Bank regulatory agencies.
The federal banking agencies announced on July 22, 2004, that they would postpone the rollout of the Central Data Repository (CDR)--an Internet-based system created to modernize and streamline the way that the agencies collect, validate, and distribute financial data, or Call Reports, submitted by banks. Originally scheduled to be implemented on October 1, 2004, the system's start date will be delayed to address industry feedback and allow more time for testing and enrollment. A new timeline for implementation was announced in August.
The decision to delay implementation of the CDR was made to address delays in system development and testing. Moreover, the agencies had received an increasing number of questions and concerns about the new system from banks, industry trade associations, software vendors, and other stakeholders.
Initial testing of the system demonstrated that the technology chosen is sound and that the XBRL standard underlying the system's framework will perform as required. However, Call Report data represent a critical source of information for the bank supervision process, and the banking agencies determined that a postponement was warranted.
The agencies are considering alternative plans for the CDR rollout, including phasing in the new technology and business models in separate reporting quarters. For now, the agencies will continue to collect, validate, and manage Call Report data using their existing processing systems. This includes the retention of Electronic Data Services Corporation as the agencies' electronic collection agent for Call Report data. Accordingly, banks will continue filing their Call Report in the same manner until they are notified by the agencies to begin using the new CDR system.
This initiative--the Call Report Modernization Project--is an interagency effort under the auspices of the Federal Financial Institutions Examination Council (FFIEC). Additional project details and other important information are posted on the FFIEC's web site at www.FFIEC.gov/FIND.
Issuance of Rules and Guidance
Rule on Use of Medical Information for Credit Eligibility
The federal bank, thrift institution, and credit union regulatory agencies on April 23, 2004, issued for publication in the Federal Register a proposed rule under the Fair Credit Reporting Act (FCRA) that would incorporate the statutory prohibition on obtaining or using medical information in connection with credit eligibility determinations and, as required by the statute, create certain exceptions to be applied in limited circumstances.
Section 411 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) amends the FCRA to provide that a creditor may not obtain or use medical information in connection with any determination of a consumer's eligibility, or continued eligibility, for credit, except as permitted by regulations. The FACT Act requires the agencies to prescribe regulations that permit creditors to obtain and use medical information for eligibility purposes when necessary and appropriate to protect legitimate operational, transactional, risk, consumer, and other needs. The FACT Act further provides that the regulations creating these exceptions would be issued in final form within six months of the date of enactment of the FACT Act, or June 4, 2004.
As required by section 411, the proposed regulations would grant exceptions to allow creditors to obtain or use medical information in those circumstances that the agencies believe are necessary and appropriate in connection with determinations of consumer eligibility for credit.
Section 411 of the FACT Act also amends the FCRA to limit the ability of creditors and others to share medical-related information with affiliates, except as permitted by the statute, regulation, or order. The proposed rule would enumerate situations in which creditors would be permitted to share medical information among affiliates.
The proposed rule was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The rules of each agency are substantively identical.
Guidance on Overdraft Protection Programs
The federal financial institutions supervisory agencies on May 28, 2004, issued proposed guidance to assist insured depository institutions in the responsible disclosure and administration of overdraft protection services.
The proposed guidance identifies concerns raised by institutions, financial supervisors, and the public about the marketing, disclosure, and implementation of overdraft protection programs. To address these concerns, the proposed guidance: (1) seeks to ensure that financial institutions adopt adequate policies and procedures to address the credit, operational, and other risks associated with overdraft protection services; (2) alerts institutions offering these services to the need to comply with all applicable federal and state laws; and (3) sets forth examples of best practices that are currently observed in, or recommended by, the industry.
The proposal is being issued under the auspices of the Federal Financial Institutions Examination Council (FFIEC) by its member agencies: the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
Rule on Affiliate Marketing Opt Outs
The federal financial institutions supervisory agencies on July 2, 2004, issued proposed regulations that would give consumers the chance to opt out before a financial institution uses information provided by an affiliated company to market its products and services to the consumer.
The proposed rulemaking would implement the affiliate marketing provisions in section 214 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which adds a new section 624 to the Fair Credit Reporting Act (FCRA). The proposal generally would prohibit an institution from using certain information about a consumer it receives from an affiliate to make a solicitation to the consumer unless the consumer has been given notice and an opportunity to opt out of the solicitation. An institution that has a pre-existing business relationship with the consumer would not be subject to this marketing limitation. Nothing in the new affiliate marketing opt out supercedes or replaces the provisions in section 603 of the FCRA concerning the right to opt out of the sharing of information among affiliates, although there is some overlap between the two opt out requirements.
The proposal was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
Final Rule on Capital Requirements for Asset-Backed Commercial Paper Programs
The federal banking and thrift institution regulatory agencies on July 20, 2004, issued a final rule amending their risk-based capital standards. The rule permits sponsoring banks, bank holding companies, and thrift institutions (banking organizations) to continue to exclude from their risk-weighted asset base, for purposes of calculating the risk-based capital ratios asset-backed commercial paper (ABCP) program, assets that are consolidated onto sponsoring banking organizations' balance sheets as a result of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as revised (FIN 46R). This provision of the final rule will make permanent an existing interim final rule.
