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INSIDE THIS ISSUE 08 20 26 30 Published for the Missouri Independent Bankers Association P.O. Box 1765 Jefferson City, MO 65102 573.636.2751 | miba.net Editor: Matthew S. Ruge Executive Director ©2023 The Missouri Independent Bankers Association | The newsLINK Group, LLC. All rights reserved. The Show-Me Banker Magazine is published six times a year by The newsLINK Group, LLC for The Missouri Independent Bankers Association and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of The Missouri Independent Bankers Association, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The Show-Me Banker Magazine is a collective work, and as such, some articles are submitted by authors who are independent of The Missouri Independent Bankers Association. While The Missouri Independent Bankers Association encourages a first-print policy; in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at 855.747.4003. MADE IN THE USA 06. President’s Message 07. Flourish 08. From the Top 09. A View From The Capitol 10. MIBA Lobbying 10. ICBA Live 2023 11. Directors & Officers Seminar 13. Meet Your Missouri Lobbyist 14. Legal Eagle Spotlight: Beneficial Ownership Rules Update 18. Fixed Rate Or Floating? Hybrid Arms Give An Investor Both Features 20. What Banks Need to Know About CIS Controls 23. News From You 24. VGM Forbin Endorsed by MIBA 26. Navigating the Potential Impact of Recent Regulatory Guidance 28. MIBA Winter Board Meeting 29. 2022/23 MIBA PAC Honor Roll 30. Innovation Station: Top 5 Innovation Trends For 2023 31. Dates and Events 32. Midwinter Seminar in Ixtapa 4 | The Show-Me Banker Magazine
GET THE SHIELDCANNABISBANKINGPLAYBOOK: ShieldBanking.com/cannabis-banking-playbook To ensure the processes, procedures, technology, and trained staff are in place to serve this industry, bankers need to start with a plan. Having a clear understanding of what is required to serve cannabis businesses and minimize risk to the financial institution will help bankers prepare for the upfront costs associated with cannabis banking and develop the policies and procedures needed to hit the ground running. With regulations varying from state to state, it’s a complex industry with high costs, requiring a considerable investment of time and energy. Compliant banking operations require continuous enhanced due diligence to help guard against risks such as: A Robust Illegal Market. According to New Frontier Data, the legal cannabis market in the U.S. is expected to reach $41 billion by 2025. Unfortunately, the illicit market, valued at $65 billion by some estimates, is shrinking at a slower pace. Financial institutions must ensure that funds coming through their doors are from legal channels. Bad Actors. To ensure bad actors are not attaching themselves to good businesses, enhanced due diligence conducted around underlining beneficial owners will continue to be at a heightened level for the foreseeable future. Legacy Cash. Because the cannabis market existed as a cash business long before legalization and because the industry continues to operate largely as a cash business, a strong BSA/AML programwill help ensure that funds coming into the financial institution are from legal cannabis operations. While the added burden and cost associated with serving this industry may limit the total number of participants in the short term, we expect competition from financial institutions to steadily increase as more states launch legal programs and we get closer to federal recognition. Financial institutions that invest in technology to improve efficiencies and lower costs today will be able to scale as the industry grows and have a competitive advantage when the economics of the industry change over time and new banks and credit unions enter the market. Informed by the experiences of pioneering bankers across a growing number of states with legal medical and adult-use programs, the Shield cannabis banking playbook defines a path forward for financial institutions to serve cannabis-related businesses compliantly while benefiting from the financial rewards of this market. The emerging legal cannabis industry brings significant growth potential, alongwith challenging operational demands and complex regulations. But cannabis banking does not have tomean high-risk banking. Build aWinning Cannabis BankingProgram Cannabis banking, simplified. Shield Compliance transforms how financial institutions manage risk, comply with regulations, and address the operational demands of the legal cannabis industry. Compliance management for financial institution daily operations, including case management and automated reporting. Informed account application process for underwriting and onboarding cannabis business accounts. Compliant mobile payment and payroll solutions to reduce cash transaction dependency. See how Shield Compliance is helping financial institutions earn the benefits of a compliant cannabis banking program. info@shieldbanking.com (425) 276-8235 GET IT TODAY GET THE GUIDE TO COMPLIANT CANNABIS BANKING
As I write this article, it is the beginning of the new year, and I hope it brings us so much more than what 2022 brought us. Specifically, it brings us a more favorable position for our securities portfolios. At one point last year, we saw the 10-year U.S. government treasury have the largest drop since 1788 — that made for yet another historic year for our economy. The Federal Reserve, based on its December minutes, is looking to hold tight to its policy of higher rates for longer to fight inflation, which will also have an impact on our securities portfolio values. Held-for-sale bond portfolios for many banks are experiencing crushing losses. The change was dramatic, with the 10-year treasury starting at 1.83% and heading to 3.83% at year-end. I have heard a lot of strategies tossed around depending on the portfolio’s duration and each bank’s liquidity needs. If your bank needs the funds, losses may have to be locked in with the sale of the bonds. Others, who don’t need to sell, may look to add some purchases to take advantage of