#AI/ML – Federal Financial Analytics

31 10, 2023

FedFin Assessment: New White House AI Policy Promises New KYC Requirements, Banking-Agency Guidance

Arezou Rafikian2023-10-31T13:33:25-04:00October 31st, 2023|The Vault|

In this report, we assess the detailed executive order (EO) issued late Monday afternoon after days of private showings of selected versions. Much in the EO’s binding provisions address near-term AI-related threats to national-security, pandemic-risk, and infrastructure vulnerabilities and much related to AI-related opportunities derive from internal procedures Mr. Biden urges the federal government to develop along with workforce protections and biomedical research. The EO also reiterates the Administration’s values and presses agencies to work still harder on voluntary industry standards that many have been drafting or disagreeing on since the White House and Congress first called attention to AI risk. What comes of these provisions in the EO remains to be seen, but the Administration has also used tools such as the Defense Production Act’s authorization for direct economic intervention to mandate an array of new AI commercial and technology safeguards.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

31 10, 2023

AI3

Eliza Allen2023-10-31T10:58:11-04:00October 31st, 2023|5- Client Report|

FedFin Assessment: New White House AI Policy Promises New KYC Requirements, Banking-Agency Guidance

In this report, we assess the detailed executive order (EO) issued late Monday afternoon after days of private showings of selected versions. Much in the EO’s binding provisions address near-term AI-related threats to national-security, pandemic-risk, and infrastructure vulnerabilities and much related to AI-related opportunities derive from internal procedures Mr. Biden urges the federal government to develop along with workforce protections and biomedical research. The EO also reiterates the Administration’s values and presses agencies to work still harder on voluntary industry standards that many have been drafting or disagreeing on since the White House and Congress first called attention to AI risk. What comes of these provisions in the EO remains to be seen, but the Administration has also used tools such as the Defense Production Act’s authorization for direct economic intervention to mandate an array of new AI commercial and technology safeguards.

AI3.pdf…

17 07, 2023

DAILY071723

Eliza Allen2023-07-17T16:58:11-04:00July 17th, 2023|2- Daily Briefing|

HFSC to Tackle FinCen, Sanctions

The HFSC memo on the National Security Subcommittee’s Tuesday hearing makes it clear that Republicans have not wavered in their criticism of FinCEN’s beneficial-ownership standards (see FSM Report AML134). As before, the GOP’s principal concern is small-business burden, with bills to be considered including H.R. 4035 by Chair McHenry (R-NC) extending the small-business compliance deadline and a bill by Rep. Nunn (R-IA) to ensure at least a two-year compliance period.

Global Regulators Strengthen Crypto, Stablecoin Standards

The FSB today finalized its “same-activity/same-rule” standards for cryptoassets and stablecoins (see FSM Report CRYPTO34). We will soon provide clients with an in-depth analysis of the recommendations, which are effective immediately.

Gensler Sounds AI Systemic Alarm

In remarks today, SEC Chairman Gensler echoed his longstanding concern about predictive analytics and AI-related problems recently highlighted by CFPB Director Chopra and the banking agencies. He also cautions public issuers to ensure their AI-related disclosures are accurate, noting that AI-spawned market fraud is still fraud the SEC will vigorously pursue.

Daily071723.pdf…

14 11, 2022

DAILY111422

Eliza Allen2022-11-14T17:00:05-05:00November 14th, 2022|2- Daily Briefing|

FSB Thinks 2020 Reg Relief Could Go, Stay – It All Depends

In conjunction with the G20 summit, the FSB has released a policy paper assessing the extent to which various pandemic-related regulatory forbearances should be continued.

FSB Reiterates Climate, Crypto, NBFI Plans

The FSB head’s letter to the G20 today reiterates all of the priorities expressed in its October letter to G20 finance ministers.

Regulatory Hearings to Address Last-Gasp 2022 Agenda, Position Panels for a Busy New Year

With GOP House and Democratic Senate control largely assured, this week’s hearings with Messrs. Barr, Gruenberg, Harper, and Hsu will illuminate not only current priorities – most notably what’s next for federal crypto law and rule – but also the very different priorities HFSC and Senate Banking will advance in the next Congress.

FRB-NY Staff: Big U.S. Banks Remain Extremely Resilient

In its latest assessment of the vulnerability of the fifty largest U.S. BHCs, Federal Reserve Bank of New York staff confirmed the overall rosy assessment of bank resilience in the Board’s latest financial-stability report (see Client Report SYSTEMIC94).

OCC Ramps Up Fair-Lending Enforcement

In remarks delivered for Acting Comptroller Hsu, Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer reiterated that ensuring fairness is a top OCC priority.

Gruenberg Finally Gets the Nod

Knowing now that he has secured Democratic Senate control into next year, President Biden today finally and formally nominated Acting FDIC Chairman Gruenberg to assume the chairmanship.

Daily111422.pdf…

15 08, 2022

FINTECH30

Eliza Allen2023-01-04T12:13:20-05:00August 15th, 2022|1- Financial Services Management|

Digital Marketing

Continuing its practice of setting sweeping policy by administrative action without prior notice or comment, the CFPB has issued an interpretive rule sharply curtailing the extent to which digital advertising and market strategies are exempted from the legal and compliance obligations associated with most parties directly providing consumer financial products or services and those acting as servicers to these entities. The most immediate legal and reputational risk posed by this new policy is to technology-platform companies that use behavioral data to determine the products or services offered to consumers or those to whom consumers are directed.

