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The Federal Reserve Board has reported it has issued an Order of Prohibition barring Shan Hanes, former chief executive officer of Heartland Tri-State Bank, Elkhart, Kansas, for using his position to embezzle $47.1 million of bank funds in a cryptocurrency scheme that led to the bank becoming insolvent and failing in 2023.

The Federal Reserve Board has announced it has issued cease and desist orders against:

• Small Business Bank, Lenexa, Kansas, for deficiencies in various areas, including the bank's operations and risk management practices, and compliance with the Bank Secrecy Act and related rules and regulations
• Industry Bancshares, Inc., Industry, Texas (jointly issued with the Texas Department of Banking), which owns and controls Bank of Brenham, National Association, Brenham, Texas; The First National Bank of Shiner, Shiner, Texas; The First National Bank of Bellville, Bellville, Texas; Industry State Bank, Industry, Texas; Fayetteville Bank, Fayetteville, Texas; and Citizens State Bank, Buffalo, Texas, for deficiencies with respect to the operations of Bancshares, including with respect to its ability to serve as a source of strength to those banks

The CFPB this morning announced it is has finalized a rule to supervise the largest nonbank companies offering digital funds transfer and payment wallet apps. The rule will help the CFPB to ensure that these companies – specifically those handling more than 50 million transactions per year – follow federal law just like large banks, credit unions, and other financial institutions already supervised by the CFPB. The CFPB estimates that the most widely used apps covered by the rule collectively process over 13 billion consumer payment transactions annually.

The final rule will enable to the CFPB to supervise companies in key areas including:

• Privacy and Surveillance: Large technology companies are collecting vast quantities of data about an individual’s transactions. Federal law allows consumers to opt-out of certain data collection and sharing practices, and also prohibits misrepresentations about data protection practices.
• Errors and Fraud: Under longstanding federal law, consumers have the right to dispute transactions that are incorrect or fraudulent, and financial institutions must take steps to look into them. The CFPB is particularly concerned about how digital payment apps can be used to defraud older adults and active duty servicemembers. Some popular payment apps appear to design their systems to shift disputes to banks, credit unions, and credit card companies, rather than managing them on their own.
• Debanking: Given the volume of payments consumers make through many popular payment apps, consumers can face serious harms when they lose access to their app without notice or when their ability to make or receive payments is disrupted. Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes.

While the CFPB has always had enforcement authority over these companies, today's rule gives the CFPB the authority to conduct proactive examinations to ensure companies are complying with the law in these and other areas.

In the final rule, the CFPB made several significant changes from its initial proposal. The transaction threshold determining which companies require supervision is now substantially higher, at 50 million annual transactions. Given the evolving market for digital currencies, the CFPB also limited the rule's scope to count only transactions conducted in U.S. dollars. The rule, which amends 12 C.F.R. part 1090, will be effective 30 days after publication in the Federal Register.

The FDIC has made its November 2024 updates to its Risk Management Manual of Examination Policies (RMS Manual). The Manual provides FDIC examiners information relating to examination activities and supervisory practices. The FDIC conducts examinations at financial institutions to ensure public confidence in the banking system and to protect the Deposit Insurance Fund. The Manual promotes consistency in examination activities, which center on evaluating an institution’s capital, assets, management, earnings, liquidity, sensitivity to market risk, and adherence to laws and regulations.

This month's updates are found in Section 22.1 — Examination Documentation Modules. The FDIC has added 25 Reference ED Modules to this section.

OFAC has issued a Penalty Notice imposing a $1,104,408 penalty on a natural U.S. person for 75 violations of OFAC sanctions on Iran valued at approximately $561,802.

Between 2019 and 2022, the individual executed a plan to purchase, renovate, and operate a hotel in Iran. In furtherance of this scheme, this individual used foreign money services businesses in Iran and Canada to evade U.S. sanctions, while aware at all times of U.S. sanctions on Iran. The penalty amount reflects OFAC’s determination that the violations were egregious and were not voluntarily self-disclosed.

Yesterday, the Treasury Department reported that OFAC sanctioned a network of nine Mexican nationals involved in fentanyl, heroin, and other deadly drug trafficking and money laundering. Individuals designated in this network also engage in human smuggling in furtherance of their drug trafficking activities. Additionally, as members of the Cartel Jalisco Nueva Generacion (CJNG), some of the individuals sanctioned today played a prominent role in the early stages of the U.S. opioid crisis, a leading factor driving the United States’ modern fentanyl crisis. CJNG is a violent Mexico-based drug trafficking organization responsible for a significant proportion of fentanyl and other deadly drugs trafficked into the United States.

Treasury also reported that OFAC designated six senior Hamas officials, including the terrorist group’s representatives abroad, a senior member of the Hamas military wing, the Izz Al-Din Al-Qassam Brigades, as well as individuals involved in supporting the terrorist group’s fundraising efforts and weapons smuggling into Gaza.

For the names and identification information of the designated individuals, see yesterday's BankersOnline OFAC Update.

The Federal Reserve Board has published in the today's Federal Register amendments to Regulations A (Extensions of Credit by Federal Reserve Banks) and D (Reserve Requirements of Depository Institutions) following its votes of last week to reduce interest rates by one-quarter of one percent (25 basis points). Each of these amendments is effective on publication, with applicability as of November 8, 2024.

The Board also published amendments to Regulation D this morning to reflect the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2025. The annual indexation of these amounts is required notwithstanding the Board’s action in March 2020 of setting all reserve requirement ratios to zero. The Board is amending Regulation D to set the reserve requirement exemption amount at $37.8 million (increased from $36.1 million in 2024) and the amount of the low reserve tranche at $645.8 million (increased from $644.0 million in 2024). These changes become effective on January 1, 2025.

Each of the amendments has been posted to the BankersOnline Regulations pages.

CFPB Director Rohit Chopra, who is a member of the FDIC's Board of Directors, issued a statement yesterday asserting that "big businesses putting their money in big banks enjoy free deposit insurance, and small businesses putting their money in small banks don’t." Chopra said this is fundamentally unfair, and "gives an unfair competitive advantage to the largest banks in the country."

Copra said, "It is time for Congress to remove — or at least dramatically increase — limits on federal deposit insurance for payroll and other non-interest bearing operating accounts."

The FDIC has issued FIL-81-2024 and a press release to announce an extension of the comment period for the proposed rule on Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors from December 2, 2024, to January 16, 2025.

Publication update: Published at 89 FR 91586 on 11/20/2024.

Yesterday, the Treasury Department reported that OFAC was sanctioning Amana the Settlement Movement of Gush Emunim Central Cooperative Association Ltd (Amana), a settlement development organization that is involved with U.S.-sanctioned individuals and outposts that perpetrate violence in the West Bank, and its subsidiary Binyanei Bar Amana Ltd. Concurrently, the Department of State was designating three individuals and one entity.

For the names and identification information of the designated individuals and entities, see yesterday's BankersOnline OFAC Update.