The Financial Institutions Executive Briefing offers updates on financial reporting, governance, and risk management topics from Crowe. In each issue of this electronic newsletter, you will find abstracts of recent standard-setting activities and regulatory developments affecting financial institutions.
From the Federal Financial Institution Regulators
FAQs Issued on Regulatory Capital Rule
In response to concerns from the banking industry about the application of the Basel III regulatory capital requirements, staffs of the Office of the Comptroller of the Currency (OCC), the Federal Reserve (Fed), and the Federal Deposit Insurance Corp. (FDIC) have issued answers to frequently asked questions to provide clarification.
The FAQs cover the definition of capital, high-volatility commercial real estate exposures, other real estate and off-balance-sheet exposures, separate account and equity exposures to investment funds, qualifying central counterparty, credit valuation adjustment, and other topics.
Call Report Simplification Proposed
On April 23, 2015, several federal banking regulators testified before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of Representatives, that they intend to propose “burden-reducing” changes to the call report.
Doreen Eberley, director of the FDIC Division of Risk Management Supervision, testified, “We have received comments from institutions and others about the cost and burden of preparing Call Reports. . . . [W]e have talked to the industry about ways to improve Call Reports and the reporting process, and we will pursue several actions in the near term. For example, we plan to propose certain burden-reducing changes this year and implement a more robust process for bank agency users to justify retaining or adding items to the Call Report.”
Further supporting the commitment to simplifying the call report, Senior Deputy Comptroller for Midsize and Community Bank Supervision of the OCC Toney Bland said that the interagency Task Force on Reports will do “a comprehensive review of every line item of every schedule in the Call Report to identify data items that we can delete.”
In her testimony, Fed official Maryann Hunter noted that the regulators have heard bankers express concerns about “trickle-down regulation” in which supervisory requirements for large banks are being applied to community banks as “best practices.” She affirmed that the Fed is adjusting its examiner training “to ensure that expectations are calibrated appropriately.”
Final Rule Issued on Standards for State Appraisal Regulations
On April 30, 2015, the OCC, Fed, FDIC, National Credit Union Administration (NCUA), Consumer Financial Protection Bureau (CFPB), and Federal Housing Finance Agency, collectively, issued a final rule on minimum requirements for state supervision of appraisal management companies (AMCs), as defined in the rule. The rule was issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
While the rule does not require states to register and supervise AMCs, in states that do, AMCs must register in the state, use only state-certified or licensed appraisers for federally related transactions, and confirm that appraisals are independent. In states that do not establish an AMC regulatory structure within three years, nonfederally regulated AMCs may not provide services for federally related transactions.
The rule is effective 60 days after publication in the Federal Register.
Exam Procedures for TILA-RESPA Integration Revised
The Federal Financial Institutions Examination Council Task Force on Consumer Compliance developed and released on May 1, 2015, revised examination procedures and exam manual narratives for consumer compliance rules under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The goal of these procedures is to promote consistency in the examination process and communication of supervisory expectations.
These new requirements are effective Aug. 1, 2015.
Final Rule Issued on Restrictions on Sale of Assets of a Failed Institution
The FDIC issued on April 24, 2015, a final rule clarifying its prohibition on individuals or entities associated with a bank failure purchasing assets from the bank under FDIC receivership. The FDIC amended Part 340 of its regulations by expanding the prohibition to include assets of a failed bank’s subsidiary or a bridge depository institution.
The final rule exempts sales of securities, commodities, and contracts traded through an intermediary under which the seller cannot select the purchaser. The rule says that Part 340 does not apply to judicial or trustee sales of property securing an obligation to the FDIC but where the FDIC does not control the sale. The final rule also modifies the certification a potential buyer of assets must sign.
The final rule is effective July 1, 2015.
April Issue of “The NCUA Report” Published
On April 21, 2015, the NCUA posted the April 2015 issue of “The NCUA Report.” This issue includes columns from the NCUA board chairman and other board members as well as articles from several NCUA offices on the NCUA’s initiatives and information on supervisory, regulatory, and compliance issues.
