Blog Series: IDOB’s Regulatory Authority is Reviewed Under New Law
Posted on 08/05/2022 at 01:20 PM by Sierra McConnell
On July 1, the most significant change to the legal landscape for Iowa banks in a generation occurred when new amendments to Iowa Code Chapter 524 became effective. For the next several weeks, Dickinson Law will cover some of the most significant changes and how they affect Iowa banks.
This blog serves as part of a series by our firm that will dive deeper into some of the notable revisions made to the Iowa Banking Act (the “Act”) in the Iowa 2022 legislative session. This series correlates with the Iowa Division of Banking’s (“IDOB”) letter sent to interested parties highlighting some of the key changes.
REGULATION BY THE IDOB
The IDOB’s authority to regulate and examine banks and bank service providers was reviewed and subsequently modernized under the revised Act.
The previous Act limited state banks’ ability to enter into contracts only if the other person or entity would be subject to supervision, regulation, and examination by the Superintendent to the same extent as if such services were being performed by the state bank itself on its own premises. As the parameters of this rule were somewhat confusing, the new Act clarifies the types of service providers that are subject to IDOB oversight. The Act states that whenever a state bank, or any subsidiary or affiliate of a state bank that is subject to examination by the IDOB enters into a contract for a “covered service,” then such service is subject to regulation and examination by the Superintendent. These covered services include any of the following:
(1) data processing services;
(2) activities that support financial services, including lending funds transfer, payment processing, fiduciary activities, trading activities, and deposit taking;
(3) internet-related services, including web services and electronic bill payments, mobile applications, system and software development and maintenance, and security monitoring; and
(4) activities related to the business of banking.
The legislation also gives the Superintendent express authority to accept examinations of these service providers conducted by other state or federal financial regulatory agencies.
On the other end of the IDOB’s regulatory authority, the Act updated and streamlined the process for when the Superintendent closes a bank. The previous process required the Superintendent to first take over the management of the bank and continue managing the property and business of the state bank until the Superintendent determined the bank should be returned to the previous management or that the bank should be dissolved. Now, the Superintendent can immediately, without prior notice or hearing, order a state bank to cease doing business and appoint the FDIC as receiver in the case. The bill retains the Superintendent’s ability to supervise a state bank by inserting a new section that clarifies when the Superintendent has this authority and when the Superintendent can safely transition management back to the former or new management. According to the IDOB, this new section provides a backstop for situations where an otherwise sound bank encounters temporary management troubles or vacancies and the Superintendent can be there to provide a useful bridge while the bank navigates the transition and returns to stability.
Overall, these revisions are intended to modernize the Iowa Banking Act and will hopefully provide clarity for both bankers and regulators alike.
The next installment in our blog series will address how administration of the IDOB will change moving forward.
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