any possible declines coming later in the year and blend their exposure. A few banks plan on doing nothing and weathering the storm, allowing the bonds to mature. Beyond the concerns of the impact to our balance sheets, there are always regulatory considerations. Thus far, I have not heard of any regulators pushing any prescribed solution. Instead, they have asked us to document and monitor as closely as possible. I hope they continue to be accommodating. I am not a securities expert, and this is a lot of information to process. We are fortunate, as members of the MIBA, to have a lot of great resources we can turn to for advice, such as the vendors working with the MIBA who are always happy to help. If you do not currently work with them, please contact the MIBA offices, and they can let you know who the preferred vendors are for your specific needs. Another resource is our membership. We have all experienced these issues, and we can work them out together. I highly encourage you to attend one of the many extraordinary MIBA meetings. The Directors and Officers Conference later this spring will be an excellent opportunity to discuss our securities portfolios. ■ PRESIDENT’S MESSAGE “We are fortunate, as members of the MIBA, to have a lot of great resources we can turn to for advice, such as the vendors working with the MIBA.” Securities in the NewYear @tmbender Tyler Bender MIBA President Midwest Regional Bank Clayton, MO 6 | The Show-Me Banker Magazine
The beginning of a new year feels like a fresh start, a new chapter in our stories. We have a blank page on which we can write our narrative over the course of the year, with new milestones filling the pages ahead. And with 2023, we have no shortage of adventures awaiting us. Consider industry evolution. I’m amazed at the pace of changes occurring in all areas of financial services, from instant payments to more digital solutions and beyond. This will be a pivotal year for embracing new opportunities and exploring how we can set ourselves up to succeed, even with looming challenges. Think about the uncertainty of the economic environment. It’s a challenge to be sure, but it’s one that community banks have previously faced with strength. Time and time again, you have demonstrated resiliency in the face of difficult financial conditions. In fact, this is when community banks shine, bringing stability to customers simply by being relationship bankers who see them and know them. Looking at it through a different lens, there’s opportunity in this economic climate; it’s a way to double down on your strengths and unique peoplefirst approaches to banking. Yet, amid these external influences, you may be asking, “What actions can we take to ensure we’re identifying the right next step for our bank?” That’s where ICBA can provide support. Whether it’s the information that comes in NewsWatch Today or Independent Banker, convening with other community bankers to discuss strategies at ICBA LIVE or proactive engagement with lawmakers at the Capital Summit, we offer opportunities to not just react but to respond to this dynamic environment with your mission and vision at the center. We have increased our offerings to support you and to further differentiate our industry. For example, we have moved the ThinkTECH Accelerator in-house to ensure year-round innovation programming and to find new fintech partners who are bringing market solutions that respond directly to community bank needs. We’re expanding classes and programs provided by Community Banker University, and as the government relations team prepares to welcome new members of Congress to D.C., they are ready and excited to tell your story and ensure your voices are heard. So, as we enter a new chapter and start a new financial statement cycle, know that ICBA will be there to support you with tools, resources, and advocacy efforts. Together, we will write our 2023 story, one that will set up community banks for success. ■ FLOURISH “Time and time again, you have demonstrated resiliency in the face of difficult financial conditions.” Rebeca Romero Rainey ICBA President & CEO Where I’ll Be This Month I’ll be holding down the fort at ICBA headquarters, helping our government relations team as we welcome new members of Congress and gearing up for ICBA LIVE. March 12–16 Register today at icba.org/live. @romerorainey 2023 Issue 1 | 7
FROM THE TOP Brad Bolton ICBA Chairman “One of our greatest assets is our reputation as relationship bankers. When things get tough, people want to be able to talk to their banker.” @bradmbolton I ’ve always been a glass-half-full guy, and though 2023 is expected to be a challenging economic year, it also will bring opportunity. We simply need to remember what makes us special as community bankers, and with that as our foundation, we can embrace this season of change in four primary ways: 1. Demonstrating the community bank difference. One of our greatest assets is our reputation as relationship bankers. When things get tough, people want to be able to talk to their banker. They want to come into the bank and say, “We need your support to figure things out.” With community bankers by their sides, they have a real connection to someone who can help solve their problems, and we’re able to find creative solutions to work with them in trying times. That’s the community bank difference, and we should be proud to reiterate it throughout the year. 2. Gaining advocacy wins. Community bankers have been proven vocal advocates on numerous issues facing our industry, including pushing to advance a safe harbor for cannabis banking, closing the industrial loan company loophole, opposing an extension of Durbin Amendment restrictions to credit cards and shaping the debate over the regulation of crypto assets. I encourage you to join us and lend your voice to supporting these and other advocacy efforts, which will shape the policy landscape. 