The Federal Financial Institution Examinations Council (FFIEC) Issues a Federal Register (2024-23125) Revising Dates for Re-proposed Changes to the Foreign Branch Report of Condition (FFIEC 030) for Quarterly Filers (Comments must be submitted on or before 11/6/2024)

The FFIEC proposed changes to the FFIEC 030 for quarterly filers in January 2024, including the addition of a new section, "Schedule RAL - A, Due From, Due To, and Other". After receiving comments and feedback, the re-proposed revisions to the FFIEC 030 are now effective as of the 3/31/2025 report date for branches (i.e., those located in the U.K. or Caribbean) that currently meet the criteria to file the Quarterly Report of Assets and Liabilities of Large Foreign Banks (FR 2502q). For a branch that does not meet the current criteria to file the FR 2502q, but files the FFIEC 030 on a quarterly basis, the effective date for these new items will be as of 12/31/2025.

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The FDIC is proposing requirements that would strengthen FDIC-insured depository institutions’ (IDI) recordkeeping for custodial deposit accounts with transactional features and preserve beneficial owners’ and depositors’ entitlement to the protections afforded by  deposit insurance. The proposal is intended to promote the FDIC’s ability to promptly make deposit insurance determinations and, if necessary, pay deposit insurance claims ‘‘as soon as possible’’ in the event of the failure of an IDI holding custodial accounts with transactional features. Comments must be received on or before 12/2/2024.

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The FASB is seeking comments on proposed improvements to hedge accounting to clarify the current guidance and address issues arising from the global reference rate reform initiative. The amendments would enable entities to apply hedge accounting to a greater number of highly effective economic hedges to improve the decision usefulness of information. In addition, the FASB proposes that a group of individual forecasted transactions be considered as similar risk exposure if the derivative used as a hedging instrument is highly effective against each risk. Comments on the proposed ASU should be submitted on or before 11/25/2024.

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The BPI published an article arguing that rulemaking raises significant barriers for entry to the U.S. market. The two key regulatory capital-related requirements that have raised barriers for entry to the U.S. market for Foreign Banking Organizations (FBOs) and their U.S. subsidiaries are associated with ring-fencing (i.e. the creation of Intermediate Holding Companies/IHC) and increased requirements for FBOs) and the maintenance of an additive capital cushion as a function of the results of the Federal Reserve’s supervisory stress test. The goal should be to maintain financial stability while preserving benefits that FBOs bring to U.S. capital markets through their participation.

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In September, 2024 The Federal Reserve updated its Comprehensive Capital Adequacy Requirements (CCAR) Frequently Asked Questions (FAQs) for the FR Y-14 (Capital Assessments and Stress Testing Reports) Series. The Federal Reserve periodically updates questions and answers related to CCAR and the Dodd-Frank Act stress tests (DFAST) to assist with interpretation of reporting instructions and regulations. The Board has historically given firms time to incorporate revisions into reports. In the most recent updates, the Fed is including adjusting treatment of private equity investments in Small Business Investment Companies (SBICs) to better reflect inherent risks of investments.

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SEC Chairman Gary Gensler spoke on Systemic Risk in Artificial Intelligence (AI). AI platforms will emerge in the field and will start to dominate our economy, with the three largest cloud providers already affiliated with the leading generative AI companies. AI is used for call centers, account openings, compliance programs, trading algorithms, and sentiment analysis, fueling rapid change in the fields of robo-advisers and brokerage applications. Financial entities are looking to build downstream applications, relying on base models upstream. Challenges to financial stability that AI may pose in the future will require thinking about financial institutions' dependency on AI models or a data aggregator.

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Overview: U.S. prosecutors generally seek insider trading convictions under an anti-fraud rule, SEC Rule § 240.10b-5, Employment of Manipulative and Deceptive Devices. In December 2019, the House of Representatives passed H.R. 2534 to amend the Securities Exchange Act with a new section, 16A, prohibiting insider trading, but it has not been passed by the Senate.

Overview: President Obama signed Dodd-Frank into law in July 2010. The purpose was to restructure the financial regulatory system to restore public confidence following the 2008 financial crisis and prevent further crises from occurring. Some regulatory agencies were consolidated, and new supervisory entities were created. The law contains consumer protection reforms and provides a process for winding down bankrupt firms in the event of a financial crisis.

Dodd-Frank imposed a regulatory structure on previously unregulated derivatives. Standardized derivatives must be traded on an exchange or swap execution facility (SEF) and centrally cleared. Non-financial entities that use swaps as a bona fide hedge are not subject to the mandatory clearing and exchange-trading requirements.

Firms must capture, monitor and store trade data and communications data so that market abuse can be detected. They must keep all communication records made through the telephone, voicemail and email, and these records must be uniformly time stamped.

Section 753 of the Act amended section 6(c) of the Commodity Exchange Act to prohibit manipulation and fraud in connection with any swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity. Section 753:

• Expands the reach of the CFTC to prohibit manipulative and fraudulent behavior by eliminating the requirement to show an artificial price and lowering the scienter standard to recklessness for fraud-based manipulations.
• Preserves the CFTC’s existing authority to prohibit the manipulation of prices even in the absence of fraud.
• Adds a special provision for manipulation by false reporting, including an exception for good faith mistakes.
• Makes it unlawful to provide materially false information to the CFTC.

Final Rule 180.1 gives the CFTC authority to enforce Section 6(c).

Rule 17 CFR § 38.156 requires firms to maintain an automated trade surveillance system capable of detecting and investigating potential trade practice violations. The automated system must load and process daily orders and trades no later than 24 hours after the completion of the trading day. In addition, the automated trade surveillance system must have the capability to detect and flag specific trade execution patterns and trade anomalies; compute, retain, and compare trading statistics; compute trade gains, losses, and futures-equivalent positions; reconstruct the sequence of market activity; perform market analyses; and support system users to perform in-depth analyses and ad hoc queries of trade-related data.

Overview: The Market Access Rule requires broker-dealers with market access or that provide market access to their customers to “appropriately control the risks associated with market access so as not to jeopardize their own financial condition, that of other market participants, the integrity of trading on the securities markets, and the stability of the financial system.”

The rules require financial, regulatory and surveillance checks to be performed pre-trade. The broker-dealer providing market access is primarily responsible for running the checks, but can delegate regulatory checks, such as those pertaining to the ‘know your customer’ and restricted stock transactions rules to another broker-dealer, but the market access broker is still liable. In addition, the market access broker-dealer must immediately provide copies of all transactions to the surveillance team in a way that has context and meaning.