FINTECH30.pdf…

15 08, 2022

Karen Petrou: The Sobering Lesson of Subprime Mortgages for Digital-Asset Regulation

Arezou Rafikian2023-01-04T12:13:43-05:00August 15th, 2022|The Vault|

Last week, the American Banker had a synopsis of views filed on Treasury’s request for comments on digital-finance regulation. Its quote from the ABA’s comment letter is striking, indicating that this letter pointed to the increasingly-absurd reality of no rules for nonbanks and no digital assets for banks given all their rules. Progressive advocates pushed back, arguing that it’s right to keep banks quashed because of all the systemic hazards they pose. To my thinking, both sides are right, with recent history not just showing why, but also how urgent it is for regulators finally to act on both overarching crypto rules and those governing bank exposures in this volatile sector.

The recent history I have in mind is the chilling precedent of subprime mortgages starting in around 2003. I well remember a meeting at the OCC in which my late husband detailed both the borrower and market risks of new mortgage products such as those with “silent seconds” extended to borrowers with no demonstrable ability to repay even a first line from resources other than the ever-appreciating house prices investors somehow believed were a force of nature that always blew balmy winds their way.

The OCC official with whom we spoke was even more worried than we about emerging market trends, but she was over-ruled from on high. This was first because national banks weren’t sounding the alarm, second because no other banking agency seemed worried, and finally because anything that adversely affected national banks might have undermined …

22 03, 2022

CONSUMER39

Arezou Rafikian2023-04-03T13:12:56-04:00March 22nd, 2022|1- Financial Services Management|

Anti-Discrimination Enforcement

Reflecting one of its new director’s top priorities as well as that of the Biden Administration, the Bureau of Consumer Financial Protection has significantly revised its examination manual when it comes to behavior that might be viewed as discriminatory in a wide range of consumer-financial products, services, underwriting, advertising, marketing, governance, and other arenas. Because the new approach is both sweeping and imprecise, different examiners and/or different CFPB offices may reach different interpretations of data and company attributes as indications of discrimination. The Bureau has thus put the entire sector on notice that anything that might have even the appearance of overt discrimination, discriminatory treatment, or disparate impact could result in CFPB sanction.

CONSUMER39.pdf…

14 02, 2022

Al021422

Arezou Rafikian2023-04-04T16:04:19-04:00February 14th, 2022|3- This Week|

THE IMPACT OF AN EQUITABLE EMPHASIS

Although all of the U.S. financial regulators to one degree or another now espouse adherence to the President’s equitable objectives, none has done so with the immediacy and force of the Federal Housing Finance Agency under its Acting Director, Sandra Thompson. To be sure, CFPB Director Chopra is a big equity fan, but this goal is often incorporated into broader consumer-protection and competition proposals such as his new “junk-fee” initiative (see FSM Report CONSUMER38). Further, Ms. Thompson isn’t just proposing; she’s doing.

Al021422.pdf…

10 02, 2022

DAILY021022

Eliza Allen2023-04-05T09:57:51-04:00February 10th, 2022|2- Daily Briefing|

KC Fed: 2020 Capital-Distribution Constraints Worked
Touching on a subject of considerable sensitivity as well as a policy issue subject to change under a new Fed, the Kansas City Federal Reserve Bank has released a study arguing that 2020’s limits on capital distributions contributed to greater systemic resilience. The paper tracks both share buy-backs and dividends over recent years, noting that GSIBs often distributed more than their income. Repurchases succeeded dividends as the principal capital-distribution medium since the great financial crisis, a shift found to give banks more flexibility to adjust distribution levels without significant investor backlash.

FHFA Leads Way on U.S. AI/ML Standards
FHFA today issued the first U.S. financial-agency supervisory guidance on AI/ML use by Fannie Mae, Freddie Mac and Common Securitization Solutions (not also the FHLBs). This goes well beyond the 2020 RFI released so far by the banking agencies (see FSM Report AI), with the standards also reflecting FHFA’s new equity focus in supervisory guidance specific to inclusive considerations.

Toomey Takes on the Entire Reserve-Bank System
In remarks today, Senate Banking Ranking Member Toomey (R-PA) heightened his critique of the Federal Reserve’s regional banks, suggesting that the System needs a sweeping overhaul.

CFPB Assesses Overdraft-Fee Marketplace
Reflecting the CFPB’s continuing critique of overdraft fees (see FSM Report CONSUMER38), the Bureau today posted a chart of overdraft and NSF fees at the largest banks, calling recent changes “encouraging.” However, the release does not retract recent allegations about their anti-consumer or -competition impact, …

10 02, 2022

GSE-021022

Arezou Rafikian2023-04-05T09:59:53-04:00February 10th, 2022|4- GSE Activity Report|

The Way to Equitable AI

Moving far ahead of the banking agencies AI, FHFA today released a series of supervisory AI/ML standards for Fannie, Freddie, and CSS, perhaps leaving the FHLBs alone because none so far does much within this arena or nobody cared. Reflecting the agency’s new equality and equity mission GSE, the AI/ML standards focus not only on risk management, but also ethical deployment in ways sure to set complex new AI/ML entry hurdles for the GSEs. If they surpass them, then a new U.S. AI/ML construct will result; if not, Fannie and Freddie could fall behind this all-important efficiency curve.

GSE-021022.pdf…