Insight

Washington Report 360 | April 2, 2021

Heightened attention to nonbank institutions following market volatility; FSOC focus on vulnerabilities exposed by COVID-19

Amy S. Matsuo

Amy S. Matsuo

ESG and Regulatory Insights Lead, KPMG LLP

Key Highlights

  • Heightened regulatory attention to nonbank financial institutions, including hedge funds and family offices, following market volatility tied to a capital management firm; Treasury has highlighted nonbank financial intermediation as a focus area of the Financial Stability Oversight Council.
  • The FSOC will focus on vulnerabilities in the U.S. financial system exposed by COVID-19 including the resilience of the U.S. Treasury market, and emerging risks from climate change in addition to nonbanks.
  • The Basel Committee on Banking Supervision finalized principles for operational resilience and revisions to its principles for the sound management of operational risk; each of these documents was released for consultation in August 2020 (see KPMG Regulatory Alert here).
  • Five federal agencies are seeking public input on the growing use of artificial intelligence (AI), including machine learning, by financial institutions in the provision of customer services and in other business purposes; views are sought on governance, risk management, and controls over AI; challenges in developing, adopting, and managing AI; and whether any clarification would be helpful.
  • CFPB rescinded seven policy statements providing temporary flexibilities during COVID-19 in mortgage, credit reporting, credit and prepaid card markets; in addition, CFPB will no longer provide flexibilities related to interagency guidance released in April 2020 on loan modifications and appraisals.
  • CFPB and FTC stated they would be monitoring and investigating eviction practices for potential UDAP, FTC Act, or Fair Debt Collection Practices Act violations.

Financial services regulatory and policy news

Banking

  • Federal banking agencies (FRB, OCC, FDIC):
  • Sought public input about how financial institutions use artificial intelligence in their activities
  • Released a revised version of “A Guide to HMDA Reporting: Getting it Right”
  • FRB:
  • Spoke about cooperation between the Treasury and Federal Reserve and the importance of central bank independence
  • Addressed financial stability challenges in the age of interconnectedness, innovation, and change
  • Published FAQs on existing legal interpretations related to FRB Regulations H, K, L, O, W, and Y
  • Finalized a rule on the use of supervisory guidance
  • FDIC:
  • Provided guidance on its Rapid Phased Prototyping initiative, designed to help FDIC adopt modern technology   
  • Published the March edition of its Consumer Compliance Supervisory Highlights  
  • CFPB:
  • Released a joint statement with FTC on monitoring and investigating eviction practices related to COVID-19 economic hardships; CDC extended its eviction moratorium to June 30, 2021
  • Rescinded seven policy statements providing temporary flexibilities related to COVID-19
  • Issued a Compliance Bulletin and Policy Guidance on supervision and enforcement priorities for mortgage servicers regarding COVID-19-related housing insecurity and loss mitigation and foreclosure activities
  • Announced the availability of 2020 HMDA Mortgage Lending data  

Capital Markets

Other

  • Treasury:
  • Outlined ways for the FSOC to address vulnerabilities in the financial system
  • FinCEN issued an ANPR seeking input on development of a beneficial ownership database and reporting requirements
  • NY FRB:
  • ARRC published a paper on using SOFR in new issuances of a asset-backed securities 
  • BIS:
  • BCBS issued principles for operational resilience and revised principles for operational risk  
  • BCBS oversight body agreed members should monitor non-bank financial institutions to improve resilience and minimize systemic risk
  • FSB:
  • Finalized a report on too-big-to-fail reforms for systemically important banks  

Industry news headlines
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