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FinCEN Proposes Form Of Report To Collect Beneficial Ownership Information And Application To Obtain FinCEN Identifiers – Financial Services


In this Issue. The Financial Crimes Enforcement Network
(FinCEN) Proposes Form of Report to Collect Beneficial Ownership
Information and Application to Obtain FinCEN Identifiers; the
Financial Industry Regulatory Authority (FINRA) Publishes 2023
Report on Exam and Risk Monitoring Program; the Consumer Financial
Protection Bureau (CFPB) Issues Guidance on Negative Option
Marketing Practices; the CFPB Updates Mortgage Servicing
Examination Procedures; the Board of Governors of the Federal
Reserve System (Federal Reserve) Introduces Details on Pilot
Climate Scenario Analysis Exercise; and the Office of the
Comptroller of the Currency (OCC) and FinCEN Adjust Civil Penalties
to Account for Inflation. These and other developments are
discussed in more detail below.

Regulatory Developments

FinCEN Proposes Form of Report to Collect Beneficial Ownership
Information and Application to Obtain FinCEN Identifiers

On January 17, FinCEN proposed a form of
report to collect beneficial ownership information from reporting
companies, pursuant to FinCEN’s final rule regarding beneficial
ownership information reporting requirements published on September
30. (Read about the final rule here.) In addition,
FinCEN proposed a form of
application for individuals to obtain FinCEN identifiers. FinCEN
expects 32.6 million entities to submit initial reports of
beneficial ownership in 2024, the first year that the rule will be
in effect. Comments to the proposed forms are due March 20.

FINRA Publishes 2023 Report on Exam and Risk Monitoring

On January 10, FINRA published its 2023 Report on FINRA’s
Examination and Risk Monitoring Program
. The report provides
key insights and observations from FINRA’s Member Supervision,
Market Regulation, and Enforcement programs, and it can be used by
FINRA member firms to strengthen their compliance programs. There
are four new topics covered in this year’s report: manipulative
trading; fixed income – fair pricing; fractional shares; and
regulation SHO. Additionally, the report introduces a new Financial
Crimes Section. Other key topics in the report include:
cybersecurity, complex products, regulation best interest and Form
CRS, and mobile apps. As with prior year’s reports, each topic
in the report outlines regulatory obligations, considerations,
findings and observations from recent oversight activities,
effective practices, and additional resources.

“This report represents a holistic approach to FINRA
regulation, leveraging information from across our regulatory
operations to provide member firms with information to help them
enhance their core compliance programs.”

–Greg Ruppert, Executive Vice President, Member Supervision

CFPB Issues Guidance on Negative Option Marketing

On January 19, following an October policy statement on
negative option marketing by the Federal Trade Commission, the CFPB
published a Consumer Financial
Protection Circular
(Circular) providing guidance to combat
negative option programs and dark pattern practices. The Circular
affirms that when a company subject to the Consumer Financial
Protection Act (CFPA) fails to disclose, clearly and conspicuously,
the material terms of a negative option offer, fails to obtain the
consumer’s informed consent, or misleads or impedes a consumer
in canceling a recurring charge for a product or service, that
company risks violating the CFPA’s prohibition on unfair,
deceptive, or abusive acts or practices.

CFPB Updates Mortgage Servicing Examination Procedures

On January 18, the CFPB published its updated Mortgage Servicing
Examination Procedures
. Among the changes made, the updated

  • Incorporate relevant CFPB bulletins and
    interagency guidance
    , circulars, and advisory opinions
    released since the procedures’ prior update in June 2016;

  • Focus examiners on additional issues featured in Supervisory
    , such as fees that servicers charge borrowers and
    misrepresentations related to foreclosure;

  • Cover forbearances, loan modifications, and other tools that
    mortgage servicers used during the COVID-19 national emergency,
    including how servicers communicate with borrowers about homeowner
    assistance programs; and

  • Encourage examiners to interview consumers when consumer
    complaints or examiner document review indicate potential
    violations (changing “may conduct interviews” to
    “should conduct interviews”).

The CFPB’s announcement also acknowledged that COVID-19 will
continue to impact families beyond the national emergency and that
streamlined loss mitigation options made available to borrowers
experiencing hardship due to the COVID-19 national emergency can
also be made available to borrowers not experiencing
COVID-19-related hardships in an effort to keep consumers in their

Federal Reserve Introduces Details on Pilot Climate Scenario
Analysis Exercise

On January 17, the Federal Reserve introduced additional details on how its
pilot climate scenario analysis (CSA) exercise will be
conducted and the type of information on risk management practices
that will be gathered over the course of the exercise. The Federal
Reserve first announced the CSA exercise in a press release on
September 29, 2022.