3. Embracing innovative offerings. Technology is a top focus because we have to be ready to live where our customers live: on their phones. This climbing emphasis on digital solutions is why ICBA brought all ThinkTECH programming, including the Accelerator, in-house to ensure year-round support for community banks. ThinkTECH companies help us serve our customers better, expand our footprint into a more diverse customer base and create better adoption of services through technology. 4. Uniting with other community bankers. I’m a big proponent of the power of many in advancing community bank goals and objectives. There is nothing more impactful than convening community bankers with a one-mission focus. This year, gathering for ICBA LIVE in Hawaii and bringing our collective forces to Washington in the spring to advocate for our priorities will aid in ensuring community banks continue to flourish. While no one can predict just how the year will go, I know that by staying true to who we are as community bankers, we will come out on top. And that’s why I’m looking forward to all we will collectively accomplish in 2023. ■ My Top 3 Priorities for a Successful 2023 1. Advocacy: Get every employee involved 2. Innovation: Implement new digital solutions 3. Education: Commit to community, bank-focused training for nextgeneration leaders 8 | The Show-Me Banker Magazine
Congressman Blaine Luetkemeyer Missouri’s 3rd Congressional District “What you do for our communities is extremely important and I thank you for your work that keeps businesses, households, and everything in between running.” A VIEW FROM THE CAPITOL A new year and new Congress always bring a fresh start and an opportunity to refocus. Republicans plan to take full advantage of our new majority and get to work on advancing our priorities that have taken a backseat over the last few years while we were in the minority. I’ll have more on that later as we sort out subcommittee assignments on the House Financial Services Committee. My focus as we head into the 118th Congress is our nation’s current economic status and where we go with it as we move forward and address the issues at hand. Over the last two years, we’ve been on an economic rollercoaster with inflation hitting a 40-year high, labor issues, and supply chain problems that have affected every family in America and every corner of our economy. On the surface, it seems like some areas are improving like unemployment numbers that came in at just 3.5% in December. But the underlying existing economic issues point to the recession community bankers have been predicting. As I write this, the Community Bank Sentiment Index found that 96% of community bankers who participated in the survey believe this country is already in a recession. The American Banker reported on a recent poll from the Risk Management Association that found that 84% of lenders polled ranked loan loss as a top concern, second only to cybersecurity with 85%. Community bankers are seeing the writing on the wall, and the effects are beginning to show with the way American consumers are spending their money and handling their finances. A January survey by Vanguard found that many Americans are dipping into their retirement savings early to cope with the economic headwinds households across our country have faced over the last two years. People are also being forced to rely on credit cards more than ever, with 46% of American cardholders carrying a monthly debt over the last year. Life in this country has become increasingly unaffordable, and everyday Americans are risking their financial health and savings just to get by. While there is certainly nothing wrong with accessing and utilizing credit, American families shouldn’t have to be wholly reliant on credit cards and spending their retirement prematurely because of bad government policies. With a possible recession on the horizon, my colleagues and I on the Financial Services Committee know that righting the ship is urgent. Our initial plan is pretty simple. First and foremost, we need to stop spending money we don’t have which has led to this historic inflation. We also need to ensure banking regulators do not put more regulatory burdens on banks, hindering their ability to meet the credit needs of consumers. And we need to make sure the banking regulators don’t alter the bank capital regime to unnecessarily burden banks, sucking much-needed capital out of the economy. With that being said, the House is just one half of the legislature and Democrats are still in charge of the Senate and White House. So we will also be continuing rigorous oversight and ensuring we are governing responsibly. The good news is community banks here in Missouri and across the country are well capitalized to absorb potential losses from credit risk and are acutely aware of the credit risks on your balance sheets to weather the potential storms ahead. As a former banker and in my capacity on the Financial Services Committee, this is very much on my radar. Looking out for the health of the banking industry — the bedrock of the American economy — is vital to the success of our country as a whole. What you do for our communities is extremely important and I thank you for your work that keeps businesses, households, and everything in between running. As we move forward in the year and this new Congress, please don’t hesitate to reach out to me to make us aware of issues on the ground. I cannot tell you how much I value your input and look forward to speaking to you soon. Happy New Year! ■ 2023 Issue 1 | 9
