Regulatory Roundup: August 2024

Regulatory Round-Up – Week of August 19, 2024

Here’s the regulatory compliance headlines that could impact your organization.

Artificial Intelligence

No Exceptions! CFPB Outlines Strict Approach to AI Regulation in Financial Services

• The CFPB emphasized that existing consumer protection laws apply to all financial technologies, including AI, without exceptions. In a letter to Treasury Secretary Janet Yellen, the agency underscored its commitment to ensuring innovation in financial services does not compromise consumer protection or fair competition. The CFPB’s approach signals a shift from encouraging innovation through regulatory “sandboxes” to enforcing a level playing field for all market participants.

New AI Actions: White House Announcement; NIST, NTIA Guidance

• In Fall 2023, the White House issued an Executive Order requiring various federal agencies to develop AI policy guidance and frameworks for both public and private sectors. After the 270-day deadline, the White House confirmed that all required actions were completed and reported. The KPMG Regulatory Alert Advisory highlights these actions, particularly those by the National Institute of Standards and Technology (NIST) and the National Telecommunications and Information Administration (NTIA), both within the Department of Commerce.

Banking

Bank Guidance Alert – “Updating their Living Wills?”

• Large federal and state-chartered banks, including bank holding companies and certain foreign banks with U.S. operations, must draft and periodically update “resolution plans” (or “living wills”) detailing how they would wind down operations in case of failure. In 2023, the Federal Reserve and FDIC identified issues in some banks’ plans, leading to updated guidelines for “domestic triennial full filers,” specifically Category II and III banks. These banks now have an extended filing deadline from March 31, 2025, to October 1, 2025, under the new guidelines.

Fannie, Freddie Poised to Tighten Real-Estate Lending Rules

• The Federal Housing Finance Agency (FHFA) oversees Fannie Mae and Freddie Mac, which guarantee a large portion of U.S. mortgage loans. While guidelines for single-family mortgages are codified, regulatory compliance for multi-family mortgages were informal. With Fannie and Freddie now guaranteeing 40% of the $2.2 trillion in multifamily mortgage debt, the FHFA issued a new regulation (12 CFR 1293) to formalize oversight. This rule took effect on July 15, 2024, with a delayed compliance date of February 15, 2026, for certain reporting obligations.

Reg Change Alerts

The Dormant Assets Scheme – UK’s  Approach to Unclaimed Property

• The Dormant Asset Scheme (DAS) in the UK allows financial firms to transfer dormant funds to the Reclaim Fund Limited, which supports good causes. The Dormant Assets Act 2022 expanded the scheme to include assets from investment firms and others holding client money. The FCA has now issued final rules implementing this act, effective August 2, 2024. These rules are outlined in Policy Statement PS24/10, which provides explanatory text and updates to the FCA Handbook, covering both regulatory compliance rules and guidance.

Proposed Regulations under Financial Data Transparency Act (FDTA)

• On August 2, 2024, U.S. financial regulators proposed a rule, mandated by the Financial Data Transparency Act (FDTA) of 2023, to standardize data exchange and interoperability across agencies. This proposal includes the requirement for firms to use Legal Entity Identifiers (LEIs), conforming to the ISO 17442-1:2020 standard, for submitting data. The rule must be finalized by December 23, 2024. Public comments on the proposal are due 60 days after its publication in the Federal Register.