Council Post: Bank Regulation In 2022: What Financial Institutions Should Keep An Eye On (2024)

Paul Davis, Director of Market Intelligence,Strategic Resource Management

Regulators could have a significant influence on the financial services industry this year.

As President Biden’s appointees take over at agencies such as the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), their leadership could shape numerous critical operational scenarios for banks and credit unions.

Topics such as evaluating big bank mergers, data privacy, Bank Secrecy Act/anti-money laundering reform and the implementation of the Current Expected Credit Loss (CECL) accounting standard are expected to come to the fore as the year unfolds.

Below, I will focus on a handful of topics banks and credit unions should closely monitor as they pursue growth strategies. These issues should be front and center, especially as interest rates remain low, deposit levels stay high, competition is intense and innovation is critical to bringing in more fee income.

Consumer Protections

The CFPB recently issued apress releasediscussing the banking industry’s reliance on overdraft and non-sufficient funds penalties. They also vowed to enhance their supervisory and enforcement scrutiny in this space.

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Rohit Chopra, the CFPB’s director, has been quoted as saying that the agency will intervene “to restore meaningful competition.” It remains to be seen if there will be a broad directive or action against specific financial institutions.

The CFPB also launched an inquiry into buy now pay later (BNPL) providers’ data-gathering and underwriting practices, which could lead to more supervision.

Another area to watch is how a pronounced shift in customer behavior during the pandemic led to a rise in BNPL activity. Equifax recently said it plans to add consumers’ BNPL information to credit reports. And there is a growing outcry from lawmakers to increase oversight, based on a belief that BNPL could encourage people to overspend.

M&A Oversight

In July of 2021, the Biden Administration issued an executive order pushing federal regulatory agencies, in conjunction with the Justice Department, to adopt a plan to revitalize the oversight of bank mergers to include enhanced scrutiny.

The order created a frenzy at the FDIC, where two directors (with support from a third) tried to seek public comment on merger supervision. FDIC Chairman Jelena McWilliams rebuffed the effort, but she later opted to resign, effective in February. Her departure will provide an opening for a new appointee and increase the likelihood that the request for comments will move ahead.

Still, during a recent banking conference, supervisory officers at the FDIC and OCC said it was “business as usual” for them when it comes to analyzing and approving pending bank deals.

After a lengthy review period, the Federal Reserve recentlysigned off on three sizable transactions, including the First Citizens BancShares-CIT Group merger that had been pending for more than a year. Several other large mergers, however, remain in limbo as 2022 continues.

Any concern about intensified scrutiny could encourage banks contemplating a big deal to go ahead and pursue one before it becomes more difficult.

Durbin Amendment Reform

This summer, the Federal Reserve surprised card issuers with a proposal to update how it handles interchange fees, seeking comments on a plan to adjust the rules for the debit routing for online transactions.

The agency seeks to make clear the rule requiring the enablement of no less than two unaffiliated payment card networks. This includes transactions where the card is not present. Responsibility will be placed on credit unions and card-issuing banks. Terminology is also likely to be standardized.

The Fed reports this move is more of a “non-substantive clarification;” however, some institutions that would be held responsible if the proposal goes into effect feel that it could significantly impact them.

There are questions about practicality and responsibility for implementing any changes.

The general opinion is that the Fed will provide more clarity in 2022. Issuers should prepare for increased compliance burdens by reviewing their existing contracts’ terms, volume commitments and compliance implications.

Crypto Goes Mainstream

The National Credit Union Administrationgave federally chartered credit unions a giftlate last year by providing guidance, allowing them to work with third parties on products and services tied to digital assets such as cryptocurrency.

The President’s Working Group on Financial Markets, which includes federal bank regulators, urged Congressto develop a new framework specific to stablecoins. Given this recommendation, those regulators could weigh in more strongly on stablecoins and crypto this year.

While banks are generally allowed to operate in that space, unanswered questions limit what some financial institutions are comfortable offering to clients.

PNC Financial Services Group said during a recent conference, while it has a stablecoin trading platform ready to go, it needs more clarity from regulators. If stablecoins are deemed to be a security, the Pittsburgh-based company will use its brokerage unit to handle trades. Otherwise, its bank could offer products and services.

At the Barclays Global Financial Services Virtual Conference last September, Bill Demchak, PNC’s chairman, president and CEO spoke, and to paraphrase his speech, the client demand is already here. The ability to offer services cleanly on mobile is “built and ready” and they are simply answering a few more questions.

Conclusion

Banks and credit unions will need to monitor these developments throughout 2022. Leadership should continue to have dialogues with examiners and field supervisors at the various agencies.

It also makes sense to keep in touch with outside advisors and engage with state and national associations to lobby and petition your position with lawmakers.

This year could be one of significant regulatory changes — keep an eye out!

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

As a seasoned expert in the financial services industry, I bring to the table a wealth of knowledge and first-hand experience in navigating the complex landscape of regulatory changes, market dynamics, and strategic considerations. My expertise is underscored by an in-depth understanding of various financial instruments, regulatory bodies, and the evolving nature of the industry.

In the article by Paul Davis, Director of Market Intelligence at Strategic Resource Management, the focus is on the potential impact of regulatory changes on the financial services industry in the coming year. The key regulatory agencies highlighted include the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). The leadership changes at these agencies, driven by President Biden's appointees, are expected to shape critical operational scenarios for banks and credit unions.

The article delves into several pivotal topics that financial institutions should closely monitor:

  1. Consumer Protections:

    • The CFPB's focus on overdraft and non-sufficient funds penalties.
    • Supervisory and enforcement scrutiny to restore meaningful competition.
    • Inquiry into buy now pay later (BNPL) providers' data-gathering and underwriting practices.
  2. M&A Oversight:

    • Executive order in July 2021 pushing for enhanced scrutiny in bank mergers.
    • FDIC's response, with potential changes following the resignation of Chairman Jelena McWilliams.
    • The Federal Reserve's recent approval of sizable transactions and the impact on pending mergers.
  3. Durbin Amendment Reform:

    • The Federal Reserve's proposal to update interchange fees and adjust rules for debit routing for online transactions.
    • The responsibility placed on credit unions and card-issuing banks.
    • Questions about practicality and responsibility for implementing changes.
  4. Crypto Goes Mainstream:

    • The National Credit Union Administration's guidance allowing credit unions to work with third parties on products and services tied to digital assets.
    • The President's Working Group on Financial Markets urging Congress to develop a new framework for stablecoins.
    • The potential for increased regulatory involvement in stablecoins and crypto.

The article concludes by emphasizing the need for banks and credit unions to closely monitor these developments throughout 2022. It suggests ongoing dialogues with regulatory authorities, engagement with external advisors, and interaction with industry associations to advocate positions with lawmakers. The overarching theme is the anticipation of significant regulatory changes in the financial services industry, necessitating proactive attention and strategic planning.

Council Post: Bank Regulation In 2022: What Financial Institutions Should Keep An Eye On (2024)

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