The Missouri General Assembly gaveled into the 2023 legislative session on January 4 amid the usual pomp and circumstance. House and Senate leaders lined out their vision for the session, both the House and Senate leaders calling for a change in the initiative petition process to make it harder for Missouri citizens to amend the constitution or statutory laws. We are currently tracking several bills that would regulate the sale of agricultural land to a foreign entity, would make tampering with an ATM device a specific crime, and would allow credit unions to expand their service areas. MIBA Executive Director Matt Ruge and our firm are working with MBA to express our opposition to the credit union legislation filed by Senator Lincoln Hough (R) from Springfield. We have met with Senator Hough to gauge his level of interest in passing this legislation and we continue to meet with members of the Senate Insurance and Banking committee to express our concerns; the meetings have been positive. Thank you for your continued confidence and for the opportunity to serve your interest with the Missouri state government and the Missouri General Assembly. ■ MIBA LOBBYING Report Andy Arnold Arnold & Associates MARCH 12-16 HAWAII HILTON HAWAIIAN VILLAGE REGISTRATION IS OPEN! ICBA LIVE is your destination for the latest in community bank education and innovation. Network with fellow community bankers, hear from inspiring speakers, and soak up the latest industry insights and fintech solutions. REGISTER TODAY ICBA.ORG/LIVE 10 | The Show-Me Banker Magazine
DIRECTORS & OFFICERS SEMINAR LOCATION LODGE OF FOUR SEASONS Tuesday, April 25th 10:00 a.m. - Golf Outing at Porto Cima 4:00 p.m. - Registration Desk Opens 4:30 p.m. - 6:30 p.m. - Cocktail Reception & Vendor Booth Walk-Around 6:30 p.m. - Dinner Wednesday, April 26th 7:00 a.m. - Breakfast 7:30 a.m. - Noon - Speaker Presentations Noon - 12:45 p.m. - Luncheon Speaker ABOUT SEMINAR SCHEDULE 315 Four Season Drive Lake Ozark, MO 65049 MIBA Room Block is OPEN. Book your room reservations now by going to MIBA's website and clicking on the hotel link. FOR MORE INFORMATION CONTACT Michel le Lawson at mlawson@miba.net Hear f rom a great l ine up of speaker s on r i s ing rates , resolut ions and rece i ver ships cannabi s bank ing, and much more ! SPEAKERS Vi s i t wi th our exhibi tor s on the l ates t in opt ions for your banks needs and want s . EXHIBIT HALL Network wi th peer s and vendor s to hear to di scuss what ' s impor tant to us a l l . . . . communi ty bank ing. NETWORKING For more information and to register visit WWW.MIBA.NET
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What is your background in the financial industry? I work out of the MIBA building in Jefferson City and service several clients including MIBA, utilities, and gaming and other age-controlled industries. What is something unique about your business? We are a family business that has been active in Jefferson City since 1991. I came on board in 2019 after running field teams for various political candidates in and around Dallas, TX, including Pete Sessions (TX-32), Mike Ablon (Dallas Mayoral candidate), and Betsy Price (Former Fort Worth Mayor). What prompted you to continue the family tradition & join the company? I always wanted to come back to Missouri to join the family business and I got the opportunity to do so before the 2020 legislative session. What is the most important thing you’ve learned from this career so far? Transitioning from the campaign side to the lobbying side of the legislative process has given me much-needed context when it comes to interacting with elected officials. What is the biggest challenge in the area of lobbying? The two biggest things that come to mind are managing time and finding a balance between when to act and when to be patient. Also, building relationships with clients and elected officials and knowing the issues that are important to those parties can be very demanding, especially as session goes on and legislation starts to move. Knowing when and how to talk to legislators about client issues is the essence of what makes a good lobbyist. What’s your favorite thing about your business in general? I get to wake up and go to work with my family and friends every day and learn about a variety of issues that are important to Missourians. If you didn’t have a career in lobbying, what other career would you choose? When I chose to come back to the family business, I had turned down an opportunity to manage a congressional campaign on the north side of Dallas. That’s probably where I would be if I weren’t where I am today. ■ MISSOURI LOBBYIST Meet Your Name: Andrew Arnold Title: Lobbyist Company Name: Arnold & Associates “Knowing when and how to talk to legislators about client issues is the essence of what makes a good lobbyist.” 2023 Issue 1 | 13
LEGAL EAGLE SPOTLIGHT Background The Beneficial Ownership Rules (BOR) issued by FinCEN were first proposed as part of the Bank Secrecy Act (BSA). FinCEN’s stated aim was to improve financial transparency and prevent criminals and terrorists frommisusing entities to disguise illegal activities. The BOR became effective July 11, 2016 and made mandatory May 11, 2018. For accounts that were opened before May 11, 2018, those were grandfathered, except for any subsequent change of beneficial ownership. For all accounts, the beneficial ownership is required to be recertified at each new account opening. These rules remained unchanged until the Corporate Transparency Act (CTA) was enacted in 2021. Pursuant to that legislation, FinCEN was tasked with issuing proposed regulations requiring most legal entities to register their Beneficial Ownership Interests (BOI) with FinCEN, and to conform the current BOR to the expanded definitions and scope of BOI. Beneficial Ownership Rules Update Ed Burdzinski Spencer Fane LLP On Dec. 8, 2021, FinCEN issued its proposed regulations under the CTA. After evaluating public comments on the proposed regulations, the Final Rule was announced on Sept. 29, 2022. The Final Rule places the burden on reporting companies, not the financial institutions, to report their BOI to FinCEN. The reporting requirements of the Final Rule take effect Jan. 1, 2024. However, the Final Rule does not dismiss the customer due diligence requirements imposed on financial institutions. Instead, FinCEN also announced that the Final Rule is only one of three rulemakings planned to implement the CTA. FinCEN will also issue rules setting forth who may access BOI, for what purposes and what safeguards will be required to ensure that the information is secured and protected, and will revise FinCEN’s customer due diligence rule to conform with the Final Rule. On Dec. 15, 2022, FinCEN issued a Notice of Proposed Rulemaking (NPRM) concerning “The Final Rule allows for the imposition of civil and criminal penalties for willful violations of the Final Rule.” 14 | The Show-Me Banker Magazine
