US regulatory developments

Author: | Published: 19 Oct 2018
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Nearly 10 years since the financial crisis and after changes in the US administration and key agency personnel over the past year and a half, the US financial services industry is beginning to experience a degree of regulatory relief by statute, policy, and tone. Notably, the re-evaluation of whether post-crisis reforms might have gone too far, particularly for medium- and small-sized institutions, has gained popularity on a bipartisan basis. Most notably, the bipartisan banking act S. 2155 (the Economic Growth, Regulatory Relief, and Consumer Protection Act or EGRRCPA) was signed into law in May, which marks the most significant change to the Dodd-Frank Act since its enactment in 20101. This Act seeks to provide relief for medium- and small-sized institutions that may not present significant systemic risks, while maintaining the vast majority of enhanced prudential and other standards core to regulatory reform for the largest systemic firms.

The Trump administration's policy priorities for financial services are being disseminated through the US Department of the Treasury's (Treasury) release of "Core Principles"2 reports. The goal of these reports is to provide a roadmap for Congress and federal regulatory agencies in prioritizing reform efforts and taking action. While a majority of the recommendations in these reports do not require Congressional passage, political debate and consensus continues to be important due to the role large banking institutions played in the financial crises.

With the foundation of enhanced prudential standards (EPS) in place, many of the largest banks are actively transitioning to sustainable, cost competitive target states. Industry efforts to integrate post-crisis regulatory "projects" into their business-as-usual operations are also being informed by current state of automation and digitisation technologies, data analytics and in some cases re-engineering processes and organisational model to support the transformation. End goals are typically operational efficiency and reduced costs without compromising compliance, quality and controls.

The regulatory divergence across the global landscape continues to create challenges for the many of the largest financial firms. Most recently, the Federal Reserve Board (FRB) Chairman Jerome H. Powell emphasised the importance of combining efforts to build stronger and more transparent global frameworks and resilient financial system to reduce adverse consequences of external shocks3. However, several "host" countries (including the US) are driving towards stricter measures for foreign banks and less reliance on "home" country regulatory oversight. Global divergence creates significant costs and execution challenges, especially for banks with operations in multiple jurisdictions.

This article summarises key political developments and regulatory dynamics at play in the US and discusses implications for the industry in following areas: capital, resolution planning, liquidity, LIBOR transition, anti-money laundering (AML), fintech and cryptocurrencies, and cybersecurity.


The Treasury Department's first three "Core Principles" reports covered regulations governing capital markets, as well as insured depository institutions and holding companies. As a response to the reports, Congress and federal regulatory agencies have been proposing and implementing several changes to enhanced prudential standards thresholds, stress-testing requirements, Volcker Rule, as well as other key regulatory areas.

The EGRRCPA made significant changes to the Dodd-Frank Act, amending key aspects of the post-crisis regulatory framework. The EPS threshold for US firms was raised from $50 billion to $250 billion and the Dodd-Frank Act Stress Test (DFAST) threshold from $10 billion to $250 billion, thereby exempting small and mid-sized institutions from burdensome requirements aimed at systemically important firms. The US firm EPS threshold is raised in two stages, with firms under $100 billion immediately exempt and firms with $100 to $250 billion in assets exempt in 18 months from enactment, with the ability of FRB to tailor which EPS will still apply to that group. At the same time, Congress added a section to EGRRCPA noting that the FRB is not required to change EPS for FBOs or eliminate the requirement for them to form intermediate holding companies (IHCs) at $50 billion of non-branch assets. Additionally, the FRB has conveyed its intent to no longer subject primarily smaller, less complex banking organisations to certain FRB regulations, consistent with the recent banking law.

The US final rule to establish single-counterparty credit limits (SCCL) for large US bank holding companies (BHCs) and foreign banking organisations (FBOs) were issued in June 2018 following Basel Committee agreement on the subject4. The final rule represents the first instance where the FRB has applied the new thresholds, and will serve as precedent for FRB applications of the threshold.

In May 2018, US regulators jointly issued a proposal to modify the Volcker Rule5. The so-called Volcker Rule 2.0 focuses on a broader scope of risk management rather than transaction intent in establishing proprietary trading criteria. While the simplification of rules benefits small and mid-size institutions, provisions of the Volcker Rule 2.0, along with changes to Recovery and Resolution Planning, create a positive regulatory impetus for larger, systemically significant institutions.


Capital planning and the Comprehensive Capital Analysis and Review (CCAR) continues to be the annual report card for large US banks. The high-profile nature of CCAR, potential market impacts and regulator focus ensures that the capital planning process has C-suite visibility and appropriate resources. The FRB has also made efforts to enhance the transparency surrounding CCAR and stress testing procedures.

