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    SEC Proposes Securitization Rule; OCC Issues Other Regulatory Updates

    February 01, 2023

    The Securities and Exchange Commission (SEC) proposed a rule to prohibit the conflicts of interest in certain securitizations. The Office of the Comptroller of the Currency (OCC) seeks call for research papers, until March 03, 2023, on emerging risks in the banking system, or related policy, and supervisory issues. OCC also issued a revised version of the Fair Lending booklet of the Comptroller’s Handbook, published a Bulletin on changes to the loan origination threshold reporting under the Home Mortgage Disclosure Act (HMDA), and announced approval of the merger of Bank of the West, San Francisco, into BMO Harris Bank, National Association, Chicago. Additionally, the Acting Comptroller of the Currency, Michael J. Hsu, discussed the too-big-to-manage issues around the management of large banks.

    Below are the key highlights of these recent updates:

    • SEC proposed a rule to implement Section 27B of the Securities Act of 1933, a provision added by Section 621 of the Dodd-Frank Act. The proposed rule aims to prevent the sale of asset-backed securities that are tainted by material conflicts of interest. The rule would prohibit securitization participants from engaging in certain transactions that could incentivize a securitization participant to structure an asset-backed securities in a way that would put the securitization participant's interests ahead of those of asset-backed securities investors. The proposed rule would provide certain exceptions for risk-mitigating hedging activities, bona fide market-making activities, and certain commitments by a securitization participant to provide liquidity for the relevant asset-backed securities. The comment period for the proposed rule will remain open for 60 days following its publication on the SEC's website or 30 days following its publication in the Federal Register, whichever period is longer.
    • The revised Fair Lending booklet reflects changes to the laws and regulations that set out the supervisory approach applicable to each OCC-supervised bank that engages in lending and provides additional guidance for examiners in this critically important area. The revised booklet includes new and clarified details and risk factors for a variety of examination scenarios. The revised booklet also updates references to supervisory guidance, sound risk management practices, and applicable legal standards. The Fair Lending booklet provides information and examination procedures to assist OCC examiners in assessing fair lending risk and evaluating compliance with the Fair Housing Act, the Equal Credit Opportunity Act (ECOA), and Regulation B, the consumer protection regulation that implements the Equal Credit Opportunity Act. The revised booklet replaces the booklet of the same title issued in January 2010 and is applicable to the OCC's supervision of national banks and federal savings associations.
    • The Bulletin on loan origination threshold informs banks and OCC examining personnel that the threshold for reporting Home Mortgage Disclosure Act data on closed-end mortgage loans has changed. As a result, banks that originate at least 25 closed-end mortgage loans in each of the two preceding calendar years (25-loan threshold) are now subject to HMDA data collection and reporting requirements, instead of the 100-loan threshold set by the 2020 HMDA Final Rule. OCC states that the collection and submission of 2023 HMDA data will provide affected banks with an opportunity to identify gaps and make improvements to their HMDA compliance management systems. The Bulletin applies to community banks that are subject to HMDA data collection and reporting requirements.
    • With regard to the management of large banks, the Acting Comptroller shared views on detecting, preventing, and addressing risks that can result in large banks becoming too-big-to-manage. The Acting Comptroller highlighted that large banks that repeatedly try but fail to fix their material deficiencies prolong risks to consumers, counterparties, and the financial system. The Acting Comptroller expects bank regulators to provide greater transparency on the supervisory process, emphasized the importance of due process, and described supervisory remedies, including, but not limited to, business restrictions, divestitures, and simplification of large banks when necessary.


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    Keywords: Americas, US, Banking, Securities, Basel, Securitization, Lending, Credit Risk, Reporting, Loan Origination, Home Mortgage Disclosures, Large Banks, Asset Backed Securities, HMDA, SEC, OCC

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