The six largest U.S. banks will analyze the impact of scenarios for
both physical and transition risks related to climate change on
specific assets in their portfolios. The Federal Reserve will
gather qualitative and quantitative information over the course of
the pilot, including details on governance and risk management
practices, measurement methodologies, risk metrics, data
challenges, and lessons learned in order to deepen the Federal
Reserve’s understanding of climate risk-management. As part of
the CSA exercise, participating organizations will submit data
templates, supporting documentation and responses to qualitative
questions to the Federal Reserve by July 31, 2023.

The Federal Reserve expects to publish the insights gained from the
pilot program at an aggregate level, reflecting lessons learned
about climate risk management practices and how insights from
scenario analysis will help identify potential risks and promote
effective risk management practices; no firm-specific information
will be released. The Federal Reserve has not provided a timeline
for when to expect publication of findings.

Agencies Adjust Civil Penalties to Account for Inflation

Recently, the OCC and FinCEN provided notice in the Federal
Register regarding adjustments to the maximum civil money penalties
due to inflation pursuant to the Federal Civil Penalties Inflation
Adjustment Act of 1990, as amended by the Federal Civil Penalties
Inflation Adjustment Act Improvements Act of 2015. Each notice or
final rule adjusts the maximum amounts of civil money penalties and
provides a chart reflecting the inflation-adjusted maximum amounts
associated with the penalty tiers for particular types of
violations within each regulator’s jurisdiction. The OCC’s adjusted civil
money penalties
are effective as of January 4, 2023, for
violations occurring on or after November 2, 2015. FinCEN’s adjusted
civil money penalties
are effective January 19, 2023.

Transfer-on-Death Designations: Potential Pitfalls

When used in consultation with an estate planning attorney,
transfer-on-death (TOD) or payable-on-death (POD) designations on
financial accounts can be valuable estate planning tools. However,
these account designations have the potential to derail an estate
plan when not coordinated properly with the overall plan.
Consulting with an estate planning attorney is critical when
considering a TOD/POD designation, and caution is required when
opening financial accounts to avoid unwanted results.

Read more about this topic in a recent client alert.

Exempt Reporting Advisers Faced Significantly More SEC
Enforcements in 2022

The Securities and Exchange Commission (SEC) brought an
unusually high number of enforcement actions against exempt
reporting advisers in 2022 — that appears to be more than the
prior three years combined and a record number for a single year.
This uptick in SEC enforcement activity should serve as a reminder
for exempt reporting advisers of the regulatory risks they face
under the Investment Advisers Act of 1940 (Advisers Act) and other
aspects of the federal securities laws.

Read more about this update in a recent client alert.

SEC Regulatory Agenda Showcases 52 Proposed and Final Rules by
Spring 2023

The SEC’s Fall 2022
“Reg Flex” agenda
was recently published by the
federal Office of Information and Regulatory Affairs (OIRA). Chair
Gensler sets the agency’s agenda, which provides a glimpse into
how the agency will prioritize its resources over the coming six
months from a policy and rulemaking standpoint (recognizing that
three of those months have already elapsed since the agency
submitted this to OIRA in October 2022). The SEC has been moving at
breakneck speed over the past 18 months, earning criticism of the
Chair (including a report from the SEC
Office of the Inspector General
). The agenda suggests the SEC
has no intention to slow its rulemaking pace in the coming

Read more about the SEC’s Regulatory Agenda in a recent client alert.

Broker-Dealer Compliance With Revamped Recordkeeping
Requirements Begins May 3, 2023; FINRA Publishes Chart of
“Most Significant Changes”

The SEC recently amended Exchange Act Rule 17a-4 by adopting new
recordkeeping requirements for broker-dealers. Most notably, the
SEC will no longer require broker-dealers to maintain records in
“write once, read many” or “WORM” format.
Instead, broker-dealers have the option of utilizing a new
“audit trail” alternative for their electronic
recordkeeping systems. The changes also affect the use of
third-party recordkeeping services and requirements related to
timely production of records. The compliance date for
broker-dealers is May 3, 2023.

For its part, FINRA recently published a chart summarizing what it
deems as the “most significant changes” and other nuances
between the legacy and amended rule. We have summarized a handful
of those and added several of our own points. Firms should consider
these differences, nuances, and other considerations as they
determine how to adapt their processes to the new audit trail
alternative (if they choose that path at all).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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