US Reg Round Up: 10/10/2024
Federal Reserve
Agencies announce increase in 2025 threshold for higher-priced mortgage loans - 4 October 2024
The Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board, and the Office of the Comptroller of the Currency have jointly announced that the threshold for higher-priced mortgage loans, which are subject to special appraisal requirements, will rise from $32,400 to $33,500, effective January 1, 2025. This adjustment is in line with the 3.4 percent annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2024. The Dodd-Frank Act mandates specific appraisal requirements for higher-priced mortgage loans under the Truth in Lending Act. These requirements stipulate that creditors must obtain a written appraisal based on a physical inspection of the home before approving a higher-priced mortgage loan. Additionally, there is an exemption for loans of $25,000 or less, which is adjusted annually to reflect CPI-W increases.
The FED announce dollar thresholds for certain protections under Regulation Z and Regulation M - 4 October 2024
The Federal Reserve Board and the Consumer Financial Protection Bureau (CFPB) have announced the updated dollar thresholds for 2025 that determine the applicability of protections under Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing). In accordance with legal requirements, these thresholds are adjusted annually based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For 2025, consumer credit transactions and leases of $71,900 or less will be covered by these regulations, reflecting a 3.4 percent increase in the CPI-W as of June 1, 2024. It’s important to note that private education loans and loans secured by real property, such as mortgages, will continue to fall under Regulation Z regardless of the loan amount.
Agencies issue statement on regulatory reporting obligations for financial institutions impacted by Hurricane Helene - 2 October 2024
The Federal Deposit Insurance Corporation, the Federal Reserve Board, the National Credit Union Administration, the Office of the Comptroller of the Currency, and state financial regulators acknowledge the significant impact of Hurricane Helene on financial institutions and their customers. In light of these challenges, the agencies are committed to providing regulatory assistance to affected institutions. Institutions facing difficulties in meeting regulatory reporting obligations due to Hurricane Helene are encouraged to reach out to their primary federal or state regulators. The agencies will not assess penalties or take supervisory action against institutions that take reasonable and prudent steps to meet these obligations but are unable to do so fully because of the hurricane's effects.
Securities and Exchange Commission
SEC monitoring impact of hurricanes Milton and Helene on investors and capital markets - 9 October 2024
The Securities and Exchange Commission (SEC) is actively monitoring the effects of Hurricane Milton on investors and capital markets, while also keeping an eye on the ongoing repercussions of Hurricane Helene. The SEC's divisions and offices responsible for overseeing various sectors, including companies, accountants, investment advisers, mutual funds, brokerage firms, and transfer agents, are tracking developments closely. In response to the storms, the SEC is evaluating the possibility of providing relief from filing deadlines and other regulatory requirements for affected entities and investment professionals. Those impacted by Hurricanes Milton or Helene are encouraged to reach out to SEC staff with any questions or concerns. The SEC urges investors to remain vigilant against potential securities scams related to Hurricanes Milton and Helene.
SEC charges “Magic Mushrom” company with multi-million dollar pump-and-dump scheme - 9 October 2024
The SEC has charged Minerco Inc. (formerly traded as MINE), along with executives Bobby Shumake Japhia and Julius Makiri Jenge, for their involvement in an alleged pump-and-dump scheme that defrauded investors of approximately $8 million while generating substantial ill-gotten gains from the sale of Minerco stock. According to the SEC’s complaint, Shumake secretly acquired a significant stock position in Minerco, an inactive penny stock company, and enabled Jenge’s control of the company. The defendants then initiated efforts to inflate Minerco’s stock price by promoting it as the “first publicly traded company focused on the research, production, and distribution of psilocybin mushrooms,” which are associated with hallucinogenic properties. From 2020 to 2021, the defendants allegedly engaged in deceptive practices by spreading false and misleading claims. They claimed that an independent third party had valued Minerco at $1 billion and that the company had partnered with a Jamaican firm to grow a unique strain of psilocybin and obtain cannabis licenses. The SEC also alleges that the defendants misrepresented Minerco’s operational status, falsely asserting that it was an active Nevada company despite having its charter revoked. Furthermore, Shumake is accused of enlisting an offshore company to sell his Minerco shares, resulting in at least $3.4 million being transferred to an entity he controlled.
SEC enhances security and access for EDGAR filers - 27 September 2024
The Securities and Exchange Commission (SEC) has adopted amendments to its rules and forms aimed at enhancing their EDGAR system while improving the account management capabilities for filers. SEC Chair Gary Gensler emphasized that these amendments mark a significant advancement in account access protocols for the EDGAR system, which has long served both the public and the SEC effectively. Under the new amendments, EDGAR filers will be required to authorize specific individuals responsible for managing their accounts. Moreover, the SEC plans to introduce optional Application Programming Interfaces (APIs) to streamline interactions with EDGAR. These machine-to-machine interfaces will enable filers to submit documents, retrieve information, and manage their accounts more efficiently, reducing the need for manual processes. The SEC launched a beta software environment for filer testing and feedback on September 30, 2024, which reflects the newly adopted amendments and technical updates. Filers can find information on how to participate in beta testing and additional details about the changes on the SEC's website.
Office of the superintendent of financial institutions
OSFI release technical note on the Basel III capital floor - 2 October 2024
The 2017 Basel III reforms have seen varying adoption globally, garnering significant attention from analysts and the financial media. In Canada, these reforms included a revised capital floor, which began implementation in Q2 2023, starting at 65% and aiming for 72.5% by Q1 2026. A one-year delay was announced in July for the increase from 67.5% to 70%, pushing the full transition to 72.5% to Q1 2027. This delay allows consideration of timelines in other jurisdictions and reinforces the capital floor's perceived prudence. Overall, the implementation of Basel III reforms in Canada is expected to be capital neutral, even at the 72.5% level. Key factors influencing bank capital include the removal of the 1.06 scaling factor on modeled RWA, which offers about $90 billion in relief for domestic systemically important banks (DSIBs), and the anticipated increase in RWA due to the capital floor, estimated at $85 billion. This impacts banks' Common Equity Tier 1 (CET1) capital ratios by 0 to 86 basis points. Banks have multiple strategies to handle increased capital requirements. Despite the capital-neutral implementation of Basel III, they can adjust capital allocations, transfer risk exposures to third parties, or maintain a lower buffer relative to their target ratios. As of Q2 2024, DSIBs had capital buffers of 127 to 191 basis points, providing sufficient capacity to manage the fully phased-in floor. Canadian banks are experienced in utilizing these tools and generating capital from earnings, enabling them to manage temporary capital ratio declines without stifling growth.
OSFI releases fall update to 2024-2025 annual risk outlook, addressing intensified risks - 2 October 2024
OSFI released its fall update to the 2024-2025 Annual Risk Outlook (ARO), highlighting the most pressing risks identified in Canada’s financial system and outlining strategies for addressing them. In May, OSFI pinpointed the top four risks as real estate secured lending and mortgage risks, wholesale credit risks, funding and liquidity risks, and integrity and security amid geopolitical uncertainty. While these risks persist, the latest update reveals that integrity and security concerns have intensified, particularly regarding operational resilience and artificial intelligence (AI). To combat these challenges, OSFI plans to assess institutions' preparedness for managing third-party and technology-related risks, evaluate the robustness of their business continuity and disaster recovery plans, and collect data on systemic concentration risks from third parties.