The Gold Book

The FDIC, with the other FFIEC agencies, issued new guidance in June 2011, describing updated supervisory expectations regarding customer authentication, layered security, and other controls in an increasingly hostile online environment. Financial institutions are expected to comply with the guidance no later than January 1, 2012.

Read more here: Authentication for Internet Banking.

On July 14, 2011, the Fed repealed the Regulation Q prohibition on paying interest on demand deposit accounts, effective July 21, 2011.  Institutions that elect to pay interest on demand deposit accounts will not be able to offer such customers unlimited deposit insurance.  This may be more attractive to business customers who tend to keep larger checking or operating account balances.

With the advent of interest bearing checking accounts, this may herald the demise of retail repo or sweep accounts.  In these accounts funds from a demand deposit account are swept at the end of the day into a repo account either at the bank or through a third party brokerage service.  There the funds are able to earn interest until they are swept back into the demand deposit account the next morning.  Thus, for some institutions the repeal of the prohibition on paying interest on demand epposit accounts will result in the replacement of indirect interest payments on demand deposit accounts (the retail repo or sweep account structure) with explicit direct interest bearing demand deposit accounts.  This may depend on that rate banks are willing to offer on such accounts.

New York State Banking Board General Regulation Part 20, which largely mirrors Regulation Q, is likewise repealed.

The definition of interest under FDIC regulation section 321.1(c) has been moved to Part 330 (deposit insurance coverage), specifically the definition section at 330.1.

FDIC regulation section 329.103, which addresses the rules for the payment of premiums has also been moved to section 330.101.

Section 330.101 also now includes that section of former Regulation Q that allows a bank to pay a premium on a demand deposit account without it being deemed interest as long as the payment on the funds is not tied to the balance in the account and the duration of the account balance.  The origins of this rule came about years ago to enable institution to pay bonus or extra cash payments to ATM customers on a random basis when they performed certain ATM transactions.

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The Federal Reserve Board has requested public comment on proposed amendments to Regulation CC (Availability of Funds and Collection of Checks) to encourage banks to clear and return checks electronically, add provisions that govern electronic items cleared through the check-collection system, and shorten the “exception” hold periods on deposited funds.

To encourage electronic collection and return of checks between banks, the proposal provides that a depositary bank would be entitled to the expeditious return of a check only if it agrees to receive returned checks electronically. In addition, the proposal would permit the bank responsible for paying a check to require that checks presented to it for same-day settlement be presented electronically. More generally, the proposal would apply Regulation CC’s collection and return provisions, including warranties, to electronic check images that meet certain requirements.

Additionally, due to the faster collection and return timeframes that result from electronic collection and return, the proposal would shorten the safe-harbor period for an exception hold to four business days, which should enable the depositary bank to learn of the return of virtually all unpaid checks before being required to make these deposits available for withdrawal.

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FinCEN Rule Strengthens SAR Confidentiality;
Provides Guidance to Permit Sharing with Affiliates

VIENNA, Va. – The Financial Crimes Enforcement Network (FinCEN) today released a final rule – Confidentiality of Suspicious Activity Report as well as an advisory, and two guidance documents, and a Notice of Availability of Guidance that together clarify and strengthen the scope of Suspicious Activity Report (SAR) confidentiality, and expand the ability of certain financial institutions to share SAR information with most affiliates.

“FinCEN’s SAR confidentiality regulations along with parallel best practices guidance on sharing SAR information, also issued today, promote the protection of SAR information while seeking to ensure that the appropriate parties, but only those parties, have access to SARs,” said FinCEN Director James H. Freis, Jr. “It is essential to the partnership between the financial industry and government that sensitive financial information reported to FinCEN be protected. As to the newly issued guidance, we believe that allowing information sharing among affiliates will help the financial industry protect itself from abuses of financial crime, be consistent with industry efforts to strengthen enterprise-wide risk management, and also promote the reporting of even more useful information to FinCEN and law enforcement investigators,” said Freis.

The regulations clarify the scope of the statutory prohibition against the disclosure by a financial institution or by a government agency of a SAR or any information that would reveal the existence of a SAR.

The related advisory, Maintaining the Confidentiality of SARs is intended for all Bank Secrecy Act stakeholders: federal and state regulatory agencies, law enforcement, self-regulatory organizations, and financial institutions. The advisory emphasizes the importance of confidentiality for maintaining a vigorous suspicious activity reporting regime, and intends to help focus BSA stakeholders to be vigilant in managing information sharing.

In addition, FinCEN produced a pair of guidance documents for depository institutions and for the securities and futures industries that interpret a provision in the SAR confidentiality rules.

These guidance documents complement FinCEN’s previous guidance for banks and securities and futures industries, which permitted the sharing of SARs with head offices and parent companies. The new guidance allows for the sharing of a SAR with a domestic affiliate, provided that affiliate is itself subject to a SAR rule. The affiliates must be linked under a common ownership and cannot themselves be the subject of the SAR. The guidance made public today clarifies that sharing with foreign affiliates is not permitted at this time.

FinCEN developed the new rule, advisory, guidance, and notice in consultation with the Federal Banking Agencies, Securities and Futures Regulators, and the Internal Revenue Service.

The final rule and guidance become effective 30 days after publication in the Federal Register.

Find FinCEN’s responses to public comments received on the guidance as it was proposed and additional information regarding the effective date and the rationale for the guidance in FinCEN’s Notice of Availability of Final Interpretative Guidance.

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