

In three weeks! Attend the 3rd Annual Bank & Capital Markets Tax Institute West – December 3-4 in San Diego

When: December 3-4, 2015
Where: The Westin San Diego, San Diego, California

Register today!

We are proud to announce that BTI West will be coming back for a third year! For 49 years the annual BTI East in Orlando has provided bank and tax professionals from financial institutions and accounting firms in-depth analysis and practical solutions to the most pressing issues facing the industry, and from now on professionals on the west coast can expect the same benefits on a regular basis.The tax landscape is continually changing; you need to know how these changes affect your organization and identify the most efficient and effective plan of action. At BTI West you will have access to the same exceptional content, networking opportunities and educational value that have made the annual BTI East the benchmark event for this industry.

In an industry that thrives on both coasts, we will continue to offer exceptional educational and networking opportunities to ALL of the hard-working banking and tax professionals across the country. Join us at the 2nd Annual Bank and Capital Markets Tax Institute WEST, where essential updates will be provided on key industry topics such as General Banking, Community Banking, GAAP, Tax and Regulatory Reporting, and much more.

The Bank Tax & Capital Markets Institute Conference – West will feature a full one-day program consisting of keynote presentation, deep-dive technical sessions, and peer exchange and networking time.

In three weeks! Attend the 3rd Annual Bank & Capital Markets Tax Institute West – December 3-4 in San Diego

When: December 3-4, 2015
Where: The Westin San Diego, San Diego, California

Register today!

We are proud to announce that BTI West will be coming back for a third year! For 49 years the annual BTI East in Orlando has provided bank and tax professionals from financial institutions and accounting firms in-depth analysis and practical solutions to the most pressing issues facing the industry, and from now on professionals on the west coast can expect the same benefits on a regular basis.The tax landscape is continually changing; you need to know how these changes affect your organization and identify the most efficient and effective plan of action. At BTI West you will have access to the same exceptional content, networking opportunities and educational value that have made the annual BTI East the benchmark event for this industry.

In an industry that thrives on both coasts, we will continue to offer exceptional educational and networking opportunities to ALL of the hard-working banking and tax professionals across the country. Join us at the 2nd Annual Bank and Capital Markets Tax Institute WEST, where essential updates will be provided on key industry topics such as General Banking, Community Banking, GAAP, Tax and Regulatory Reporting, and much more.

The Bank Tax & Capital Markets Institute Conference – West will feature a full one-day program consisting of keynote presentation, deep-dive technical sessions, and peer exchange and networking time.

Buyer Beware! Despite Tokenization, Mobile Payments are not Bulletproof

Virtual Card Present – A New Breed of Mobile Credit Card Fraud 

As credit card fraud rises, ensuring the security of mobile payments is important for merchants and consumers alike. To combat fraud, the next generation of mobile payment platforms employ tokenization to create more secure mobile payments systems. While tokenization may reduce the susceptibility to mobile payment fraud, it is not bulletproof, leaving room for a new breed of credit card fraud.

Tokenization is a process in which sensitive information, such as a credit card number, is replaced with a randomly generated unique token or symbol. Tokenization helps simplify a consumer’s purchasing experience by eliminating the need to enter and re-enter account numbers when shopping on mobile devices. Tokens benefit merchants too, by eliminating the need for them to store payment card account numbers. Merchants have decreased risk as they are not directly handling sensitive and regulated data. The result is overall increased transaction security and reduction in mobile payment fraud.

For example, Apple Pay uses tokenization to ensure all personal account numbers (PANs) are replaced with randomly generated IDs, or tokens, that are then used to authorize one-time transactions. Although Apple Pay users upload credit card information to their devices, neither Apple nor retailers ever have direct access to this sensitive financial data. The security of the iPhone’s tokenization is further bolstered by the use of a biometric fingerprint that is stored on an isolated chip, separate from the token.

Even with the use of tokenization, there remains a weak link in securing mobile payments: ensuring a mobile payment system provides its app to a legitimate user, rather than a fraudster. And criminals love a weak link.

While Apple Pay’s use of tokenization coupled with the biometric authentication provides strong security, hackers are committing a new type of fraud by exploiting this weakness in user authentication. To circumvent tokenization (and biometrics), hackers have been loading iPhones with stolen card-not-present data to create Apple Pay accounts. This essentially turns the stolen credit card data back into a “virtual” physical card – à la Apple Pay.

The responsibility for this new type of Virtual Card Present (VCP) rests with the card issuers, who have the burden of establishing that Apple Pay cardholders are legitimate customers with valid cards. Some banks have begun addressing the issue of user authentication by requiring customers to call to activate Apple Pay, ensuring their identities are verified.

VCP fraud is sure to increase as additional entrants, such as Samsung and Loop Pay, enter the market with their own mobile payment systems. The largest Apple Pay competitor, CurrentC, backed by the Merchant Customer Exchange (MCX), a consortium of large retailers, is set to be launched later this year. While boasting “Security at Level” including passcode, paycode and cloud protection, how CurrentC intends to combat VCP fraud is yet to be seen.