“It is worthwhile for financial institutions to have a working knowledge of the Final Rule in order to anticipate its effects on customer due diligence and anticipate the yet-to-be-issued regulations conforming the customer due diligence rules to the Final Rule.” BOI access and safeguards. As of this writing, no proposed rulemaking has been published about the conforming rule. It is worthwhile for financial institutions to have a working knowledge of the Final Rule in order to anticipate its effects on customer due diligence and anticipate the yet-to-beissued regulations conforming the customer due diligence rules to the Final Rule. The Final Rule, Proposed Access and Safeguard Rules, and Next Steps The Final Rule describes who must file a BOI report, what information must be reported, and when a report is due. The Final Rule requires reporting companies to file reports with FinCEN that identify two categories of individuals — the beneficial owners of the entity and the company applicants of the entity. Reporting Companies The Final Rule describes two types of reporting companies: foreign and domestic. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. A domestic reporting company is a corporation, limited liability company, or any entity created by the filing of a document with a secretary of state or any similar office. The Final Rule also lists 23 types of entities that are exempt from the definition of reporting company. Those exemptions are primarily designed to avoid duplication of reporting BOI in other forms. Exempt companies include financial institutions, bank holding companies and producers, most publicly traded entities, insurance companies, tax exempt entities, large operating entities (over 20 full-time employees in the U.S., and over $5 million in gross receipts in the aggregate reported on its most recent federal income tax return and has an operating presence and physical office in the U.S.), and inactive entities. FinCEN anticipates that, in addition to LLCs and corporations, reporting companies would include (subject to applicable exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships since these are generally formed by filing with a secretary of state or similar office. FinCEN also has noted that some entities are not involved in filing a formation document with the secretary of state or similar office and therefore would be excluded from the definition of reporting company. For instance, in many states, trusts do not file a formation document. The author anticipates that general partnerships would also be excluded in those states that do not require them to file a formation document. It remains to be seen whether any states would change their filing requirements for such entities, though at this time FinCEN is not requiring that. Beneficial Owners The Final Rule defines a “beneficial owner” as any individual who, directly or indirectly, either exercises substantial control over a reporting company, or owns or controls at least 25% of the ownership interests of a reporting company. The Final Rule defines “substantial control”, in broad language, to capture anyone who is able to make important decisions on behalf of the entity. The Final Rule also provides standards and mechanisms for determining whether an individual owns or controls 25% of the ownership interests. There are also detailed rules for multi-tier entities, including those which may have exempt entities in the chain of ownership. Company Applicants The Final Rule requires the reporting company to identify the company applicant, which is defined to be (1) the individual who directly files the document that creates the entity or, in the case of a foreign reporting company, the document that first registers the reporting company to do business in the United States; and (2) the individual who is primarily responsible for directing or controlling the filing of the formation document by another. For instance, this could be the reporting company’s attorney and that attorney’s paralegal, or the relevant employee(s) of the reporting company. Given that there are millions of entities currently in existence, some of which are over 100 years old or older, FinCEN recognized that it could be overly burdensome or impossible to report the identity of many of those company applicants. Consequently, the Final Rule does not require reporting companies existing or registered at the time of the effective date of the Final Rule (Jan. 1, 2024) to report on their company applicants. BOI Reports The BOI reports will provide four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique ID number and issuing jurisdiction from an acceptable ID document (and the image of that document). For reporting companies formed after the effective date (Jan. 1, 2024), these same four pieces of information and document image are required for company applicants. If any individual provides their four pieces of information directly to FinCEN, they will be given a “FinCEN identifier” which can be provided to FinCEN in a BOI report in lieu of repeating that information again on the report. 2023 Issue 1 | 15
