Market Scan

Headlines: Regulatory Updates

New FedFlash available

Regulatory Update

October Issue of Fedflash available

Regulators Reach Agreement on Basel II

The Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation reached agreement regarding the implementation of Basel II in the United States. The agreement resolves major outstanding issues and will now lead to finalization of a rule implementing the advanced approaches for computing large banks' risk-based capital requirements.

     Link:  http://www.occ.gov/ftp/release/2007-77.htm

Regulators Issue Statement on BSA/AML Enforcement

Federal regulators have updated their BSA/AML guidance.  The following is an excerpt from their statement, which can be read in its entirety by clicking here.

"For example, an institution that has procedures to provide BSA/AML training to appropriate personnel, independent testing, and a designated BSA/AML compliance officer, would nonetheless be subject to a cease and desist order if its system of internal controls (such as customer due diligence, procedures for monitoring suspicious activity, or an appropriate risk assessment) fails with respect to a high risk area or to multiple line of business that significantly impact the institution's overall BSA compliance.  Similarly, a cease and desist order would be warranted if, for example, an institution has deficiencies in the required independent testing element of the Program and those deficiencies are coupled with evidence of highly suspicious activity creating a significant potential for unreported money laundering or terrorist financing in the institution."

Commentary

As noted in the July 8 post, AP Reports, "AML (Anti-Money Laundering) Compliance Costs Mount," Federal Regulators are raising the bar for BSA/AML compliance.  In the past, it may have been enough to have the training, systems, and documentation in place.  Now regulators will be looking closely at how the bank's BSA/AML program works in day-to-day use.  Banks that haven't done so already should step up their BSA/AML testing efforts.

FedFocus Special on Check21

The Federal Reserve Bank provides an update on Check21 in July's FedFocus newsletter:

• "Over 38 percent of all checks collected by the Federal Reserve Banks are deposited in Image Cash Letters (ICLs).
• Financial institutions deposited more than 340 million forward items in ICLs in May 2006, 300 percent increase over May 2006.
• More than 18 percent of checks deposited with the Federal Reserve Banks are presented electronically to paying banks.
• In May 2007, nearly 3,000 financial institutions deposited ICLs with the Reserve Banks and more than 2,000 received ICLs for presentment from Reserve Banks.
• By the end of 2008, we (the FRB) expect 70 percent of volume to be deposited in a FedForward or FedReturn cash letter, and over half of all inclearings to be presented in a FedReceipt file."

     Fed Focus Link:

     http://www.frbservices.org/FedFocus/2007/fedfocus0707.pdf

     FRB's April 2007 Report to Congress on Check 21, including survey of financial institutions:

     http://www.federalreserve.gov/boarddocs/RptCongress/check21/check21.pdf

FRB Announces Reg E Exception for Transactions Under $15

From the FRB:

"The Federal Reserve Board on Thursday announced its approval of a final rule to create an exception for transactions of $15 or less from Regulation E's requirement that receipts be made available to consumers for transactions initiated at an electronic terminal.

Regulation E implements the Electronic Fund Transfer Act. The rule is intended to facilitate the ability of consumers to use debit cards in retail environments where making receipts available may not be practical or cost effective.

The effective date of the final rule is thirty days from the date of publication in the Federal Register, which is expected shortly."

Commentary

This is good news for credit card issuers, merchant acquirers, and contactless and mobile payment vendors as it should encourage more payment options at the point of sale, particularly in high traffic locations where minimizing time-in-queue is critical and the average ticket amount is low (e.g. fast food and convenience stores).

FRB Selects Regional Check Processing Sites, Announces Scale Back of Other Sites

From the Federal Reserve Banks:

"As part of a longer-range strategy, the Federal Reserve Banks have selected Philadelphia, Cleveland, Atlanta and Dallas as regional check processing sites that are expected to provide the full range of check processing services through at least mid-2011. Other remaining sites will have their operations scaled back. These scaled-back sites will all print substitute checks, but some will also capture paper checks. The regional sites will provide a full range of check processing services and receive processing volumes from the other sites in a phased transition."  For information about the timing and transitioning of each site, click here:

     http://www.bos.frb.org/news/press/2007/pr062607.htm