The 2018 CCAR results did not raise a quantitative objection for any firm despite three firms falling below minimum capital requirements under stress, and several firms showed deficiencies in areas including internal controls, stress loss forecasting, and trading strategy vulnerabilities6.

The FRB released a proposal to simplify the capital regulatory framework in April 2018. Most notably, the proposal eliminates the CCAR quantitative objection and introduces a "stress capital buffer", which would replace the Basel III generic capital conversion buffer by directly incorporating the FRB's stress test results into the bank's day-to-day capital requirements. The proposal reduces the severity of stress scenarios by allowing scale back of capital buy-backs and dividends under stress, while qualitative reviews will remain.

For larger firms, exams of the qualitative aspects of capital planning and stress testing would continue. As noted earlier, while the EPS threshold for domestic BHCs will rise to $250 billion in assets, the FRB has the authority to tailor requirements such that certain firms could continue to be included in CCAR. As such, the FRB will need to develop tailoring criteria and make decisions for the group of roughly a dozen firms, though notably these are the same firms already excluded from the qualitative aspects of CCAR.

Regulatory feedback from 2018 CCAR cycle identified several areas of enhancement such as loss forecasting, data quality, model risk management and internal audit, and we expect banks to sustain their efforts in these areas. Institutions that have built capabilities in capital planning to meet regulatory expectations are now pivoting to a sustainable and efficient process to align with their business-as-usual operations. Firms are taking a disciplined look at business process improvement and assessing use of automation and robotics to improve controls, reduce manual reconciliation and control processes and lower costs.


There is broad consensus in the industry and regulatory support to moving resolution plan submissions from an annual cycle to once every two years. This is in explicit recognition of the time needed to prepare, review and provide meaningful feedback to the resolution plans.

In their firm-specific feedback for the eight global systemically important banks (G-SIBs) that submitted 2017 resolution plans, the FRB and FDIC concluded that none of the plans were deficient7. This recognises substantial progress by firms on enhancing resolvability in recent years, since five of the eight plans were deemed to have deficiencies by the agencies in the 2016 submission.

For the next set of resolution plan submissions for 2019, the agencies have identified the following areas of focus for G-SIB capabilities: (1) derivatives and trading practices, (2) monitoring and reporting, and (3) payment, clearing and settlement capabilities8. Notably, the proposed guidance reflects a change in expectation as the firms must broadly "maintain" rather than "develop" capabilities, which is consistent with positive feedback on progress, and recognition of transition towards sustainability.

The agencies also provided firm-specific feedback to 19 FBOs based on their last resolution plans submitted in 20159. The feedback letters did not indicate any deficiencies, but included key supervisory expectations on FBOs for their next plans due at the end of 2018. More than half the FBOs qualified to submit reduced plans as long as they maintain total US non-branch assets under $50 billion. In their plans, the FBOs are required to discuss actions taken since 2015 to improve the effectiveness and timeliness of their respective plans.


As one of the foundational pillars of the EPS framework, US regulators continue to push BHCs to making progress through the 2014 Liquidity Coverage Ratio (LCR) rules and associated public disclosures. The relaxation of requirements is also more modest on this topic – firms with consolidated assets under $100 billion no longer have to meet the LCR rules. It is expected that proposed rules for IHCs will be announced in late 2018.

Similarly, Net Stable Funding Ratio (NSFR) is nearing finalisation. The proposed rule for NSFR, which is a long-term liquidity measurement included in the Basel II liquidity standards, has faced strong objections by the industry – which delayed Basel Committee guidance and subsequent jurisdictional rule making.

As the FRB continues to emphasise issues related to the FR 2052a ("Complex Institution Liquidity Monitoring Report"), both BHCs and IHCs must address data quality and infrastructure issues related to these submissions. Addressing these issues is particularly important for the four FBOs in the FRB's Large Institution Supervision Coordinating Committee (LISCC) portfolio, which are subject to generally heightened expectations as well as the Comprehensive Liquidity Analysis and Review (CLAR), an annual horizontal program evaluating liquidity positions and liquidity risk management.


On April 3 2018, the New York Federal Reserve launched a benchmark US rate called the Secured Overnight Financing Rate (SOFR) to potentially replace the US dollar London Interbank Offered Rate (LIBOR), which currently underpins trillions of dollars in financial products. Many of the largest systemic firms are starting to mobilise initiatives around LIBOR transition programs and preparing for impact analysis. As the Financial Conduct Authority has stated that a LIBOR substitute must be in place for banks by the end of 2021, coming up with a timeline and appropriate milestones is on the radar for financial entities.

