Challenges in the Financial Services Industry:  Legal and Regulatory Developments and the Road Ahead

By Linda Wagner

Financial Services Industry Image

On February 14, 2017, the Financial Women’s Association of San Francisco (FWSF) partnered with The Financial Institutions Committee of the California State Bar Business Law Section and the San Francisco Bank Attorneys Association to host “Challenges in the Financial Services Industry: Legal and Regulatory Developments and the Road Ahead.” A panel of distinguished financial services experts was moderated by Maureen Young, Senior Regulatory Counsel, SVP, Bank of the West and the FWSF Industry Leadership Co-Chair as well as a member of the FWSF Board of Directors. Once again, this event was held at the Federal Reserve Bank (FRB) of San Francisco. The panel included the perspectives from both regulators and banking executives, as well as the legal and consulting communities. The program attracted more than 165 attendees.

William F. Kroener III, Senior Counsel, Sullivan & Cromwell LLP, set the initial context for the event with a discussion of the numerous number of positions that need to be filled in the financial regulatory agencies over the next 18-24 months, including the Federal Supervision Vice Chair, vacancies both current and future at the FRB, Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), etc. The staggered timing suggests some changes may be slow, despite early indications to the contrary.

Participating from the FRB were Avery Belka, Associate General Counsel, and Tim Marder, FinTech Supervisory Analyst. Together, they gave an excellent overview of the OCC’s proposed fintech charter and also entertained questions about the business case for one of these charters. They shared that the Federal Reserve SF is working closely with the fintech community since many of these companies are headquartered in San Francisco. Various fintech companies see the FRB as a resource and the FRB also sees an opportunity to better understand these organizations even though they do not regulate them, as many of their regulated banks are working with or seeking to work with fintech companies.

The regulatory perspective also included a presentation by Clay Coon, Senior Counsel, Office of Supervision Policy (Western Region), CFPB. He reminded the audience of the previously announced CFPB priorities, including consumer reporting, debt collection, student lending, small business and open use credit.

Walter J. Mix III, Managing Director, Financial Services Practice Group Leader, Berkeley Research Group LLC began with “Are we asking the right questions?” How do we look at future risks, not yesterday’s, yet not lose sight of our past mistakes? His presentation covered a wide range of topics including: How to increase credit availability consistent with safety and soundness, trapped capital, financial innovation, potential changes to Dodd-Frank and the potentially significant impact that the senior level appointments for the top regulatory positions may have on the financial services landscape.

Bill Ward, Executive Vice President, Chief BSA/AML and Security Office, First Republic Bank, discussed how the issue of cyber security has escalated beyond the traditional technical IT issue and the threats facing financial institutions from day to day business activities such as e-mail. Studies show that despite training, a significantly high percentage of employees will click on links and attachments that are fraudulent. They will also respond to requests that appear to be coming from legitimate contacts within the organization either requesting data or instructions about sending funds. Customer due diligence, particularly the issue of “ultimate beneficial owner,” is another issue that will require an increasing investment of resources.

The panel concluded with a presentation by John A. Buchman, Director, Legal Counsel, The Charles Schwab Corporation. He addressed a number of topics including the OCC Semiannual Risk Perspective Report, Fall 2016 which was issued January 5, 2017. The report highlighted the key risk issues facing the federal banking system according to the OCC. The OCC’s supervisory guidelines in 2017 will be based on key risks identified (risk-based approach). Strategic risk includes increased competition from other banks and non-traditional competitors such as fintech firms. Banks must innovate (responsibly), yet new products, services and markets may involve unfamiliar risks and require different, new or stronger oversight and controls. Failure to innovate may place banks at a competitive disadvantage. Operational and compliance risk were also discussed, including having adequate change control processes in place.

Overall, the event was thought-provoking and valuable to a wide-range of financial services professionals. The program was also approved for MCLE credit by the State Bar of California.

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