Articles in this month’s report include:
- “Economic Growth Expected to Continue but Uncertainty on the Horizon”
- “Chairman’s Corner: Five New Areas of Regulatory Relief”
- “Board Actions: NCUA Seeks to Eliminate Fixed-Assets Cap”
- “Identifying and Preventing Common Recordkeeping Deficiencies”
- “Second Half of 2015 Brings Changes to Mortgage Disclosures”
From the Consumer Financial Protection Bureau (CFPB)
Consumer Complaint Trends Report Released
The CFPB on March 30, 2015, released the 2014 “Consumer Response Annual Report” on consumer complaint trends. According to the report, the aggregate volume of complaints rose 53 percent from 2013 to 2014, and the CFPB received an average of approximately 20,000 complaints per month in 2014.
Complaints break down by type as follows:
- Debt collection represented approximately one-third of total complaints.
- Mortgages and credit reports each represented about one-fifth of complaints.
- Deposit accounts represented 8 percent.
- Credit cards represented 7 percent.
For mortgage-related complaints, 81 percent were closed with just an explanation from the company. For deposit accounts, that figure was 66 percent; for credit cards, it was 60 percent. For the products most commonly offered by banks, companies almost universally provided a timely response. Payday loan and debt collection complaints had the highest nonresponse rates.
From the Financial Accounting Standards Board (FASB)
Proposal Issued to Defer Effective Date of the Revenue Recognition Standard
On April 29, 2015, the FASB issued for comment a proposed Accounting Standards Update, “Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date,” that would defer by one year the effective date of its new revenue recognition standard.
The proposal would require public organizations to apply the new standard to annual reporting periods and to interim reporting periods within annual reporting periods beginning after Dec. 15, 2017. Nonpublic organizations would be required to apply the standard to annual reporting periods beginning after Dec. 15, 2018, and to interim reporting periods within annual reporting periods beginning after Dec. 15, 2019. The proposal would allow both public and nonpublic organizations to adopt the new revenue standard early, but not before the original public organization effective date of annual periods beginning after Dec. 15, 2016.
Comments are due May 29, 2015.
From the Securities and Exchange Commission (SEC)
Proposal Voted on for New Pay-for-Performance Executive Compensation Rules
On April 29, 2015, the SEC voted to propose new executive compensation rules directed at making it easier for shareholders to determine whether a public company’s executive compensation is properly aligned with its financial performance. These proposed “pay-for-performance” or “pay-versus-performance” rules, made pursuant to Section 953(a) of Dodd-Frank, would require a registrant to disclose the relationship between compensation actually paid to its top executives and its performance based on total shareholder return to provide enhanced transparency to shareholders. The proposed disclosures would include specific amounts for a company’s principal executive officer, an average for the remaining named executive officers, and comparison of certain company performance amounts to peer groups.
The comment period for the proposed rules will be 60 days after publication in the Federal Register.
Trust Indenture Act Guidance Updated
The Division of Corporation Finance (Corp Fin) staff of the SEC published on April 24, 2015, an update to its “Compliance and Disclosure Interpretation (C&DI), Trust Indenture Act of 1939.” This document provides Corp Fin staff interpretations regarding rules and requirements under the Trust Indenture Act of 1939.
As part of the update, questions 202.01 and 203.01 have been deleted. These questions provided guidance on the exemption of certificates representing a beneficial ownership interest in a trust offered to the public that included a pool of mortgage loans with multiple obligors and partial payment of the certificates guaranteed by a third party.
EDGAR Filer Manual Updated
The SEC published on April 13, 2015, a final rule, “Adoption of Updated EDGAR Filer Manual.” This rule includes revisions to the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) System Filer Manual to reflect updates to the EDGAR system. These updates support the 2015 U.S. generally accepted accounting principles financial reporting and 2015 Exchanges taxonomies, add new form types for registration of security-based swap data repositories, revise the screen for Form ID application confirmation, remove paper Form ID references, and revise item one on submission form type MA-A.
This updated filer manual will be effective upon publication in the Federal Register.