Enforcement The Final Rule allows for the imposition of civil and criminal penalties for willful violations of the Final Rule. The enforcement will be imposed against the person who causes the violation or is a senior officer of the entity at the time of the failure. Timing The effective date of the Final Rule is Jan. 1, 2024. Reporting companies created or registered before Jan. 1, 2024, have one year (until Jan. 1, 2025) to file their initial BOI reports; reporting companies created or registered after Jan. 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. Consequently, we expect the BOI report forms and the reporting system to be in place before the end of this year. Changes in beneficial ownership are to be reported within 30 days of the change. If a BOI is incorrect or inaccurate, the BOI must be corrected within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy. FinCEN is developing the infrastructure to administer the requirements of the Final Rule and safeguard the confidentiality of the information to be reported, including the information technology to be used to store BOI, what FinCEN has called the Beneficial Ownership Secure System, or “BOSS” for short. It will be cloud-based and will meet the highest Federal Information Security Management Act level (FISMA High rating). The target date for the system to begin accepting BOI reports is Jan. 1, 2024. Proposed BOI Access and Safeguards Rules A Notice of Proposed Rulemaking for BOI Access and Safeguards was issued on Dec. 15, 2022. As anticipated, it proposes to allow financial institutions using BOI to facilitate compliance with their customer due diligence requirements to access the BOSS. Others authorized to access the BOSS includes the U.S. Treasury Department; federal, state, local, and tribal government agencies requesting BOI for specific purposes; and foreign law enforcement agencies requesting BOI for specific purposes. The Proposed BOI Access and Safeguards Rules also impose requirements on the recipients of the BOI information, to have standards and procedures for storing the information in a secure system to which only authorized personnel have access and only for authorized purposes. These standards and procedures are subject to audit and include requirements to certify compliance with the CTA and these proposed regulations. For financial institution access, a financial institution must obtain consent from the reporting company for its BOI from the BOSS. The financial institution would then submit identifying information specific to a reporting company and, in return, receive an electronic transcript with that entity’s BOI. Civil and criminal penalties can be imposed against anyone who knowingly discloses or unlawfully uses BOI obtained from a BOI report to, or disclosure of BOI from, FinCEN. Next Steps Scan the QR code to submit written comments on the Proposed Access and Safeguard Rules to FinCEN on or before Feb. 14, 2023. www.federalregister.gov/ documents/2022/12/16/2022-27031/beneficialownership-information-access-and-safeguardsand-use-of-fincen-identifiers-for-entities FinCEN is in the process of developing rulemaking to revise FinCEN’s customer due diligence rule in light of the Final Rule. FinCEN expects to issue the revisions no later than Jan. 1, 2024. FinCEN will be publishing drafts of BOI report forms to be used by reporting companies and will provide a period of time for public comment before finalizing the forms. FinCEN says it will publish the draft forms “well in advance” of the effective date of the Final Rule. FinCEN is also in the process of drafting and issuing compliance and guidance documents to assist reporting companies, including a Small Entity Compliance Guide pursuant to federal statute. Conclusion FinCEN’s Final Rule implementing the reporting of beneficial ownership information of reporting companies is just the first of three rule makings in connection with the Corporate Transparency Act. For financial institutions, the Proposed Access and Safeguard Rules make it clear that they will be given access to BOSS to obtain their customer’s BOI, and it indicates that financial institutions will continue to have customer due diligence requirements, but we await the rulemaking designed to conform our existing Customer Due Diligence processes and procedures to the Final Rule. ■ Spencer Fane attorney Ed Burdzinski can be reached at (713) 212-2670 and eburdzinski@spencerfane.com. 16 | The Show-Me Banker Magazine
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What’s your choice for the term of the decade so far (that is, other than COVID-19)? In the last three years, a number of expressions have come into fashion, some of which have been worn out, used out of context, and deemed to be a blight on our vocabulary by linguists. I’m sorry to say these may be around for a while. Here are a few: • Virtual • Social distancing • Pivot • PPP • Zoom (which I’ve noticed has become a verb as well) • Supply chain • Hybrid Let’s stick with “hybrid” for a few minutes. This has gained popularity in several circles. Hybrid cars, powered by both fuel and electricity, now account for over 5% of new vehicle sales, and all major auto manufacturers are ramping up their capacity. Hybrid education programs, which have both in-person and virtual components, are likely to be with us for some time. And, in the investment world, hybrid bonds can offer an attractive risk/reward profile for community banks. Not a ‘20s Innovation Adjustable-rate mortgages (ARMs) have been around since the 1980s, and portfolio managers have coveted these investments that “wrap” the loans into a liquid security. ARM pools backed by Fannie Mae, Freddie Mac, and Ginnie Mae (GNMA) deliver all the normal benefits of mortgage-backed securities (MBSs) and more. In addition to the monthly cash flow, ARMs also can help control interest rate risk for banks that are exposed to rising rates. 2020 versions of ARMs are, at least initially, hybrids. This means there is a fixed rate period for between three and 10 years, after which the remaining principal will adjust frequently, either semi-annually or annually. The volume of ARMs that are true floaters right out of the box is so small that the agencies have a hard time pooling them. Also, there are periods in which hybrids are not particularly attractive for community banks, due mostly to (no surprise here) the price levels. By Jim Reber, ICBA Securities FIXED RATE OR FLOATING? Hybrid ARMs Give an Investor Both Features 18 | The Show-Me Banker Magazine