As cybercriminals grow more sophisticated, mobile payment providers and issuers should react to VCP by focusing on developing innovative and strong user authentication solutions.

This article appeared in the October 2015 issue of The Metropolitan Corporate Counsel. The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis & Gross P.C. Copyright ©2015 Sills Cummis & Gross P.C. All rights reserved

Article By Nicole Joy Leibman of Sills Cummis & Gross P.C.

© Copyright 2015 Sills Cummis & Gross P.C.

Only three weeks away! Register for the 50th Annual Bank and Capital Markets Tax Institute East – November 4-6, 2015

When: November 4-6, 2015

Where: Hilton Orlando Lake Buena Visa, Orlando, FL

Register now!

For the past 49 years Bank and Capital Markets Tax Institute (BTI) has provided bank and tax professionals from financial institutions and accounting firms in-depth analysis and practical solutions to the most pressing issues facing the industry. With cutting-edge sessions, speakers and networking opportunities BTI is the must attend event for all forward-thinking tax professionals.

Now in its 50th year, BTI 2015 will continue to provide attendees with unmatched tools and resources to ensure that you continue to remain current on the ever-changing issues facing the industry. Essential updates will be provided on key industry topics such as General Banking, Community Banking, IRS Developments, GAAP, Tax and Regulatory Reporting, and much more.New to the program this year, we’ve added sessions on Regulatory Banking, Tax Process, Technology & Efficiency, and much more!

Who Should Attend?

Job Function

  • Accountant
  • Attorney (Tax)
  • Business Development
  • Comptroller
  • Consultant
  • Chief Financial Officer (CFO)
  • Internal Auditor
  • Partner/Senior Manager
  • Tax Advisor
  • Tax Officer/Specialist
  • Tax Research/Manager
  • Treasurer
  • Other Corporate Finance Management
  • Administrator (Government)
 Organizations

  • Commercial Bank
  • CPA Firm
  • Government
  • Investment Bank
  • Law Firm
  • Online Bank
  • Retail bank
  • Savings and Loans
  • Technology/Software Industry Provider
  • Consultant: Business/Finance
  • Consultant: Other
  • Academia/Non-Profit

BTI West is coming back for a 3rd year! Register for the Bank and Capital Markets Tax Institute West – December 3-4 in San Diego

When: December 3-4, 2015
Where: The Westin San Diego, San Diego, California

Register today!

We are proud to announce that BTI West will be coming back for a third year! For 49 years the annual BTI East in Orlando has provided bank and tax professionals from financial institutions and accounting firms in-depth analysis and practical solutions to the most pressing issues facing the industry, and from now on professionals on the west coast can expect the same benefits on a regular basis.The tax landscape is continually changing; you need to know how these changes affect your organization and identify the most efficient and effective plan of action. At BTI West you will have access to the same exceptional content, networking opportunities and educational value that have made the annual BTI East the benchmark event for this industry.

In an industry that thrives on both coasts, we will continue to offer exceptional educational and networking opportunities to ALL of the hard-working banking and tax professionals across the country. Join us at the 2nd Annual Bank and Capital Markets Tax Institute WEST, where essential updates will be provided on key industry topics such as General Banking, Community Banking, GAAP, Tax and Regulatory Reporting, and much more.

The Bank Tax & Capital Markets Institute Conference – West will feature a full one-day program consisting of keynote presentation, deep-dive technical sessions, and peer exchange and networking time.

Attend the 50th Annual Bank and Capital Markets Tax Institute East – November 4-6, Lake Buena Visa, FL

When: November 4-6, 2015

Where: Hilton Orlando Lake Buena Visa, Orlando, FL

Register now!

For the past 49 years Bank and Capital Markets Tax Institute (BTI) has provided bank and tax professionals from financial institutions and accounting firms in-depth analysis and practical solutions to the most pressing issues facing the industry. With cutting-edge sessions, speakers and networking opportunities BTI is the must attend event for all forward-thinking tax professionals.

Now in its 50th year, BTI 2015 will continue to provide attendees with unmatched tools and resources to ensure that you continue to remain current on the ever-changing issues facing the industry. Essential updates will be provided on key industry topics such as General Banking, Community Banking, IRS Developments, GAAP, Tax and Regulatory Reporting, and much more.New to the program this year, we’ve added sessions on Regulatory Banking, Tax Process, Technology & Efficiency, and much more!

Who Should Attend?