The transition from LIBOR is expected to be one of the most significant operational transformations within the financial services industry, that is also expected to impact any company with significant financial instruments on their balance sheets. Beyond the scope of LIBOR exposures via instruments directly indexed to the rate, the impact of LIBOR transition will be felt in various key areas, including legal agreements, consumer re-financing, pricing, asset liability management, digitisation of contracts, and trading.


The current administration has placed increased emphasis on enhancing the security and resiliency of government agencies. In the first half of 2018, Congress has also been focusing efforts to craft legislation that targets foreign product and services vendors that pose a cybersecurity risk to government agencies.

Cyber risk is prominently featured in one of the Treasury's "Core Principles" report, which proposes harmonisation of regulatory requirements that are currently enforced by federal and state regulators. The FRB Vice Chairman for Supervision Randal K Quarles stated that the Board is committed to harmonizing cyber risk management standards and regulatory expectations across financial services, while ensuring the alignment to best practices such as the National Institute of Standards and Technology's Cybersecurity Framework10.

The US Securities Exchange Commission (SEC) released the Interpretive Guidance on Public Company Cybersecurity Disclosures in February 2018, which serves as new guidance on cybersecurity policies and procedures for publicly-listed companies. The guidance emphasizes the responsibilities of boards of directors to ensure firms are prepared to respond to cyberattacks that may cause material damage to investors.

Meanwhile, at the state level, New York Department of Financial Services (NYDFS) adopted comprehensive cybersecurity requirements for financial services companies that went into effect in August 2017. In June 2018, California passed a comprehensive Consumer Privacy Act that provides rights to individuals to determine use and sharing of their personal information. A number of other states are in stages of cyber rulemaking as well.


With the Treasury Department's continued emphasis on combatting money laundering and terrorist financing, financial institutions are encountering a more stringent Bank Secrecy Act (BSA) compliance regime. Banks are addressing the increasing cost of compliance through a focus on improving program efficiencies by utilising advanced analytics and leveraging recent advancements in technological innovation.

In May 2018, the Financial Crimes Enforcement Network (FinCEN) implemented a new Beneficial Ownership Rule, requiring more robust Customer Due Diligence in relation to understanding the control and ownership stakes for business customers11. Recognising the challenges of implementing this regulation, FinCEN recently extended the implementation date to August 2018, allowing financial entities to make the necessary adjustments to their know-your-customer (KYC) programs and procedures.

The NYDFS also began enforcement of Rule 504 in April 2018, which requires stronger AML programs for banks and financial institutions. Among its mandatory improvements, banks must utilise a technology platform to validate that their customers and transacting parties are not on the Office of Foreign Asset Control (OFAC) sanctions list. Covered institutions also must submit a certificate guaranteeing their compliance with the Rule 504 to DFS.


Recent interest for the fintech industry has been on ways in which firms can gain better regulatory certainty and powers through partnerships, charters, or bank mergers. Most recently, the Treasury released the final "Core Principles" report that deals with regulating non-bank financial institutions, fintech and innovation12, which was followed by the announcement that the Office of the Comptroller of the Currency (OCC) will start accepting fintech special purpose charter applications13. Although such developments have provided more clarity on potential opportunities for fintech companies to operate more efficiently and with fewer regulatory barriers, it will be incumbent on regulators and the banking and fintech industries to continuously learn-by-doing through a repeated process of implementation and calibration. Throughout the second half of 2018, it is expected that agencies will continue to build more focus and response to the acceleration in fintech innovation and proliferation of digital tokens.

With rapid advancements in blockchain technology, market capitalisation for digital tokens continues to surge. Nonetheless, the applicable regulatory environment remains highly uncertain. In February 2018, the SEC and Commodities Futures Trading Commission (CTFC) jointly stated that the two regulatory agencies are willing to work together to create a framework to regulate the evolving digital token ecosystem14.

The Treasury report on fintech briefly covers cryptocurrencies and distributed ledger technologies, while noting that the Financial Stability Board (FSB) is currently leading an interagency effort to monitor these areas. In addition, the Report mentions that the G20 Communique has addressed cryptocurrencies and acknowledges the potential of these assets to improve efficiency and inclusiveness of the financial system. However, because these assets possess inherent risks in investor protection, market integrity, tax evasion, money laundering, and terrorist financing, the Communique called on the Financial Action Task Force (FATF) to implement standards as they apply to cryptocurrencies and to advance them for global implementation15.


