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New FFIEC Rules Ease Reporting Requirements

A new world of opportunity for community banks may be opening up this year, as new Federal Financial Institutions Examination Council (FFIEC) rules for smaller community banks take effect. The new rules should lessen the regulatory burden community banks face – a welcome change, given that these institutions have been fighting for survival for the past decade.

with co-author Jonathan King

For community banks, 2017 potentially holds promise that has not been present in recent years.  Effective March 2017, the Federal Financial Institutions Examination Council (FFIEC) will implement a streamlined “Call Report” for banks with domestic offices only and total assets of less than $1 billion.  The new FFIEC 051 Call Report reduces at least a bit of the burden for eligible small institutions and is intended to ease quarterly reporting requirements.  Information regarding FFIEC 051, including a press release and draft prototype of the new Call Report, can be found on the FFIEC website.

Groups such as the Independent Community Bankers of America (ICBA) have been positive about the modifications, which reduce the length of the Call Report from 85 to 61 pages for smaller institutions by removing approximately 950 of the nearly 2,400 data items – about 40 percent – currently included in the FFIEC 041.  According to the FFIEC, the most substantive modification is a reduction in the reporting frequency on certain attached schedules for loans to small businesses and farms from quarterly to semi-annually.  This change alone was two years in the making and required significant efforts from organizations such as the ICBA, which collected thousands of signatures on petitions to the FFIEC to initiate this relatively minor reduction of the regulatory burden facing community banks.

Not surprisingly, the ICBA says that its work is far from over, as many of the points in its “Plan for Prosperity” are embodied in several bills facing the new Congress in 2017.  Highlights of the ICBA plan include:

  • A full exemption from Basel III for non-systematically important financial institutions (non-SIFIs), or banks that are not large, internationally active institutions;
  • Raising the current $50 billion threshold for identifying systematically risky financial institutions (SIFIs) under Title I of the Dodd-Frank Act, which is “too low” and “sweeps in too many banks” that pose no systemic risk;
  • Revising the Small Bank Holding Company Policy Statement per the Federal Reserve to increase the qualifying asset threshold from $1 billion to $10 billion;
  • Changes to SEC rules to provide an exemption from internal control audit requirements for banks with a market capitalization of $350 million or less; and
  • Reforming Regulation D so that anyone with a net worth of more than $1 million, including the value of their primary residence, would qualify as an “accredited investor,” and increasing the number of non-accredited investors that could purchase stock under a private offering from 35 to 70.

ICBA’s wish list also includes changes to mortgage requirements, such as increasing the “small servicer” exemption threshold to the greater of 30,000 loans serviced or $5 billion in unpaid principal balance on loans serviced.  The ICBA also recommends increasing the exam cycle to two years for well-rated banks with up to $5 billion in assets, exempting non-SIFIs from stress testing requirements and offering certain exemptions from examination and enforcement by the Consumer Financial Protection Bureau (CFPB) for institutions with assets of $50 billion or less.

For the first time in many years, it appears that the 2017 Congress may give some of these matters serious consideration.  While it is too early to tell whether the kind of issues outlined above will just remain on the wish lists of America’s community banks and advocacy groups, the coming administration has expressed an overall willingness to look at the efficacy of our current regulatory framework.  Among the themes outlined in the Financial Choice Act, H.R. 5983, 114th Cong. (2016), a bill offered by Republicans, is that institutions that score well on examinations will be rewarded with an “off-ramp” for certain of the current Dodd-Frank requirements.  The ICBA outlines similar themes by calling for longer examination cycles and certain exemptions for well-rated institutions.

Statistics for the last decade or so indicate that some concern for the survival of community banks is warranted.  While various viewpoints have been advanced from different sides of the issue, only a handful of community banks have landed new charters in recent years, while the FDIC’s Failed Bank List indicates that hundreds have either closed or been merged into larger institutions. This is somewhat disconcerting, given that community banks account for more than 50 percent of all small business loans, and almost one-in-five U.S. counties have no other physical banking offices except those operated by community banks, according to the ICBA’s Go Local Initiative.  Agriculture is especially reliant on community banks, which make approximately 90 percent of the loans to farmers.  This is not surprising, given that community banks’ boards of directors are often made up of local citizens who live and work in the towns in which the banks are based.

While no one will dispute the indispensable role global banks have played in bolstering the global economy, community banks appear to have been fighting for their survival over the last decade.  Recent statements in support of community banks by the new administration and the new Congress have been enthusiastically received by community bank advocates.

The message appears to have been resonating at state levels, as well.  The New York State Department of Financial Services has just suspended new cybersecurity rules that were set to go into effect in January 2017, perhaps in deference to calls from the ICBA and other advocacy groups that the rules did not account for the size, scope and complexity of financial institutions.  This comes at a time when, as the ICBA reports, community banks have been targeted with demand letters from plaintiffs’ attorneys for alleged failure to comply with the Americans with Disabilities Act (ADA) and have struggled to meet other everyday challenges.  For the immediate future, this is still mostly talk, albeit hopeful talk from the community bank perspective.  Until concrete legislative changes are made, community banks and the communities they serve still struggle under the weight of the Dodd-Frank Act.  But perhaps the sun is rising.

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Don Andrews

don-andrewsDon Andrews is a partner in Venable’s Corporate Group and co-leads the effort in compliance and risk management. Mr. Andrews has over 27 years of federal and private sector experience in litigation, compliance and risk management, advising banks, broker-dealers, asset advisers, hedge funds, mutual funds, private equity firms, trust companies and investment advisors on domestic and international regulatory matters. He has successfully worked with regulators of all types, including the OCC, Federal Reserve, SEC, FINRA, FDIC and state and international regulatory authorities.

Prior to joining Venable, Mr. Andrews was the Global Compliance Director and Director of Risk Management for Bessemer Trust Company, a complex of six banks, foreign and domestic investment advisors, broker-dealers, hedge funds, private equity and mutual fund complex. While at Bessemer, he successfully developed and implemented the firm’s Compliance and Risk Management Program across 19 offices, including its U.K. and Cayman operations. Mr. Andrews also worked as the Chief Compliance Officer at Van Kampen Investments, where he was also responsible for compliance and operational infrastructure, and as Deputy General Counsel for EVEREN Securities, where he handled numerous litigation and arbitration matters.

Mr. Andrews’ experience as a Chief Compliance Officer brings a unique perspective to his advisory work for compliance professionals. He works with legal, compliance and operational teams for investment firms on meeting regulatory requirements, addressing regulatory change and implementing enterprise risk management programs. He also advises CCOs who may, in the current regulatory environment, face direct liability for violating securities laws. He has served as both a Bank Secrecy Officer and Money Laundering Reporting Officer for banks and foreign entities and successfully implemented AML and BSA programs in a number of contexts. In addition, he also provides compliance reviews and remediations to financial and investment management firms and advises U.K. companies on establishing a presence in the United States and registering with the SEC. Finally, he advises financial firms on pending and current enforcement matters before the SEC and banking and other regulators.

Mr. Andrews began his career with the Securities and Exchange Commission as a Special Trial Counsel and Branch Chief, prosecuting cases in Federal District Court and in administrative proceedings. In this position, he worked with the FBI, U.S. Attorney’s Office and foreign regulators. He has an exemplary record before multiple regulators, both foreign and domestic.

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