Dodd-Frank News Center

NFA Proposes New Seg Funds Requirement, AKA “Corzine Rule”

By Lene Powell, J.D., Commodity Futures Law Reporter.

The National Futures Association (NFA), the self-regulatory organization for the U.S. futures industry, has proposed several measures to tighten control over customer segregated funds held by commodity futures brokers, known as futures commission merchants (FCMs). Most significantly, the rule would require written approval by the CEO or CFO of withdrawals of more than 25% of the FCM's “residual interest” in customer segregated funds.

The proposed measure is popularly referred to as the “Corzine Rule” after the former CEO of MF Global, a major FCM that suddenly went bankrupt last fall.  In the days leading up to the firm’s failure, funds were transferred from customer segregated funds to cover the firm’s proprietary trades. Jon Corzine has stated that he was not aware of the fund transfers.

House Democrats Introduce Compensation Clawback Bill

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest.

Democrats in the House of Representatives have introduced legislation that would stop officers, directors and employees of financial firms from purchasing insurance designed to shield them from having to pay a compensation clawback or civil penalty if their actions result in illegal, unsafe or unsound conduct.

“The creation of insurance policies to insulate financial executives from clawbacks is one more effort by some in the industry to perpetuate a lack of accountability,” said bill sponsor Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee.

Federal Reserve Finalizes SHC Rules

By John M. Pachkowski, J.D., Editor, CCH Federal Banking Law Reporter and Bank Digest; Author, Anti-Money Laundering and Bank Secrecy: Compliance and the USA PATRIOT Act; co-Author CCH Financial Privacy Law Guide and Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The Federal Reserve Board has announced the approval of a final rule outlining the procedures for securities holding companies (SHCs) to elect to be supervised by the Fed. An SHC is a nonbank company that owns at least one registered broker or dealer.

The final rule specifies the information that an SHC will need to provide to the Fed as part of registration for supervision, including information related to organizational structure, capital, and financial condition. Under the final rule, an SHC's registration becomes effective no later than 45 days from the date the Fed receives all required information. Once an SHC’s registration becomes effective, it will be regulated as if it were a bank holding company; however, consistent with the Dodd-Frank Act, the restrictions on nonbanking activities in the Bank Holding Company Act would not apply to a supervised SHC.

Waters, Democrats Voice Concern Over Housing Program Implementation

This story appeared in Bank Digest.

Rep. Maxine Waters, D-Calif., joined by 52 House Democrats, has sent a letter to Treasury Secretary Timothy Geithner and Federal Housing Finance Agency Acting Director Edward DeMarco regarding implementation of the Hardest Hit Fund (HHF) and the latest version of the Home Affordable Refinance Program (HARP 2.0). The letter was sent in response to a recent report by the Special Inspector General for the Troubled Asset Relief Program that found HHF, which received $7.6 billion in funding, has spent only 3 percent of its funding. The letter also expresses concerns about HARP 2.0, stating that the program appears to be failing to serve the distressed borrowers it was designed to assist. In the letter, Waters and the Democrats seek improvements to both housing programs.

IG Reports on Progress in Developing Enhanced Prudential Standards

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The Fed's Office of Inspector General has presented the results of its audit of the Fed's progress in developing enhanced prudential standards. Section 165 of the Dodd-Frank Act requires the Fed to establish enhanced prudential standards for bank holding companies (BHCs) with total consolidated assets equal to or greater than $50 billion (referred to in the report as large BHCs) and nonbank financial companies that are determined by the Financial Stability Oversight Council to pose a risk to financial stability. The audit was conducted to analyze the Fed's approach and activities for its supervision of large BHCs in preparing to meet the related requirements of Dodd-Frank.

CFPB Reminds Servicemembers and Families of Consumer Finance Tools

This story appeared in Bank Digest.

A Blog post celebrating Memorial Day noted that the CFPB’s Office of Servicemember Affairs seeks to educate and engage with the public about consumer finance as it impacts servicemembers and their families. At www.consumerfinance.gov, servicemembers and their families can find information on a host of initiatives, including ways in which the CFPB seeks to combat financial scams targeted at military consumers. Consumers can also find innovative tools, including the Financial Aid Comparison Shopper, complete with military benefits calculator, and student loan complaint system, equipped to field concerns from servicemembers, veterans, and their families.

Residential Mortgage-Backed Securities Working Group Announces Website, Coordination Team

This story appeared in Bank Digest.

The Residential Mortgage-Backed Securities (RMBS) Working Group has announced new resources in the ongoing effort to investigate misconduct, including the launch of a RMBS website to report fraud and the creation of a coordination team to facilitate the various investigations underway around the country. The RMBS Working Group’s co-chairs include Assistant Attorney General for the Criminal Division Lanny Breuer, Acting Assistant Attorney General for the Civil Division Stuart Delery, U.S. Attorney for the District of Colorado John Walsh, Director of Enforcement for the Securities and Exchange Commission Robert Khuzami, and New York State Attorney General Eric Schneiderman. The working group and its members are focused on investigating potential false or misleading statements, deception or other misconduct by market participants in the creation, packaging and sale of mortgage-backed securities.

CFPB, SIGTARP Warn of Modification Fraud Targeting Servicemembers

This story appeared in Bank Digest.

The Treasury Department, Consumer Financial Protection Bureau and Office of the Special Inspector General for the Troubled Asset Relief Program have issued a fraud alert addressing schemes targeted at homeowners seeking to apply for mortgage assistance through the Home Affordable Modification Program and other federal programs. Many of these fraudulent schemes are directed specifically at members of the military community. The alert provides information on how homeowners who are having difficulty making their mortgage payments can get free counseling and apply for modification assistance.

 

Mortgage Loan Servicing Enforcement Plans, Agreements Released

This story appeared in Bank Digest.

The Fed has released action plans for two financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing. It also released the engagement letter between a third company and the independent consultant it retained to review foreclosures that were in process in 2009 and 2010, as well as a supplemental agreement addressing that company's foreclosure review obligations following the decision by the company's mortgage servicing subsidiaries to seek bankruptcy protection. According to the Fed, the action plans are required under the terms of last year's formal enforcement actions, which require Fed-regulated mortgage loan servicers and parent holding companies of mortgage servicers to submit acceptable plans to improve their procedures, controls and oversight of foreclosure activities.

White Paper on GSE Conservatorship Costs Issued

This story appeared in Bank Digest.

The FHFA's investment in creating and sustaining the conservatorship of the government-sponsored housing entities “permitted Fannie Mae and Freddie Mac to avoid insolvency, which, given their dominant position in housing finance and the trillions of dollars of securities issued, could have caused the collapse of the U.S. housing finance system,” a new FHFA white paper has asserted. The white paper noted that while the GSE shareholders lost nearly all of their investments, bond holders and investors in the GSEs' mortgage-backed securities were protected, and housing market participants--including homeowners--also benefitted because the GSEs could continue to support the secondary market. However, the cost of the FHFA's support eventually could rise to as much as $33 billion.