The US financial services industry is experiencing some relief from post-crises wave of regulations. The regulatory burden for smaller and mid-sized institutions has lightened significantly, and larger institutions have seen common sense recalibrations with the foundational elements of enhanced prudential standards largely intact. FBOs are focused on transformation efforts as they make progress towards achieving FRB expectations on CCAR, capital and liquidity. Regulators are actively responding to emerging threats from cybercrime and cryptocurrencies, especially in context of the global payment networks, money laundering and sanction monitoring. Several US states are taking an active role in managing these risks. Regulation of the exploding fintech sector is expected to see continued activity as regulators try to balance the promise of innovation with unforeseen risks, while ensuring a level playing field for all.


The authors would like to thank David Wright, Chris Spoth, John Wagner, Clint Stinger, Vikram Bhat, Nitin Pandey, Prakash Santhana, Alexi Von Keszycki, Yoni Katz, Lauren Cremonni, and Simren Flora for their contributions to this article.

The views expressed herein are those of the author and should not be attributed to Deloitte or its affiliates. This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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About the author

Alok Sinha
Financial services industry leader, Deloitte Risk & Financial Advisory, Deloitte & Touche
San Francisco, California, US
T: +1 415 783 5203

Alok Sinha is the financial services industry leader for Deloitte & Touche and leads Deloitte's Regulatory Capital practice in the US. He has approximately 26 years of experience in the financial services industry, specialising in bank regulatory capital and capital management, credit risk management and banking infrastructure.

Alok and his team assist some of the largest financial institutions with Basel II programs, both in the US and globally. He advises several leading banks on topics such as capital strategy and optimisation, regulatory strategy and credit portfolio management. Alok served on the RMA task force to provide the industry's response to the Basel Committee, and recommend revisions to US regulators. He is a frequent speaker on capital-related topics at industry conferences such as GARP and Knowledge Congress, and has been extensively quoted in industry publications such as American Banker, Risk magazine, Financial Foresights, Operational Risk, etc.

About the author

Marco Kim
Deloitte Center for Regulatory Strategy, Americas
San Francisco, California, US
T: +1 415 463 0090

Marco Kim is a senior consultant at Deloitte who currently leads the Center for Regulatory Strategy’s research and analyses on emerging regulatory policies and legislative issues impacting the financial services industry. Marco has also been involved with consulting engagements in the financial services and technology industries, assisting clients in areas including M&A due diligence, capital management, regulatory strategy, as well as strategic risk. Prior to Deloitte, Marco worked as a consultant at the World Bank Group, where he assisted with the strategy, operations, and development project budgeting for the Equitable Growth, Finance, and Institutions (EFI) global practice group. Marco holds a MA degree in international economics & finance at the Johns Hopkins University, Paul H Nitze School of Advanced International Studies (SAIS) and a BS degree in business administration at the University of Southern California.

  1. S.2155 - Economic Growth, Regulatory Relief, and Consumer Protection Act, senate-bill/2155
  2. US Department of the Treasury, Core Principles Report, https://
  3. Board of Governors of the Federal Reserve System, "Monetary Policy Influences on Global Financial Conditions and International Capital Flows" by Chairman Jerome H. Powell (May 8, 2018), /powell20180508a.htm
  4. Board of Governors of the Federal Reserve System, "Opening Statement on the Single-counterparty Credit Limit Final Rule by Chairman Jerome H. Powell" (June 14, 2018), https://
  5. Board of Governors of the Federal Reserve System, "Federal Reserve Board asks for comment on proposed rule to simplify and tailor compliance requirements relating to the "Volcker rule"" (May 30, 2018), https://
  6. Board of Governors of the Federal Reserve System, "Federal Reserve releases results of Comprehensive Capital Analysis and Review (CCAR)" (June 28, 2018), https://
  7. Board of Governors of the Federal Reserve System, "Agencies announce joint determinations for living wills" (December 19, 2017), https://
  8. Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation, "Agencies seek comment on proposed 2019 resolution plan guidance" (June 29, 2018), https://
  9. Board of Governors of the Federal Reserve System, "Agencies complete assessment of resolution plans of 19 foreign-based banks" (January 29, 2018), https://
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  11. US Department of the Treasury, Financial Crimes Enforcement Network (FinCEN), "FinCEN Reminds Financial Institutions that the CDD Rule Becomes Effective Today" (May 11, 2018), https://
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  14. US Securities and Exchange Commission, "Chairman's Testimony on Virtual Currencies: The Roles of the SEC and CFTC" (February 6, 2018), https://
  15. Financial Action Task Force (FATF), "FATF Report to the G20 Finance Ministers and Central Bank Governors" (March 2018), http://