first reset date arrives, they’ve saved some interest costs and didn’t expose themselves to higher reset rates. Current Examples Given the profiles and behaviors of the borrowers, the cash flows that hybrids produce are substantial. The loans have fully amortizing 30-year terms, so not a lot of principal is scheduled to amortize initially, but an investor can expect some early activity. Then, as the first reset date approaches, the prepayments speed up even more, sometimes dramatically. Some models predict paydowns of 25% or more annually during the fixed rate window, and even faster in the last few years before the initial reset. For many community banks, fast prepayments are exactly what they want in 2023. Clearly, this was not the case in 2020 and 2021 when banks were drowning in liquidity and interest rates were at record lows. Another piece of good news is that current market prices for these newly-issued hybrids are near par, usually between 100 and 101. This means that significant paydowns won’t have much impact on your yields. Perhaps even better: the inverted yield curve makes the hybrids with the shortest first reset date (weighted average roll, or WAR) the highest yielding, at least until the WAR. For example, a GNMA hybrid with a 36-month roll date, that starts with a full 5% coupon, is currently available at just a slight premium. This significantly out-yields some longer MBS, at least for the next three years. There’s more to the ARMs story that we have time and space for here (e.g., rate caps), but it’s fair to say hybrids are worth a portfolio manager’s look in early 2023. You may decide they’re virtual bargains, and that your security inventory should pivot and take down a supply. ■ I’m pleased to announce that 2023 is a year in which hybrid ARMs are available at market prices that an investor will probably like over the next few years. Borrower Profile Still, the vast majority of new mortgage loans are fixed-rate for the full term, whether 30, 20, 15, or 10 years. Over the last decade or so, only about 6% of new loans are adjustable, and that includes hybrids. So who are these borrowers who are statistical outliers? They really line up into two groups. The first are those who are barely on the cusp of qualifying for conventional (or FHA/VA) financing from a debt-load standpoint. Hybrid ARMs will typically be offered at a lower rate than fixed, as the lender has to incentivize the borrower to accept some interest rate risk. The second group consists of homeowners who expect to be in their homes for a defined, relatively short period of time of 10 years or less. These may be soon-to-be empty nesters, or possibly expect to move for employment reasons. If the borrowers do prepay before the “For many community banks, fast prepayments are exactly what they want in 2023.” ICBA LIVE 2023 ICBA Securities and its exclusive broker Stifel will present several Learning Labs at ICBA LIVE in Honolulu this March. For more information and to register, visit icba.org/live. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixedincome broker-dealer for community banks. 2023 Issue 1 | 19
To protect this data, as well as maintain compliance with strict regulations, banks must have a strong cybersecurity strategy. There must be stronger controls, better knowledge of banking networks, better reaction time to threats, and a better ability to recover from incidents. A great way to achieve these goals is by implementing the CIS Critical Security Controls (CSC). What Is CIS? The Center for Internet Security (CIS) is a nonprofit organization that provides guidance and best practices for improving financial services cybersecurity. CIS is a parent of MS-ISAC, which serves as the information sharing and analysis center for state, local, tribal, and territorial governments. They offer a framework of critical security controls that are effective in protecting against the most common attacks. Why Should Banks Use CIS Controls? These controls are put in place to manage identified risks. They can be physical barriers like locks and walls, electronic barriers like firewalls, or software like antivirus, as well as policies, procedures, and training. Abiding by these controls helps examiners know that you’ve identified your risk for IT incidents and placed appropriate controls in place to manage them. For a better financial services cybersecurity strategy, you need to know how your network works and be aware of any changes that might invalidate the controls you have put in place. By Mike Gilmore, RESULTS Technology WHAT BANKS NEED TO KNOW ABOUT CIS CONTROLS “For a better financial services cybersecurity strategy, you need to know how your network works and be aware of any changes that might invalidate the controls you have put in place.” The Top 7 CIS Controls Here are the top seven controls adopted by the FFIEC for InTREx Exams: 1. Inventory & Control of Enterprise Assets Your bank needs to keep track of what assets you have and where they are located. This is important because it helps you to know what needs to be protected and how best to protect it. It’s important to regularly review or use tools to generate alerts to any asset changes. Be especially aware of the “internet of things” (IoT). Security cameras, thermostats, IP phones, HVAC systems, etc., are often unsecured and can provide a way for attackers to gain access to your network. 2. Inventory & Control of Software Assets This control helps your bank ensure that your assets are properly configured and secure. In many cases, software vulnerabilities are the root cause of attacks because attackers will exploit them to gain access to your network. You can help mitigate these risks by keeping your software up to date, regularly reviewing and removing unauthorized software, and preventing the installation of unauthorized software. 3. Data Leak Protection This control helps you protect your data from unauthorized access and loss. This includes ensuring that sensitive data is encrypted, both at rest and in transit. It is also learning where data is stored and how it travels. In the past few years, a record number of ransomware attacks have hit the banking industry. Banks, both large and small, continue to be prime targets for cybercriminals due to the large amounts of sensitive customer data they hold. 20 | The Show-Me Banker Magazine
