The Online Compliance Consulting Dashboard has been enhanced!

Visit compliance.smslp.com for more information.

Featured Content

FinCEN Moves Forward On CTA

The financial services industry has long-awaited regulatory action implementing the Corporate Transparency Act (CTA). And, our wait is over…at least partially.

The CTA was enacted into law as part of the National Defense Authorization Act. In connection with this, FinCEN recently issued a final rule for implementation of section 6403 of the CTA, which addresses beneficial ownership information reporting requirements.

As FinCEN has clarified, the goal of these new requirements is to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.

What are the new information reporting requirements?

FinCEN’s new rule is an adjunct to their “Reports Required To Be Made,” housed in their regulations, and will be reflected in §1010.380.  At a high level, the regulation requires a “reporting company” to file certain reports. 

An initial report requires certain content, such as a legal name, address, and a tax identification number. The report must also include certain information on every individual who is a beneficial owner of the company and every individual that is a company applicant, which would include information on those individuals, such as legal name, date of birth, address, and a unique identifying number from a document, such as a driver’s license.

The new requirements also call for updated and corrected reports to be submitted as needed. Reporting companies that were created before the rule’s effective date, January 1, 2024, shall file a report no later than January 1, 2025. Beyond that, the rule harmonized other reporting timeframes at 30 days for initial reports by newly created or registered entities, as well as for updated and corrected reports. 

What is a “Reporting Company?”

Under the rule, a “reporting company” refers to either a domestic reporting company or a foreign reporting company. A domestic reporting company refers to any entity that is a corporation, an LLC, or an entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.

The rule contains a long list of exemptions. Of interest to the financial industry, this list of exemptions includes, but is not limited to, governmental authorities, banks, credit unions, depository institution holding companies, money services businesses, and tax-exempt entities.

Why should we care about this?

FinCEN’s new rule is an important and first step in implementing changes that support the CTA and beneficial ownership transparency. But, there is still work to be done. The financial industry should be aware of implementing changes that support the CTA, now and in the future. As FinCEN noted in the rule’s preamble, they intend to issue proposed regulations governing the disclosure of beneficial ownership information to authorized recipients and require, among other things, that recipients maintain the highest security safeguards practicable.

As summarized by FinCEN Acting Director Das at the ACAMS AML Conference this month: 

“The beneficial ownership information reporting rule is the first of three rulemakings to implement the CTA. This rule goes into effect on January 1, 2024. The second is the Access rule, which will lay out the protocols for access to the beneficial ownership database by law enforcement—at the Federal, state, local, and tribal levels—and by financial institutions. We are working very hard on this NPRM right [now] —and we are working to issue it in the near term. Third, we will be revising the Customer Due Diligence (CDD) rule no later than one year after the effective date of the reporting rule—as required by the CTA.”

While there is more to come on this topic, interested persons may find FinCEN’s new reporting rule here. The prepared remarks of Acting Director Das at the AML Conference may be found here.

New 2023 Thresholds Announced

As compliance staff are aware, it is in the 4^th quarter of the year when several adjusted compliance thresholds are announced by the regulators. 

Recent publications in the Federal Register announced adjusted thresholds that become effective on 1/1/2023, as follows:

• Appraisals for HPMLs Exemption Threshold – increasing to $31,000
• Consumer Leasing (Reg. M) Exemption Threshold – increasing to $66,400
• Truth in Lending (Reg. Z) Exemption Threshold – increasing to $66,400

Sheshunoff clients will receive more detailed information on 2023 thresholds in the near future.

U.S. Court Moves to Vacate HMDA Threshold

At the end of September, Judge Howell of the US District Court issued a Memorandum Opinion (MO) in a civil action between National Community Reinvestment Coalition (NCRC), et al, and Consumer Financial Protection Bureau (CFPB). 

At the core of the matter were the parties’ cross motions for summary judgment related to portions of the CFPB’s 2020 rule addressing HMDA thresholds, for which the CFPB explained that it has legal authority to amend. 

In this case the plaintiff, NCRC, et al, challenged the 2020 rule related to: a) actions which they argue exceeded the CFPB’s statutory authority, and b) the use of cost-benefit analysis that they argue was flawed.

As reflected in the MO, the Judge granted the motion in part and denied the motion in part, as follows:

• The Judge disagreed w/the motion related to the open-end reporting threshold change (2020 rule). 
• The Judge agreed w/the motion related to the closed-end reporting threshold change (2020 rule), that was increased from a threshold of 25 closed-end loans to 100 closed-end loans. As summarized… “The plaintiff’s motion for summary judgment is granted to the extent that CFPB’s justification for the loan-volume reporting threshold for closed-end mortgage loans under the 2020 Rule is arbitrary and capricious, requiring that this aspect of the rule be vacated and remanded to CFPB for further proceedings…”

While we expect to hear more from the CFPB as to their “further proceedings,” institutions should be prepared for an upcoming change related to the HMDA closed-end loan threshold being returned to a threshold of 25.  Interested persons may find the MO here. 

Recently, the FDIC amended their Fair Housing regulation (12 CFR 338) by amending provisions related to their Fair Housing Poster. Of note, the FDIC published a “Technical Correction” on August 8, 2022, which may be found here. This rule, among other things, communicated a reorganization and change in the name of their former Consumer Response Center. This was followed by the publication of “Correcting Amendments” on August 12, 2022, which may be found here. This subsequent rule made a technical correction to the name change.

FDIC-supervised institutions should review the published items and make adjustments to their Fair Housing Poster to coincide with the FDIC’s regulation, which may be found here.

SEC Marketing Rule Deadline Nears

While information from the Securities and Exchange Commission (SEC) is not a typical topic in a compliance forum, we wanted to alert our readers that the SEC’s new Investment Adviser Marketing Rule deadline is approaching soon, on November 4, 2022.  Why do we care about this?  As many institutions have a relationship and/or referral program with an investment adviser, institutions should be aware that an investment adviser subject to this new rule must comply with new marketing protocols, which could impact their disclosures in your institution.  As such, an institution may be asked by their investment adviser to add or replace certain disclosures that are aimed at increasing transparency between advisers and those that refer them.

The rule is designed to modernize provisions that govern investment adviser marketing, which will replace both the current advertising and cash solicitation rules. It comprehensively and efficiently regulates investment advisers’ marketing communications. At a high level, the rule does many things:

• defines the scope of “advertisement,”
• establishes general prohibitions,
• addresses conditions applicable to testimonials and endorsements, and
• establishes required disclosures, among other things.

Who must follow the marketing rule (Rule 206(4)-1)?

The marketing rule applies to any investment adviser registered or required to be registered with the Commission under section 203 of the Act that directly or indirectly disseminates an advertisement.

While we have seen investment advisers take a proactive approach in working towards fulfilling the new responsibilities, an institution should reach out to any investment adviser they work with to inquire about plans for the new rule, as needed. 

Interested persons may find the SEC’s Investment Adviser Marketing rule here. The SEC’s related announcement and Fact Sheet may be found here. The SEC’s Small Entity Compliance Guide may be found here.