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FinCEN Renews GTOs for Title Insurance Companies in Six Major Metropolitan Areas Upon Finding that GTOs Provide ‘Valuable Data’
On February 23, the Financial Crimes Enforcement Network (FinCEN) announced the renewal of its existing GTOs Geographic Targeting Orders (GTOs), each of which temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas. Generally, the GTOs require all title insurance companies in the targeted cities to file a FinCEN Form 8300 within 30 days of closing a covered transaction, identifying the buyer, any beneficial owner of the buyer, and the individual primarily responsible for representing the buyer in an “all-cash” purchase of high-end residential real estate. Covered businesses must also retain their records for at least five years after the GTO expires.
Notably, the decision to continue the GTO program for another 180 days—beginning on February 24, 2017—was based largely on FinCEN’s finding that the first GTOs issued back in July are producing “valuable data” that is assisting both law enforcement and FinCEN’s efforts to address money laundering through real estate transactions. Nearly one-third of the targeted transactions covered by the July GTOs ended up involving a beneficial owner or representative who is already the subject of a previous suspicious activity report. The results appear to validate the concerns underlying FinCEN’s rationale for issuing GTOs in the first place, namely the use of shell companies to buy luxury real estate in all-cash transactions.
The targeted geographic areas and corresponding closing price thresholds include: (i) Manhattan ($3 million) and all other boroughs of New York City ($1.5 million); (ii) Miami-Dade, Broward, and Palm Beach counties ($1 million); (iii) Los Angeles County ($2 million); (iv) San Francisco, San Mateo, and Santa Clara counties ($2 million); (v) San Diego County ($2 million); and (vi) Bexar County, Texas, which includes San Antonio ($500,000). In targeting the above-listed metropolitan areas, FinCEN clarified that “GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies.” Rather, as explained by FinCEN Acting Director Jamal El-Hindi, “Money laundering and illicit financial flows involving the real estate sector is something that we have been taking on in steps to ensure that we continue to build an efficient and effective regulatory approach.”
For additional information concerning GTO compliance, FAQs released by FinCEN in August 2016 are available here.
CFPB Will Renew Four Advisory Councils
On February 23, the CFPB published four notices in the Federal Register to renew three advisory councils and one advisory board for an additional two year period, covering the Academic Research Council, Community Banker Advisory Council, Consumer Advisory Board, and Credit Union Advisory Council. According to each respective notice, these entities have been reestablished for the purposes of providing information and recommendations in accordance with provisions of the Federal Advisory Committee Act. Each notice is effective as of its publication date and charters filed for each entity are set to expire two years after the filing date unless renewed again.
- The Academic Research Council provides the CFPB’s Office of Research with “advice and feedback on research methodologies, framing research questions, data collection, and analytic strategies.”
- The Community Banker Advisory Council provides information and recommendations concerning the Bureau’s exercise of its authority under the federal consumer financial laws “as they pertain to banks or thrifts with total assets of $10 billion or less.”
- The Consumer Advisory Board provides information and recommendations concerning the Bureau’s policy development, rulemaking, and enforcement functions, including on “emerging practices in the consumer financial products or services industry, including regional trends, concerns, and other relevant information.”
- The Credit Union Advisory Council provides information and recommendations concerning the “Bureau’s policy development, rulemaking, and engagement functions as they relate to credit unions.”
NYDFS Landmark Cybersecurity Rule Set to Take Effect on March 1
On February 16, New York Governor Andrew Cuomo announced that with the New York Department of Financial Services’ (NYDFS) publication of a Final Regulation, New York’s “First-in-the-Nation Cybersecurity Regulation” is set to take effect on March 1. As discussed previously in InfoBytes, the regulation—which requires banks, insurance companies, and other financial services institutions regulated by NYDFS to establish and maintain a cybersecurity program designed to protect consumers’ private data—imposes broad and, in some cases proscriptive, data security and cybersecurity requirements on Covered Entities that venture into new territory for both state and federal financial regulators. Indeed, as described by Governor Cuomo, the regulation reflects New York’s efforts to “lead[] the nation” through “decisive action to protect consumers and our financial system from serious economic harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises.”
