Summer often brings to mind lazy days, time spent at the beach or lake, and generally enjoying nice weather. For those in the banking industry, summer 2015 may as well be renamed the “Summer of Dodd- Frank”. There are several key dates coming up this summer for both U.S. banks and Foreign Banking Organizations with focus areas ranging from Volcker Rule compliance to Truth-in-Lending disclosures.
Summary of Key Dates
July 1st: All Foreign Banking Organizations (“FBOs”) must designate an Intermediate Holding Company (“IHC”) to house their U.S.-based subsidiaries. This IHC designation date sets in motion a yearlong period ending on July 16th, 2016, when each FBO will have formed U.S. IHC’s which all U.S. Bank Holding Companies (“BHC”), U.S. Insured Depository Institutions (“IDI”), subsidiaries and 90% of all non-BHC U.S. assets.
July 21st: Marks the end of the Volcker Rule runway. Perhaps the most well-known of the Dodd Frank rules, BHC’s are required to fully conform their investments, relationships, and activities with the Volcker rules’ restrictions as of July 21.
August 1st: The effective date of the integrated mortgage lending disclosure rule under the Truth-in-Lending Act (“Reg Z”) and the Real Estate Settlement Procedures Act (“Reg X”). These rules were issued by the Consumer Fiinancial Protection Bureau (“CFPB”) and will require mortgage lenders to use two new disclosure forms – a “Loan Estimate” and “Closing Disclosure” forms.
What Does it All Mean?
For FBOs, the first step is to designate an IHC. Once an IHC has been identified, all U.S. BHC’s and IDI subsidiaries must be consolidated into the designated IHC, along with 90% of all of the Foreign Banking Organization’s non-BHC U.S. assets. This effort will require coordination across all portions of the FBO to identify all impacted areas, effectively plan and communicate impacts to stakeholders, and finally consolidate all applicable operations into the designated IHC prior to July 2016.
Specific to the Loan Estimate and the Closing Disclosure, the CFPB was directed to integrate the mortgage loan disclosures under TILA and RESPA Sections 4 and 5. The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate. Similar to the original forms, the new Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan. The HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.
What Can We Do to Prepare?
Given the changes this summer across so many different areas, how can you ensure you they are prepared for each change and ready to manage the impact to your business? Here are a few things to consider:
First, do you have an implementation plan? An implementation plan does not have to be a huge undertaking, but should take into account a few key items. To begin – who in your organization has an interest in the project? These people are your stakeholders and should have input into the plan. Most companies include representatives from Finance, Internal Audit or Chief Risk Officer’s organization), Legal, and Information Technology.
An implementation plan should also take into account processes that need to change due to the new rules. A good way to determine what changes will be necessary is to undergo a gap analysis, which should be focused on the new rules and the business, operational, and technology changes that will be required to comply with the new regulations. A gap analysis should result in project prioritization, or a “critical path” of items that must be completed to ensure compliance.
Critical path items are “must-haves” and should take precedence over process enhancements, which are beneficial, but not necessary for compliance. Finally – taking both stakeholder needs and gap analysis results into account, determine if the implementation plan will meet the required due date. If the answer is no, determine how the plan can be prioritized to complete all critical path items first.
Second, how is progress monitored? It is important to identify who will be responsible for reviewing progress to date and keeping all stakeholders apprised of progress and potential roadblocks. Creating a basic communication plan will ensure that project status is widely communicated and that all roadblocks are appropriately identified, prioritized, and resolved.
Stakeholder communication and status reporting are widely overlooked throughout the project planning process, and an ounce of prevention here is worth several pounds of cure where missed deadlines and abrupt course corrections are concerned. Understanding the implications of these new regulations and setting a timeline early will help ensure that you get some worry-free days at the beach this summer!