The final rule also requires banking organizations to hold risk-based capital against eligible ABCP liquidity facilities with an original maturity of one year or less that provide liquidity support to ABCP by imposing a 10 percent credit conversion factor on such facilities. Eligible ABCP liquidity facilities with an original maturity exceeding one year remain subject to the current 50 percent credit conversion factor. Ineligible liquidity facilities are treated as direct credit substitutes or recourse obligations and are subject to a 100 percent credit conversion factor. The resulting credit equivalent amount is then risk weighted according to the underlying assets, after consideration of any collateral, guarantees, or external ratings, if applicable. All liquidity facilities that provide liquidity support to ABCP will be treated as eligible liquidity facilities for a one-year transition period.
The rule, which will be published shortly in the Federal Register, becomes effective on September 30, 2004.
Bank Secrecy Act Examination Procedures
The federal financial institutions regulatory agencies on July 28, 2004, issued Bank Secrecy Act (BSA) procedures for examining each domestic and foreign banking organization's customer identification program (CIP), which is required by section 326 of the USA Patriot Act (codified in the BSA at 31 U.S.C. 5318(l)). The procedures are designed to help financial institutions fully implement the new CIP requirements and facilitate a consistent supervisory approach among the federal financial institutions regulatory agencies.
The USA Patriot Act, signed into law on October 26, 2001, establishes new and enhanced measures to prevent, detect, and prosecute money laundering and terrorism. The regulation implementing section 326 of the act requires each financial institution to implement a written CIP that includes certain minimum requirements and is appropriate for its size and type of business. The CIP must be incorporated into the financial institution's anti-money laundering compliance program, which is subject to approval by the financial institution organization's board of directors.
Compliance with the regulation was required by October 1, 2003.
Regulatory Agencies Request Comment
Statement Concerning Complex Structured Finance Activities
Five federal agencies on May 14, 2004, requested public comment on a proposed statement describing internal controls and risk management procedures that the agencies believe will assist financial institutions that engage in complex structured finance activities to identify and address the risks associated with such transactions.
As recent events have highlighted, a financial institution may assume substantial reputational and legal risk if the institution enters into a complex structured finance transaction with a customer and the customer uses the transaction to circumvent regulatory or financial reporting requirements, evade tax liabilities, or further other illegal or improper behavior.
The interagency statement describes the types of internal controls and risk management procedures that should help financial institutions effectively manage and address the reputational, legal, and other risks associated with their complex structured finance activities and operate in accordance with applicable law. The statement, among other things, provides that financial institutions engaged in complex structured finance activities should have effective policies and procedures in place to
* identify those complex structured finance transactions that may involve heightened reputational and legal risk;
* ensure that these transactions receive enhanced scrutiny by the institution; and
* ensure that the institution does not participate in illegal or inappropriate transactions.
The statement also emphasizes the critical role of an institution's board of directors and senior management in establishing a corporate-wide culture that fosters integrity, compliance with the law, and overall good business ethics.
The proposed statement was issued by the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The statement would represent supervisory guidance for institutions supervised by the four banking agencies and a policy statement for institutions supervised by the Securities and Exchange Commission.
On June 18, 2004, the five federal agencies agreed to extend for thirty days the comment period on the proposed Interagency Statement on Sound Practices Concerning Complex Structured Finance Activities, published in the Federal Register on May 19, 2004.
In a letter submitted to the five agencies on June 10, 2004, eight trade associations representing financial institutions asked the agencies to provide the public with an additional thirty-day period to review, analyze, and submit comments on the proposed interagency statement.
The extended public comment period on the interagency statement ended July 19, 2004. The scope and comment process for the interagency statement remained as stated in the original Federal Register notice of May 19, 2004.
Disposal of Consumer Information
The federal bank and thrift institution regulatory agencies on June 8, 2004, invited public comment on an interagency proposal to require financial institutions to adopt measures for properly disposing of consumer information derived from credit reports.
Current law requires financial institutions to protect customer information by implementing information security programs. The proposed rules would require institutions to make adjustments to their information security programs to properly dispose of the types of consumer information that are not already protected. This would include information from credit reports about a financial institution's employee or about an individual whose application for a product or service is denied.
The agencies' proposal implements section 216 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act). Although not imposing significant additional burden, the proposed rules would make amendments to include this new statutory requirement in the Interagency Guidelines Establishing Standards for Safeguarding Customer Information, which were adopted in 2001. The agencies' proposed rules add a new definition of consumer information and a provision to require financial institutions to implement appropriate measures to properly dispose of consumer information.
The proposal would take effect three months after a final rule is adopted.
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|Publication:||Federal Reserve Bulletin|
|Date:||Jun 22, 2004|
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