Regulatory Activity Unabated Despite Uncertain Regulatory Outlook

Steve StachowiczBy Steven Stachowicz, Managing Director
Risk & Compliance

 

 

 

A month into the new U.S. administration, it’s clear that the political landscape is shifting. The administration has issued executive orders calling for a review of existing laws and regulations based on how they promote certain “core principles” related to the regulation of the U.S. financial system; a review of the Department of Labor’s Fiduciary Rule scheduled to take effect later in 2017; and an “implement one, repeal two” standard for the issuance of new regulations. Talk abounds about congressional actions aimed at actual or possible legislation, such as the TAILOR Act and the Financial CHOICE Act, which would affect the current regulatory structure as well.

The long-term ramifications of these actions for financial services regulation, supervision and enforcement are still unknown, and it may be some time before we have a clear view of what the future will look like. Meanwhile, financial institutions must still contend with the regulatory structure that exists today. Regulatory or self-regulatory agencies at the state, federal and even international levels are continuing to move forward with their existing supervisory and regulatory responsibilities. We address these in the February edition of Compliance Insights.

  • In the anti-money laundering (AML) space, we note that the Conference of State Bank Supervisors released a Bank Secrecy Act/AML Self-Assessment Tool to help financial institutions better manage money laundering risk. Risk assessments are top of mind for regulators, who consider logical, well-balanced and robust assessments the focal point of a sound risk management program. The self-assessment tool was issued not only to help provide transparency into how risks are assessed, monitored and communicated within an institution, but also to promote greater transparency among institutions to benefit the broader financial services industry.
  • Within the securities space, the Financial Industry Regulatory Authority (FINRA) published its Regulatory and Examination Priorities Letter for 2017, which identifies known and potential risks facing broker-dealers, investor relationship management and market operations. FINRA uses the annual priorities letter to communicate areas of focus for its information requests and examinations for the upcoming year. The 2017 letter highlights the “blocking and tackling” roles of compliance, supervision and risk management through FINRA’s focus on reviewing firms’ business models, internal control systems and client relationship management. Priorities identified for 2017 include: monitoring brokers with a history of disciplinary actions or complaints; sales practices; financial risk management and liquidity; operational risks; and market integrity.
  • Privacy concerns are atop the agenda for the European Commission (EC), which published the draft text of a proposed e-privacy regulation that, if adopted, would replace the EC’s current ePrivacy Directive with a more expansive regulation. Data privacy is a top priority for the EC, which seeks to establish a new privacy legal framework for electronic communications as part of a digital single market. The proposed regulation was developed with the intent to create better access for consumers and businesses to digital goods and services, level the playing field for digital networks, facilitate development of innovative services, and increase the growth potential of the digital economy.
  • Finally, the Consumer Financial Protection Bureau (CFPB) recently sued a bank for apparent unfair and deceptive practices related to enrolling customers into overdraft protection services. The suit contends that the bank violated the CFPB provision for implementing the Electronic Funds Transfer Act by misleading customers that overdraft protection was mandatory, concealing fees, deceptively seeking consent, and pushing back against customers who questioned the opt-in requests. Notably, the CFPB cites that the bank’s employee incentive program likely contributed to these issues, further highlighting the attention that the regulatory agencies are placing on sales practices and incentive compensation programs.

Even as Washington sorts itself out, financial institutions cannot lose sight of regulatory obligations and expectations that exist at the local, state, federal or even international level. The regulatory environment is likely to be quite dynamic in the foreseeable future, and financial institutions will remain challenged to manage their risks in this environment and not relax their compliance efforts.

Continue to follow our monthly roundups of compliance news here and on our site. The February issue is available here.

 

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