4. Secure Configuration of Enterprise Assets & Software It is crucial to implement a solid program for software and operating system patching, to establish written policies for “hardening” new servers, workstations, and network devices, and to regularly review policies to ensure they are enabled on all devices. 5. Account Management For added cybersecurity, ensure that only authorized users have access to your data and systems. This is not just for Windows login – it includes logins to core systems, email, and any hosted or internet-based accounts that potentially house confidential data. It’s also good to establish separate admin accounts for admin tasks. This way, if an attacker does gain access to an admin account, they will not have direct access to data. 6. Access Control Management This control helps your bank manage and monitor user access to data and systems. This includes ensuring only authorized users have access to sensitive data, all access is logged, and privileged users are properly supervised. 7. Continuous Vulnerability Management This control helps you identify and remediate vulnerabilities in your systems and software. This includes patching software and operating systems, using security scanning tools, and conducting regular penetration tests. How to Incorporate CIS Controls To help your bank incorporate these controls, look for an IT company that specializes in IT security and compliance for banks and who is also able to manage and automate many of the tasks associated with each of the CIS controls. More information about the Center for Internet Security can be found at www.cisecurity.org/controls. ■ Mike Gilmore (info@resultstechnology.com) is the Chief Compliance Officer and a Certified Information Systems Auditor (CISA) with more than 30 years experience in the banking industry. In his role as COO, Mike provides compliance and risk assessments, audit, and exam support and policy documentation. 2023 Issue 1 | 21
IT COMPLIANCE & SECURITY FOR COMMUNITY BANKS Watch our video! www.resultstechnology.com/bank-solutions/ Managed IT Cybersecurity Backup & Business Continuity Audit & Exam Support IT Planning & Budgeting Security Awareness Training RESULTS Technology is a family-owned, award-winning provider of managed IT compliance, infrastructure & cybersecurity services for banks. We have been helping banks reduce risks and achieve operational efficiency for more than 20 years. RESULTS Technology | 12022 Blue Valley Parkway, # 524, Overland Park, Kansas 913.928.8300 | info@resultstechnology.com www.resultstechnology
NEWS FromYou MidAmericaBankPromotes Kremer andWolfe toAssistant VicePresident Mid America Bank announced the promotion of Mindy Kremer to AVP, Internal Auditor, and Kelli Wolfe to AVP, Operations Manager. Mindy Kremer has over 10 years of experience in the auditing and financial industry. In her role, Kremer is responsible for the overall internal audit program. She earned a Bachelor of Science in Finance fromMissouri State University and a Master of Business Administration in Accounting fromWilliamWoods University. Kremer is a Central Missouri native and attends Immaculate Conception in Loose Creek with her husband and two daughters. Kremer also serves on the board for the Rape and Abuse Crisis Services. Kelli Wolfe has over 15 years of banking experience in operations and business services. She also owned her own small business for 10 years. In her role, Wolfe is responsible for planning, directing, and coordinating the bank’s deposit operations center. She is a graduate of Chamois High School and earned a Bachelor of Science in Accounting from the University of Colorado. Wolfe and her family currently reside in Loose Creek. Mid America Bank would like to extend its congratulations to Mindy & Kelli on their promotions. ■ KempkerHiredas Chief Financial Officer Matt Sinnett, President/CEO of Midwest Independent Bancshares, Inc. (MIB, Inc.) announced the recent hiring of Vernon Kempker. Kempker has joined the holding company as Senior Vice President/Chief Financial Officer. Kempker leads the finance and accounting team across all organizations and is a member of the Executive Management Team. “Vernon brings over 30 years of financial management experience to this position, including his extensive knowledge of investments. He fits in well with our current management team,” stated Sinnett. He began his professional career in 1992 with a local hospitality resort in Lake Ozark, MO. His well-established career includes many years of finance and accounting experience with large corporations, where he has held a variety of senior financial management roles with concentrations in cost accounting, general ledger, financial services, and compliance. He worked closely with management on strategic initiatives at all levels. Kempker earned two undergraduate degrees from Lincoln University in Jefferson City, Missouri: a Bachelor of Science degree in Accounting and a Bachelor of Science degree in Business Administration. He received a Master of Business Administration degree fromWilliamWoods University in Fulton, Missouri. ■ Community Bankof Pleasant Hill Announces thePromotionof DeanMansur toAssistant VicePresident ChairmanWilliam McDaniel, Vice-Chairman Jack Hopkins, President/CEO Lisa Nichelson, and the Board of Directors are pleased to announce Dean Mansur as Assistant Vice President. Dean begin developing his banking knowledge in 2011 while working as a teller and in the loan area for both Community Bank of Raymore and Community Bank of Pleasant Hill. After graduating from Raymore-Peculiar High School, Dean continued his education at the University of Missouri, graduating in 2018. He then joined Community of Pleasant Hill, where his primary responsibilities are as a consumer and commercial lender while providing additional support in many areas of the bank. Dean continues to expand his banking knowledge by attending the Barrett School of Banking and the MIBA Young Leadership Program. Since joining our staff, Dean has served our community, volunteering his time in several organizations and related committees, such as the Cass County Coalition of Chambers and the Pleasant Hill Chamber of Commerce, where he currently serves as the President. We congratulate Dean on his promotion. ■ 2023 Issue 1 | 23
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