Moreover, as detailed in a follow-up InfoBytes Special Alert, NYDFS issued a updated proposed regulation on December 28 in response to over 150 comments and testimony presented at a hearing before New York State lawmakers. Though the updated proposed regulation did not differ drastically from the original, the revised proposed regulation provided for somewhat greater flexibility in how covered entities could go about implementing the requirements. Among other things, the December 28 revisions provided for: (i) longer timeframes for compliance with its requirements; (ii) more flexibility for compliance with certain requirements and acknowledgement that some requirements may not be applicable to all financial institutions; and (iii) clarifications to certain key definitions.
The newly released Final Regulation retains the revisions incorporated in the December 28 revision, but also contains the following notable revisions:
- Record retention requirements for audit trail materials relating to Cybersecurity Events were reduced from five years to three years.
- Clarification that Covered Entities’ policies and procedures for reporting by Third Party Service Providers of Cybersecurity Events only apply to the Covered Entity’s Nonpublic Information.
- The limited exemption for small businesses to certain requirements of the rule has been narrowed by including a Covered Entity’s New York affiliates when calculating its number of employees and annual revenue.
- Further clarification on the exemptions for companies regulated under New York’s Insurance Law.
With the expiration of the 30-day comment period and the publication of the Final Rule, New York’s Cybersecurity regulation is officially cleared to become effective upon publication in the New York State Register on March 1.
InfoBytes will continue to monitor the rollout of this pioneering regulation as it progresses.
FDIC Issues Revised Scenarios for 2017 Stress Tests
On February 13, the FDIC released revised economic scenarios for use by certain financial institutions with total consolidated assets of more than $10 billion for 2017 stress tests. According to a statement from the agency, the previously released scenarios contained incorrect historical values for the BBB corporate yield in 2016. The Fed and OCC, with whom the FDIC works develop and distribute the scenarios, also issued revised data.
CFPB Seeks Comments on New Initiative Intended to Increase Transparency in Student Loan Servicing Market
On February 16, the CFPB announced a request for comments on an information collection plan titled “Student Loan Servicing Market Monitoring.” The proposed plan will collect student loan data from the largest student loan servicers in order to provide the Bureau “with a broader and deeper look into the student loan market, with a focus on key areas that might put consumers . . . at risk.” Key areas of examination will be: (i) the total size of the student loan market; (ii) borrowers who seek to repay their loans based on how much money they have (Income-Driven Repayment plans); (iii) borrowers who face the greatest risk of default; and (iv) borrowers with private student loans who experience financial distress. Comments must be submitted on or before April 17, 2017.
FHFA Seeks Public Comment on Criteria for Evaluating Banks Subject to Review Under FHLB Community Support Program
In connection with its 2017 biennial review of all FHLB members under FHFA’s community support requirements regulation, FHFA is seeking public comment on the community support requirements regulation that establishes standards a FHLB member must meet in order to maintain access to long-term advances. The regulation also establishes review criteria that the FHFA must apply in evaluating a member’s’ Community Reinvestment Act performance and their record of lending to first-time homebuyers. Comments must be submitted to the agency by March 31.
FinCEN Proposes SAR Data Fields Revisions
FinCEN published, at 82 FR 9109 in the Federal Register, a notice and request for comment on proposed updates and revisions to the collection of information filings by financial institutions required to file such reports under the Bank Secrecy Act (“BSA”). While the notice does not propose any new regulatory requirements or changes to the requirements related to suspicious activity reporting, it suggests changes to the required data fields used when filing SARs under the BSA. The majority of the proposed changes would alter the "checklist" of violations in Part II of the filings, including the addition of several fields related to cyber events. Written comments must be received on or before April 3.
FDIC Issues Guidance to Facilitate Recovery in Areas of Louisiana Affected by Severe Weather
On February 14, the FDIC issued guidance (FIL-9-2017) intended to provide regulatory relief to financial institutions and to facilitate recovery in areas of Louisiana affected by recent severe storms, tornadoes, high winds, and flooding. A current list of designated areas—where damage assessments are currently underway—is available at www.fema.gov. Among other things, the guidance encourages banks to “work constructively with borrowers experiencing difficulties” due to weather-related damage by considering “[e]xtending repayment terms, restructuring existing loans, or easing terms for new loans.” Such flexibility, the FDIC instructs, can both “contribute to the welfare of the local community” and also “serve the long-term interests of the lending institution.” The FDIC is also considering “regulatory relief from certain filing and publishing requirements.”