Financial Services Spotlight

December 2016 Developments

Posted by Roy Andersen on Jan 5, 2017 12:00:00 PM


The banking agencies did not appear to be participating in the supposed frenzy of rulemaking that has been prompted by the Trump election. In one of the few instances in history where powers of banks were actually reduced, banks were restricted in their dealings with industrial metals.  The CFTC proposed and adopted a variety of year-end regulations including related to position limits and aggregation of positions.  Big banks are bearing the brunt of regulatory focus including new final  rules on deposit account recordkeeping and disclosure of liquidity coverage. 

Supplemental Information from FinCEN regarding FBME Bank

On December 1, 2016, FinCEN published its response to FBME Bank’s comments on FinCEN’s review of its SAR data. FinCEN has claimed that its actions against FBME are based on more than SAR data. In addition, as noted in the NOF and Final Rule, FinCEN concluded that FBME has sought to evade AML regulations, has ignored the Central Bank of Cyprus' AML directives, and that following the issuance of the

NOF, FBME employees took various measures to obscure information. These facts distinguish FBME from other Cypriot banks and may have undermined the ability of U.S. financial institutions to detect all of FBME's suspicious activity. See the discussion at:

Recordkeeping for Deposit Insurance Claims

On December 3, 2016, the FDIC published its final rules for large insured banks. The final rule requires each insured depository institution that has two million or more deposit accounts to (1) configure its information technology system to be capable of calculating the insured and uninsured amount in each deposit account by ownership right and capacity, which would be used by the FDIC to make deposit insurance determinations in the event of the institution's failure, and (2) maintain complete and accurate information needed by the FDIC to determine deposit insurance coverage with respect to each deposit account, except as otherwise provided. The biggest US bank has over 84 million deposit accounts and the top ten banks have over 318 million such accounts. See the final rule at:


Report on Holdings of Foreign Securities

On December 6, 2016, the Treasury published notice of the requirements to report any holdings of foreign securities to the Federal Reserve Banks by March 3, 2017, if the threshold amounts are reached. See the notice at:

Credit Union Membership and Chartering

On December 7, 2016, the NCUA published its final rule on chartering and field of membership for credit unions. The amendments will implement changes in policy affecting: The definition of a local community, a rural district, and an underserved area; the chartering and expansion of a multiple common bond credit union; the expansion of a single common bond credit union that serves a trade, industry or profession; and the process for applying to charter, or to expand, a federal credit union. These rules are controversial and banks have sought legislative changes to rein in Credit Unions.  There were over 11,000 comments on these rules with about 25% negative.  See the final rule at:

CFTC Aggregation of Positions

On December 16, 2016, the CFTC published its final rule on the policy for aggregation for position limits purposes covering 9 agricultural commodities.   The Commission has long established and enforced speculative position limits for futures and options contracts on various agricultural commodities as authorized by the Commodity Exchange Act. a person must aggregate all positions and accounts for which that person controls the trading decisions with all positions and accounts in which that person has a 10 percent or greater ownership interest, and with the positions of any other persons with which the person is acting pursuant to an express or implied agreement or understanding. There are a number of exceptions from these requirements.  See the final rule at:


Capital Requirement for Swap Dealers

On December 16, 2016, the CFTC published its proposed rule on capital requirements for swap dealers not subject to capital requirements by a prudential regulator. The commodities laws require the CFTC to adopt financial reporting and recordkeeping requirements for swap dealers. The Commission also is proposing to amend existing capital rules for futures commission merchants providing specific capital deductions for market risk and credit risk for swaps and security-based swaps. See the proposed rule at:

Fewer Regulatory Examinations of Small Banks

On December 16, 2016, the banking agencies published joint rules to examine certain banks only once every 18 months. Well capitalized and well managed banks and branches and agencies of foreign banks with less than $1 billion in total assets will qualify.  Banks that have formal enforcement orders outstanding would not be well managed.  The agencies estimate that the changes adopted by the final rules will increase the number of institutions that may qualify for an extended 18-month examination cycle by approximately 611 institutions (372 of which are supervised by the FDIC, 142 by the OCC, and 97 by the Board), bringing the total number of institutions that may qualify for an extended 18-month examination cycle to 4,793 IDIs.\15\ Approximately 89 U.S. branches and agencies of foreign banks would be eligible for the extended examination cycle based on the final rules, an increase of 30 (one of which is supervised by the FDIC, four by the OCC, and 25 by the Board). See the final rule at:


Reserve Requirements

On December 19, 2016, the Fed published final amendments to its Regulation D regarding indexing the reserve tranche that provides a zero reserve requirement and the amount for the transaction account exemption.   See the final rule at:

Bankrupt National Banks without FDIC Insurance

On December 20, 2016, the OCC published final rules regarding receiverships for failed national banks without federal deposit insurance. There are 52 uninsured national banks, all of which are national trust banks.  National trust banks typically have few assets on the balance sheet, usually composed of cash on deposit with an insured depository institution, investment securities, premises and equipment, and intangible assets. These banks exercise fiduciary and custody powers, do not make loans, do not rely on deposit funding, and consequently have simple liquidity management programs. The OCC published the rule as it was proposed and included a discussion of the receivership process under the National Bank Act. See the final rule at:

Credit Union Occupancy of Real Property

On December 21, 2016, the National Credit Union Administration published final rules dealing with the partial occupancy of real estate acquired by Credit Unions. Under prior rules, credit unions were required to have plans in place to fully occupy bank premises. The final rule also amends the excess capacity provision in NCUA's incidental powers rule to clarify that an credit union may lease or sell excess capacity in its facilities, but it need not anticipate that such excess capacity will be fully occupied by the credit union in the future. See the final rule at:

Iranian Transactions

On December 23, 2016, OFAC published final rules regarding transactions with Iran.   This final rule makes changes relating to authorized sales of agricultural commodities, medicine, and medical devices to Iran pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), as amended, and clarifies the definition of the terms goods of Iranian origin and Iranian-origin goods.  See the final rule at:

Liquidity Coverage Ratio

On December 27, 2016, the Fed published final rules regarding the public disclosure of the liquidity coverage ratio. Under the final rule, a covered company will be required to disclose publicly, on a quarterly basis, quantitative information about its LCR calculation and a discussion of the factors that have a significant effect on its LCR.  Covered companies are all bank holding companies and certain savings and loan holding companies that, in each case, have $50 billion or more in total consolidated assets or

$10 billion or more in total consolidated on-balance sheet foreign exposure; and (2) nonbank financial companies designated by the Financial Stability Oversight Council for Board supervision to which the Board has applied the LCR rule by separate rule or order (covered companies). A modified LCR requirement (modified LCR requirement) applies to certain smaller, less complex banking organizations (modified LCR holding companies). See the final rule at:

Recordkeeping for Qualified Financial Contracts

On December 28, 2016, the FDIC published proposed rules on the recordkeeping requirements for QFCs. The proposed rule would expand the scope of QFC records required to be maintained by an bank that is subject to the FDIC's recordkeeping requirements and that has total consolidated assets equal to or greater than $50 billion or is a member of a corporate group where one or more affiliates is subject to the QFC recordkeeping requirements set forth in the regulations adopted by the Department of the Treasury.  See the proposed rule at:

Derivatives Position Limits

On December 30, 2016, the CFTC published proposed rules on speculative position limits for 25 exempt and agricultural commodity futures and option contracts, and physical commodity swaps that are ``economically equivalent'' to such contracts (as such term is used in section 4a(a)(5) of the CEA). In connection with establishing these limits, the Commission is proposing to update some relevant definitions; revise the exemptions from speculative position limits, including for bona fide hedging; and extend and update reporting requirements for persons claiming exemption from these limits. See the proposed rule at:

Industrial and Commercial Metals

On December 30, 2016, the OCC published final rules to prohibit national banks from dealing or investing in industrial or commercial metals. See the final rule at:


Topics: Iran, Foreign Securities, National Banks, Qualified Financial Contracts, Small Banks, NCUA

About the Spotlight

The Financial Services Spotlight examines the regulatory and technology developments impacting banks, asset managers and other financial services providers—where challenges meet opportunities.


Meet the Authors

Roy C. Andersen, of counsel in Sullivan & Worcester's New York office, is a member of the Corporate Department. Mr. Andersen focuses on bank regulatory and compliance matters, including international banks and their branches and agencies in New York.

Joel Telpner, partner in the firm's New York office, is a seasoned advisor, strategist and problem solver. Mr. Telpner brings more than 30 years of legal experience in a career that includes time as an AmLaw 100 partner, the former U.S. general counsel of a global financial institution, and a venture capitalist. He is recognized for his ability to deftly manage complex financial transactions, especially those involving sophisticated structured finance and derivatives matters and has an extensive and unique combination of transactional and regulatory experience.

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