Job Function

  • Accountant
  • Attorney (Tax)
  • Business Development
  • Comptroller
  • Consultant
  • Chief Financial Officer (CFO)
  • Internal Auditor
  • Partner/Senior Manager
  • Tax Advisor
  • Tax Officer/Specialist
  • Tax Research/Manager
  • Treasurer
  • Other Corporate Finance Management
  • Administrator (Government)
 Organizations

  • Commercial Bank
  • CPA Firm
  • Government
  • Investment Bank
  • Law Firm
  • Online Bank
  • Retail bank
  • Savings and Loans
  • Technology/Software Industry Provider
  • Consultant: Business/Finance
  • Consultant: Other
  • Academia/Non-Profit

China Devalues the Yuan in Biggest Single-Day Markdown in 20 Years

The People’s Bank of China—the country’s central bank—devalued its notoriously tightly controlled currency (Chinese Renminbi) by 1.9 percent against the U.S. dollar between Monday night and Tuesday morning, Aug. 11, 2015. Such devaluation represents the greatest single-day markdown since 1994, following years of international political rhetoric concerning China’s exchange rate control.

Precisely because the Chinese government kept the yuan tied to a strong dollar, the exports of other countries have become more competitive as their currencies have fallen against the yuan over the past year. This has resulted in a weakening export sector, upon which the Chinese economy is very much dependent. Other contributing factors to the currency devaluation are the country’s slowing, albeit still net-positive, second-quarter GDP in comparison to prior years and, perhaps, a desire to reign in capital outflows from China, which totaled $162 billion for the first half of this year alone. Add to this backdrop the fact that the central bank has repeatedly cut interest rates to boost lending and spur a slowing economy over the past year, thereby also decreasing returns on domestic investments and forcing investors to look outwardly for higher yields.

While Beijing is focused on the country’s growth and macroeconomic prosperity, the move raises questions as to how a weaker yuan will affect the very active market of Chinese foreign investors.

However, the question now is how the devaluation of the yuan will impact foreign direct investment by Chinese in the real estate sector and as well in EB-5 investments.

ARTICLE BY Shaun K. Staller of Greenberg Traurig, LLP

©2015 Greenberg Traurig, LLP. All rights reserved.

Quicken Loans Takes on the DOJ & HUD

Quicken Loans, the nation’s largest Federal Housing Administration (FHA)-backed mortgage lender,filed suit on Friday, April 17 in the United States District Court in Detroit against the United States Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD). In the suit, Quicken alleged that it is a target of a probe in “which the DOJ is ‘investigating’ and pressuring large, high-profile lenders into publicly ‘admitting’ wrongdoing.” Quicken says the government threatened to file a lawsuit against it unless the company paid damages based on a sampling of its loans backed by the FHA. The government wanted payment of damages to be coupled with an admission by Quicken that its lending practices were “significantly flawed,” and that it had committed wrongdoing.

The company says that the public statements the government wanted it to make were blatantly false. Quicken also asserts that, before filing its lawsuit, it had already provided the DOJ with more than 85,000 documents, including 55,000 emails. In addition, the DOJ, without filing any lawsuit against Quicken, has conducted hundreds of hours of depositions from numerous Quicken team members. Three years later, the DOJ inquiry has (according to Quicken) resulted in the threat of a federal lawsuit based on “faulty analysis of a miniscule number of cherry-picked mortgages from the nearly 250,000 FHA loans the company has closed since 2007.”

According to FHA statistics, Quicken has originated the government agency’s best performing loan portfolio. The FHA’s publicly available data appears to establish that Quicken has the lowest “compare ratio” — the default rate of a single lender compared to FHA’s total mortgage portfolio — in recent years.

Not surprisingly, the DOJ responded by filing its own lawsuit against Quicken on Thursday, April 23, contending that it made hundreds of improper loans through the FHA lending program, allegedly costing the agency millions of dollars. The Justice Department contends that from September 2007 through December 2011, Quicken knowingly submitted claims — or caused the submission of claims — on hundreds of bad loans, and encouraged an underwriting process in which employees disregarded the program rules and falsely certified that loans met the requirements.

The F.H.A. — which allows borrowers to make down payments of as little as 3.5 percent — has already paid millions of dollars in insurance claims on the improperly underwritten loans, according to the complaint; it said many additional loans had become at least 60 days delinquent and could result in further claims.

The Justice Department, which has filed the suit under the False Claims Act, has already reached settlements with several lenders over their F.H.A. lending practices, including JPMorgan Chase, SunTrust, U.S. Bank, and Bank of America.

It is likely that many other lenders, feeling unduly scrutinized by government agencies, are cheering Quicken’s decision to file suit and are more than a little sympathetic to Quicken’s position in the two suits currently pending (which may be consolidated at some point). The prospects for success for Quicken in the suit that it filed, however, are not necessarily bright. The government generally has immunity, and great discretion even when it does not have immunity, with respect to how it conducts its investigations or settles enforcement actions.

Nevertheless, the lawsuit may at the very least succeed in forcing government agencies to explain and justify their conduct, which might have an effect strongly desired by numerous lenders feeling “targeted” by those agencies. Specifically, the effect of reining in the excesses of governmental enforcement efforts, and making responsible government officials more inclined either to forgo certain investigations entirely, or streamline them in ways that place lesser burdens on companies that, after all, should be presumed not to be liable until the government actually proves otherwise.

© 2015 Bilzin Sumberg Baena Price & Axelrod LLP Authored by:  Philip R. Stein